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Federal Budget 2021-22: A Balancing Act?

MAY 2021


Despite the better than expected deficit and an apparent focus on women, the Federal Budget for 2021-22 is something of a balancing act between long-term debt and the need to invest.

The 2021-22 Federal Budget is a balancing act between a better than anticipated deficit ($106 bn), an impending election, and the need to invest in the long term.

It is also a human budget (cynics would say voter focussed), with $17.7 billion dedicated to aged care, more money in the pockets of low income earners, the COVID vaccine rollout, $2 billion for mental health, a women's economic package including a child care subsidy increase and funding to prevent violence, and a Royal Commission into defence and veteran suicide. With a strong focus on helping SMEs and start-ups in the Budget, there are many voices saying it has missed real opportunities to ramp up entrepreneurship or support female-led businesses.

Optimistic assumptions around revenue and a cautious approach to re-opening Australia's borders mean that there are still concerns about whether the budget will be able to support the Australian economy as it recovers from the impacts of COVID.

Here are the highlights of what is surely something of a balancing act budget.

What are the Budget's key initiatives?

  • Extension of temporary full expensing and loss-carry back providing immediate deductions for business investment in capital assets
  • Introduction of a 'patent box' offering tax concessions on income derived from medical and biotech patents
  • Tax and investment incentives for the digital economy
  • Extension of the low and middle income tax offset
  • Child care subsidy increase for families with multiple children
  • $17.7 billion over 5 years to reform aged care
  • $2.3 billion on mental health infrastructure and programs
  • New and extended home ownership programs for first home owners and single parents

A rising tide to lift all boats?

While the Government did some heavy lifting in the early months of the COVID crisis, it's pointing to the private sector to do their share to support a sustained recovery, despite the significant spend that is in this budget.

There will be a lot of money flowing through to the private sector to those that are capable of developing new technologies. Momentum and drive to develop new initiatives is a strong theme and in some circumstances the Government will offset the risk of those initiatives – if you are in the right sectors.

The $1.2 billion digital economy strategy seeks to rewrite Australia's underlying infrastructure and incentivise business to boldly develop towards a digital future. The program is broad - from upskilling the workforce, the expansion of consumer digital rights, the development of SME digitisation, Government service delivery, to cybersecurity.

Beyond digital, co-funding and seed capital is available to those developing new technologies that reduce emissions, and grow new export markets and jobs in this sector.

Productivity is a key take-out with several measures targeted at encouraging industry to innovate and develop including the extension of full expensing and the loss carry back measures.

Regulatory relaxation for foreign workers, investors, and employee share schemes to support skill deficits

Prior to Budget Night, the Government flagged a number of changes to regulatory and tax requirements, signalling that it recognises certain skill shortages and residency issues resulting from closed borders.

Examples include changing to a so-called 'brightline' test to for taxpayers who spend more than 183 days in Australia (with the secondary residency tests still in play) as a measure to reduce the cost of compliance; the removal of the active member test and relaxation of central management and control test safe harbour for SMSFs; and changes to employee share schemes where a cessation of employment is a taxing point.

No doubt there is considerable detail to be unveiled about the changes and how they impact tax planning as these measures are yet to pass Parliament.

More information

We've compiled the key points from Budget 2021/22 for your review, but as always if we can be of assistance, please contact your accountant on 02 9957 4033 for guidance on how these measures impact you, your family, and your business.

Below are further details on specific measures:


 

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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