Lunik Insight Budget 2021-22 | Treasurer banks on surging economy

Federal Treasurer Josh Frydenberg is banking on continued economic growth and falling unemployment to further slash his Budget deficit in 2021-22.

Seven months after forecasting a Covid-fuelled deficit of $212 billion in his last Budget, the Treasurer has predicted a deficit of $161 billion in the current 2020-21 year - a fall of more than $50 billion.

With soaring iron ore prices, rebounding economic growth and falling unemployment, the Budget papers forecast a deficit of $106.6 billion in 2021-22. Gross domestic product is forecast to grow 4.25 per cent in the next financial year, underpinning the government’s economic optimism.

The Government is in no mood yet for major austerity measures, with net debt of $729 billion forecast for 2021-22, rising to $920 billion in 2023-24.

Treasury’s forecasts are predicated on a successful vaccination rollout and no state border closures due to further lockdowns to quell Covid-19 outbreaks.

In addition, the Government has taken a cautious approach to the return of international visitors and migrants, with Australia’s borders effectively closed until mid 2022.

With unemployment tipped to fall to below five per cent after 2021-22, the Federal Government has allocated $2.7 billion to fund 170,000 new apprenticeships and traineeships.

To encourage business investment, the government has extended the provisions for instant asset write-off.

Many of the Budget initiatives were announced in the preceding two weeks, including spending programs in Defence and in Digital Strategy.

One major initiative targeted at the innovation sector is the proposed 17 per cent taxation rate for a ‘Patent Box’, available for new medical and biotechnology patents.