The Federal Government has unveiled the 2021-22 Budget, revealing new policies that are expected to have a major impact across key Australian industries. Notably, the Budget has shifted away from returning to surplus, which was the focus in 2018-19. Spending is expected to increase considerably to support Australia’s ongoing recovery from the COVID-19 pandemic, with a focus on driving unemployment below 5% and spurring inflation to 2-3%.
Australia’s economic strength has improved notably since the December 2020 mid-year economic financial update, as COVID-19 restrictions have been wound back. In addition, a record surge in iron ore prices to above $US200 per tonne has further improved the Federal Government’s tax revenue. Over the nine months to the end of March 2021, the deficit was $133.3 billion, representing an 18.1% improvement relative to the $162.7 billion deficit that was forecast in December 2020.
The assumptions underpinning the Budget forecasts are also revealing. According to the Federal Government, real GDP is forecast to grow by 1.25% in 2020-21, by 4.25% in 2021-22 and 2.5% in 2022-23. Unemployment is expected to fall below the 5% threshold by late 2022. The Federal Government does not expect international borders to reopen until well into 2022.
Net debt is expected to peak at 40.9% of GDP in 2024-25. While gross debt has increased significantly since the onset of the pandemic, the cost of servicing that debt is lower in 2021-22 than it was in 2018-19, as a result of historically low interest rates.
Aged care
The Aged Care Residential Services industry is one of the key beneficiaries of the 2021-22 Budget, as the Federal Government responds to the Royal Commission into Aged Care Quality and Safety. A $17.7 billion budget package is expected to drive major reforms across the industry, with a focus on training a larger aged-care workforce and ensuring the profitability of industry firms. Australia spends close to 1.2% of its GDP on aged care, relative to the 2.5% average across the OECD.
In addition to this package, the Federal Government is expected to introduce a formal carer’s leave, similar to existing maternity and paternity leave requirements. This will entitle Australian employees to unpaid time off work to transition elderly relatives into aged care establishments.
Residential aged care services are anticipated to be valued at $24.6 billion in 2020-21, with a workforce of close to 314,000. Wage costs are expected to account for 69.0% of revenue for aged care providers in 2020-21. Employment across the industry is expected to rise at an annualised 4.4% over the five years through 2025-26.
National Disability Insurance Scheme
The Federal Government has topped up the ballooning National Disability Insurance Scheme Providers industry, with a funding increase of $13.2 billion over the three years through 2023-24. Revenue for NDIS providers is expected to increase at an annualised 78.1% over the five years through 2020-21, to $25.7 billion. Payment per participant in the scheme has increased at an annualised 12.5% since 2017, driving the scheme to eclipse its original expected cost of $22 billion.
While not included in this budget, the Federal Government has signalled intentions to proceed with independent assessments of recipient needs to rein in costs and ensure fairness. The Federal Government estimated that over 475,000 people are being serviced by the NDIS by 2020-21. The number of industry enterprises is forecast to grow at an annualised 7.3% over the five years through 2025-26.
Child care
The Child Care Services industry received a $1.7 billion funding package, which will increase the subsidy for child care from 80% to 95% for low- and middle-income families. This measure aims to remove disincentives for women returning to the workforce, and is expected to assist 250,000 families. In addition, the cap on the childcare subsidy of $10,560 per child will be removed, helping about 18,000 families earning more than $189,000. More support for child care affordability has been signalled ahead of the Federal election next year.
Despite greater government spending on the childcare sector, rising enrolment numbers and higher fees, the Child Care Services industry has declined over the past five years. Surplus capacity and low occupancy rates have constrained revenue, and the COVID-19 pandemic is expected to contribute to revenue declines over the two years through 2020-21. Overall, industry revenue is expected to fall at an annualised 0.4% over the five years through 2020-21, to $11.6 billion. This result includes an anticipated decline of 0.3% in the current year. Industry revenue is projected to grow at an annualised 2.6% over the five years through 2025-26, to $13.2 billion, as demand recovers in the wake of the COVID-19 pandemic.
Tourism and aviation
While much of the Australian economy has rebounded, the Tourism and International Airlines industries have continued to suffer amid the ongoing international border closures. In response, the Federal Government has provided a $1.2 billion rescue package, which includes subsidised flights to revive the Domestic Airlines industry, and direct payments to firms in the Travel Agency and Tour Arrangement Services industry. The rescue package, which was unveiled in March 2021, enables businesses to borrow up to $5 million over 10 years with a two-year non-repayment period.
Revenue across the Tourism industry declined by 20.9% in 2019-20, and has declined by a further 38.1% in 2020-21, to $71.2 billion. Ongoing fears surrounding the COVID-19 pandemic, Australia's likely cautious approach to easing international border controls, and the downturn of the global economy are all forecast to limit the industry's recovery in the short term. Overall, industry revenue is projected to rise at an annualised 15.9% over the five years through 2025-26, to $149.1 billion.
Infrastructure and construction
The 2021-22 Budget continues the $100 billion infrastructure plan laid out in 2019-20. In this budget, an additional $15.2 billion will be allocated over the next decade, including $2 billion for an intermodal terminal in Melbourne and $2 billion to upgrade the Great Western Highway in New South Wales. Queensland will benefit from a $400 million investment in an inland freight route between Mungindi and Charters Towers. Western Australia will receive $1.3 billion, including $200 million for upgrades to the Great Eastern Highway.
These projects are expected to support the Road and Bridge Construction industry, which is estimated to be worth $28.2 billion in 2020-21. Industry revenue is forecast to increase at an annualised 2.4% over the five years through 2025-26, to reach $31.7 billion. Growing expenditure on large road projects is forecast to support the industry, notably for the North East Link in Victoria and the Western Harbour Tunnel & Beaches Link in Sydney.
Other items
Software and computer game development
The Budget includes a new Digital Economy Strategy worth $1.2 billion, which will fund digital skills training, the development of artificial intelligence technology, and a 30% tax offset for computer game developers. This is expected to support the Software Publishing industry, which is expected to be worth $5.4 billion in 2020-21.
Low and middle income tax offset
The low and middle income tax cut, which is worth a maximum of $1,080 per year and is set to expire this year, is expected to be extended until 2022-23. This will support real household discretionary income, which is expected to decline by 8.2% in 2020-21 following the removal of the JobKeeper wage subsidy scheme.
Superannuation and housing
The Budget will include a superannuation-style scheme to help first home buyers enter the property market. The maximum amount able to be withdrawn via the First Home Super Saver Scheme will rise from $30,000 to $50,000. The scheme is available in addition to superannuation, not as an alternative. However, the Federal Government has signalled it may allow consumers to use their superannuation for home purchases in the future.
The Federal Government has not announced delays to the rise in the superannuation guarantee, as was previously expected. Under current legislation, the minimum superannuation payment for employees will rise from 9.5% to 12% over the next five years. This increase is expected to boost assets under management for the Superannuation Funds industry.
Beer production
The Craft Beer Production industry will receive tax discounts worth $25 million, in an attempt to boost business investment. From July 2021, brewers and distillers will be able to claim a tax refund on excise paid up to $350,000. The industry is expected to grow at an annualised 7.0% over the five years through 2025-26, to $1.2 billion. Enterprise numbers are forecast to increase over the same period, as new entrants attempt to capitalise on strong consumer demand for craft beers.
Miscellaneous
- $276 million in funding will boost the development of four hydrogen hubs in regional Australia. Carbon capture and storage projects will receive $264 million.
- Women are expected to receive particular focus in the Budget, with $353 million allocated to health measures such as screening for breast and cervical cancers. This is expected to support the Diagnostic Imaging Services
- Amid rising tensions with China, the Federal Government has earmarked $747 million for base upgrades in the Northern Territory, supporting the Defence
Outlook
The 2021-22 Budget represents a big-spending plan that will further support Australia’s economic recovery from the COVID-19 pandemic. Despite Australia’s rising debt, record-low interest rates have enabled this expenditure. However, the government will need to eventually rectify major issues with the nation’s finances over the next decade. It will need to address the rising cost of the National Disability Insurance Scheme and defence, either through reduced expenditure or higher taxation. The Morrison Government’s stage 3 tax cuts, currently scheduled to take effect in 2024-25, will reduce government taxation revenue just as the focus is likely to shift towards budget surpluses in an attempt to drive down public debt. Iron ore prices will likely decline from their historic highs, which will also reduce government revenue, intensifying the need to balance Australia’s spending.
IBISWorld reports used to develop this release:
- Aged Care Residential Services in Australia
- National Disability Insurance Scheme Providers
- Child Care Services in Australia
- Tourism in Australia
- International Airlines in Australia
- Domestic Airlines in Australia
- Travel Agency and Tour Arrangement Services in Australia
- Road and Bridge Construction in Australia
- Software Publishing in Australia
- Superannuation Funds in Australia
- Craft Beer Production in Australia
- Diagnostic Imaging Services in Australia
- Defence in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
