As a collection of spending and expenditure initiatives, a Budget needs a coordinating ‘theme’ or narrative.
If there is a theme to Josh Frydenberg’s 2022-23 Federal Budget, it is resilience and security.
The Treasurer marveled at the resilience of the Australian economy and the pace of the economic rebound from a COVID-induced recession of 2020.
Australia’s economy has grown faster than any of its peers. Nominal GDP will increase this year by 10 ¾ per cent, around double the usual rate, fueled in large part by a boom in the prices we receive for our coal, iron ore, metals and agricultural exports. Australia’s Terms of Trade is higher now than during both the mining boom of the early 2000s and even the wool boom of the 1950s.
Economic resilience throughout the pandemic combined with the high commodity prices has delivered a sizeable Budget dividend. Since the Mid-Year Economic and Fiscal Outlook was released, only in December, the Budget’s underlying cash balance (over the five years to 2025-26) has improved by $103.6 billion. This means government debt will now peak lower, at 44.9 per cent of GDP, and earlier, in 2025, than previously forecast. For every six months commodity prices stay at current ‘elevated’ levels, the Budget position improves by nearly $30 billion.
The economy has been producing jobs at a record clip. Unemployment is now expected to dip below 4 per cent later this calendar year, the lowest rate in nearly half a century. Low unemployment is undoubtedly good news, but skills and labour force capability gaps are likely to be continuing challenges for businesses — and could be a drag on our capacity to deliver on the infrastructure initiatives flagged in the Budget.
Meanwhile, despite record-low unemployment, low wages growth and emerging inflationary pressures (including for key household expenditures like fuel) are creating cost of living challenges for many households.
Resilience and security featured in many of the Budget’s headline expenditure initiatives, acknowledging the continuing impacts of the COVID-19 pandemic, natural disasters, and the global challenge of climate change, while also clearly being part of the Government’s strategy for the upcoming Federal election.
With the backdrop of Russia’s invasion of Ukraine, and geopolitical tensions even closer to our region, the Budget’s emphasis on national security was both unsurprising and unprecedented in scale. A $270 billion investment in defence capability, including a $9.9 billion investment in Australia’s cyber security capabilities, will be delivered over the next decade.
Supply chain resilience was found wanting during the pandemic. The Government’s response includes a range of initiatives to address vulnerabilities in supply chains and improve Australia’s self-reliance. Encouraging local manufacturing is a particular focus, including domestic vaccine manufacture.
In infrastructure, ‘enhancing drought resilience’ has a Budget price tag of $7.4 billion for new and expanded dam projects, and increasing water security.
And our communities, still recovering from recent floods and bushfires, will receive financial assistance for both immediate disaster response, and adaptation and disaster preparedness. More than $6 billion is to be directed in support to affected individuals, families, businesses and communities in disaster support and other payments.
The Budget also places some important markers in sectors where Australia needs to succeed in the future — in critical minerals, in advanced manufacturing, and in digital adoption by businesses and cyber preparedness.
Delivering on these aspirations will require sustained commitment, over multiple Budgets, whilst continuing to deliver on a strategy to return the Budget to balance (or better) over the medium term. Resilience is a long game.
PwC's Federal Budget 2022-23 Insights at a glance
A budget for the times focused on cost of living pressures, economic resilience and national security
$78bn deficit (3.4% of GDP) predicted for 2022-23
3.75% projected unemployment rate by the September quarter of 2022, a 50-year low
$1.1tn in Gross debt (44.9% of GDP) expected to peak by 2025
4.25% peak of inflation this year before moving to 3% in 2022-23 and 2.75% in 2023-24
10.5% growth in nominal GDP this year, before flatlining to 0.5% next year
Cost of living measures
Fuel excise halved for the next six month
One-off $420 cost of living tax offset, increasing the LMITO from $1,080 to up to $1,500 for 10 million Australians
$250 one-off payment to to six million Australian pensioners, carers, veterans, job seekers, eligible self-funded retirees and concession card holders
Reduction of PBS Safety Net thresholds to give 2.4 million Australians access to cheaper medicines
Defence and global influence
more than
$270bn10-year defence capability plan bringing the total funding to 2029-30 to $575bn
Multibillion dollar investments to underpin the AUKUS agreement, including:
to increase the Australian Defence Force to nearly 80,000 personnel and a total Defence workforce of more than 100,000 by 2040
$800mto strengthen Australian leadership in Antarctica
investment in Australia’s offensive and defensive cyber and intelligence capabilities over the next 10 years
Doubling the size of the Australian Signals Directorate creating 1,900 more data analysts, computer programmers, and software engineers to boost our capacity to prevent and respond to cyber threats.
Environmental
Additional
$1bnover 9 years to strengthen Australia’s stewardship and leadership in the protection of the Great Barrier Reef
An additional
$60.4minto the Recycling Modernisation Fund
to expand the Indigenous Rangers Program with more than 1,000 new rangers to undertake land and sea management.
A new patent box for the agriculture and low-emissions technology sectors
“
With a Federal Election on the horizon and an economy roaring back to life, the Federal Budget walks a tightrope between providing stimulus to households
struggling with cost-of-living pressures, while at the same time protecting Australia's fiscal position.”
Jeremy Thorpe
Chief Economist, PwC Australia
Supply chain sovereignty
Critical minerals strategy refresh $200mCritical Minerals Accelerator Initiative with grants focused on fast tracking strategically significant critical minerals projects
$51mto establish a virtual Critical Minerals Research and Development Centre
Funding to make Victoria the first location
in the southern hemisphere to manufacture mRNA vaccines
$2bnto establish the Regional Accelerator Program to invest in skills, education infrastructure, export market development and supply chain resilience
Addressing Australia’s skills shortage
$365mto help an extra 35,000 apprentices and trainees get into a job
$2.8bnto increase apprenticeship take up and completion rates through $5,000 payments to new apprentices and $15,000 in wage subsidies for employers who take them on
$3.7bnfor national skills reform to support an additional 800,000 training places
$120 tax deduction for small businesses for every $100 they spend on training their employees
Infrastructure
10 year
$120bninfrastructure pipeline
$17.9bn in additional funding to maintain momentum on infrastructure nationwide, including:
Key projects to benefit from additional federal funding, including:
Health and aged care
An additional
$4.7bn$215m over 2 years to provide one-off payments of $800 to aged care workers
Trodelvy, used to treat a rare form of breast cancer, added to the PBS
More Headspace services, community-based treatment centres and digital mental health support
$346m to embed pharmacy services within residential aged care facilities to improve medication management for the elderly
$58m in funding to improve endometriosis diagnosis and primary care support, helping more women to find appropriate care and better manage the impact of endometriosis
Housing
500additional places in the Home Guarantee Scheme
Additional
$2bnthrough the National Housing Finance and Investment Corporation
Women’s safety and security
$1.3bnto support the National Plan to End Violence against Women and Children 2022-32
Expansion of paid parental leave to support greater access for more Australians, including single parents
Digital economy
$480mto improve NBN infrastructure in regional, rural and remote areas
$1.3bntelecommunications package over 6 years to expand mobile coverage across 8,000km of regional transport routes
A stronger-than-expected Australian economy has underpinned the Federal Budget’s short-term measures to support the cost of living, as well as huge long-term commitments to defence, cybersecurity and regional infrastructure, according to PwC’s Chief Economist Jeremy Thorpe.
Australia’s cybersecurity capabilities have been significantly boosted in this year’s Federal Budget, however there’s a critical shortage of skilled talent to support the new measures, according to PwC Cybersecurity & Digital Trust Partner, Pip Wyrdeman.
How will the Federal Budget help businesses to improve their cash flow and invest in innovation? PwC Tax Partner, Trinh Hua, summarises the key tax measures from this year’s Federal Budget.
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