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October Budget rides on collective confidence

  • 24 September 2020
The latest National Accounts figures show that Australia is officially in recession, with a massive 7 per cent decline in GDP for the June quarter. While not exactly surprising, it has the Morrison Government rightly concerned.

The havoc COVID-19 has wreaked on our economy has been less damaging than for some other countries. While international comparisons may help us feel better about our circumstances, the reality is that Australia’s economy is in trouble and will need more than economic first aid through measures like JobKeeper to get us back on track to recovery.

Australia’s average annual GDP growth has been in the range of 2 to 3 per cent over the last decade. This could be described, at best, as modest. COVID-19 has delivered Australia an annual GDP rate for the financial year just ended of minus 6.3 per cent.

The magnitude is there for all to see. We had a lacklustre economy before COVID-19; now we have one that is in real trouble.  

The upcoming Commonwealth Budget will be an opportunity for the Government to lay out its agenda for Australia’s economic recovery. Business lobbyists are working hard to convince the Government they have the answer to Australia’s stalled economy. Unsurprisingly, tax cuts are high on their priority list.

The Australian Chamber of Commerce argues that the October Budget should include bringing forward the personal income tax cuts already legislated and boosting business investment by making permanent the instant asset write-off and accelerated depreciation deduction. It, like the Business Council of Australia, has also called for the Government to move on tax reform and deregulation as a means to lift our economy and create jobs.

'For wage and salary-earners, confidence is knowing that if you lose your job you can find another and, when you are in between jobs, the welfare payments you receive are sufficient to meet your needs.'

Australia is in desperate need of tax reform, but that is not the same as delivering tax cuts that the business lobby is promoting. Indeed, delivering tax cuts may do very little in stimulating the economy as long as COVID-19 restrictions remain in place.

In the latest National Accounts, the household saving-to-income ratio rose from 6 per cent to 19.8 per cent — the highest since 1974. This was driven by the fall in consumption expenditure. The ABS also noted that gross disposable income rose 2.2 per cent, driven by an historic 41.6 per cent increase in