Are you trying to understand the Australian federal budget for 2021-22 to help you ace HSC economics, but are feeling overwhelmed by all the different components it addresses?
The Australian federal budget is no doubt a complex and detailed report, so we’ve got you covered with an overview of the budget and how you can apply it to HSC economics.
Let’s get serious!
What is the Australian Federal Budget?
Like any normal budget, the federal budget is a monetary plan that predicts or estimates how much the Government will earn and spend in the coming financial year. So the Australian federal budget that we are discussing today is concerning the period from July 1st, 2021 to June 30th 2022.
This 2021-22 Australian federal budget is expansionary as it tries to stimulate economic growth. The budget has outlined the cash balance at a deficit of $106.6 billion, which is essentially a -5% GDP (gross domestic product).
Another thing to note when understanding this budget are the various assumptions that are made, which will show analytical skills in your work.
The Australia federal budget for 2021-22 assumes that all COVID-19 vaccinations will be effectively complete by the end of this year, and that borders between states will open and international travel will start to pick up again. While many of these outcomes are seeming more feasible with the country getting vaccinated, the budget takes a very positive outlook — especially when you consider the difficulties experienced with the vaccine roll out.
The holistic budget forecast for economic growth suggests that there is plenty of room for growth. Economic growth sat at 1.8% in the March quarter and 1.1% in the annual quarter, however the predicted growth for this financial year is an increase to 4.25%, which will then moderate at 2.5% the following year (2022-23).
One of the first key policies that the budget addresses is Temporary Full Expensing and Temporary Loss Carry Back Extensions, which is basically an opportunity to reduce taxes and give people more of an opportunity to invest.
Further, the budget will extend the HomeBuilder Program, which is a Government grant that gives people looking to build or renovate a home $15 000 to $25 000. Over 120,000 Australians have applied for this grant, and so the budget expects to provide more than $30 billion to support housing renovation and construction.
Personal Income Tax Plan
The 19% personal income tax bracket will be increased from $37,000 to $45,000, and the 32.55% personal income tax threshold will increase from $90,000 to $120,000.
You might be confused by the fact that the numbers are increasing when talking about tax cuts, but what this means is that one household will be able to earn more money before getting pushed into the next tax bracket where a greater percentage of income will be taxed.
Consumption and Consumer Confidence
The budget suggests that there will be a large recovery in terms of household consumption, which is predicted to increase from 1.25% to 5.5% this year, and that business consumption will grow from -5% to 1.5%.
To help us understand consumer confidence, the Westpac Consumer Confidence Sentiment indicates that the index dropped by 4.4%, reaching its lowest point in the past year of 104.1 points.
In terms of wages, the budget expects to see a slow growth in the future, and that it will gradually increase. This being said, any growth would not be largely evident until the 2023 to 2024 financial year.
A slow wage growth will also show some barriers for consumer spending to increase at any substantial rate, because the purchasing power is yet to increase.
Temporary Full Expensing and Temporary Loss Carry Back Extensions
The Temporary Full Expensing and Temporary Loss Carry Back Extensions will support recovering business investments, and the budget suggests that $20.7 billion in tax relief funds will be provided. This is expected to support $320 billion of investments, creating another 60,000 jobs by the following financial year (2022-2023).
Labour Market and Unemployment
This aspect of the Australian federal budget for 2021-22 aims to achieve full employment of 4.5% and improve overall participation rates. It predicts that unemployment rates will fall to 5% in the June quarter of 2022, and reach 4.75% the following year in the June quarter of 2023.
With $2.7 billion invested into a 4-year plan to expand the Boosting Apprenticeships Commencements, more than 170,000 apprentices and trainees with will be encouraged to take up these roles.
Further, the budget highlights an increase in recurrent annual funding for schools to $23.4 billion. An additional $2 billion for the next four years is being put towards early childhood education and outlines support for children to have 15 hours a week of early education before starting primary school.
The JobTrainer Fund has also been extended to the end of 2022, which is forecast to fund 163,000 positions in vocational education for school leavers and those seeking employment.
In response to the structural changes due to COVID-19, the budget indicates that over $100 million will be invested into strengthening Australia’s digital skills and supporting online workplaces.
The Treasurer suggests through this budget that more than 250,000 jobs will be created by the end of the 2022-23 financial year. This can also be seen through the changes made to childcare and early education, where there will be demand for 40,000 people to work an extra day per week.
A 2-3% CPI (consumer price index) is forecasted in the federal budget, and it is expected to peak at 3.5% before dropping to 1.75% in the June quarter of 2022. This is not predicted to balance out at 2.25% until the quarter of June 2023.
Income Distribution and Living Standards
The main objective through this aspect of the budget is to improve Australia’s Gini Coefficient; this is a way of visualising income inequality. The current trends of the Income Gini Coefficient indicate that inequality in weekly household incomes increased from 2007 to 2017.
With the Government increasing the voluntary contributions of the First Home Super Saver Scheme from $30,000 to $50,000, demand will unfortunately increase on houses and for first home buyers. The core purpose of superannuation is to compound annually to fund an individual’s retirement, so whilst this policy has positive short term implications, it will lead to greater long term problems.
Put simply, those who need houses will struggle to attain them, and those who can afford houses will buy more and invest in more.
It has been identified that the affordability of houses is an issue that needs support. Although this new policy is aimed to help those struggling for housing, such as single parents, these buyers are faced with a 98% loan-to-value ratio at a time when housing is in high demand.
One could argue that if the budget is really trying to help those who cannot afford housing, an increase in public housing availability or rent assistance would be implemented.
A closely related concern are the tax changes that could be viewed as stifling progression in the tax system. Essentially, changes to tax rates and income tax will impact any tax payer, however this lacks benefits for anyone that does not pay tax as they earn below the $40,000 threshold.
From the Government’s perspective, high income earners already pay the larger share of tax. With the top 20 percent of taxpayers paying 60.6% of income tax, the Government’s new tax plan will drop this to 59.5%.
So what we see here are conflicting objectives with no clear rationale; as the Government is looking to support growth and consumer confidence, a higher disposable income is needed.
The final component of this federal budget is the environment, where the Government’s objectives are to reduce greenhouse gas emissions. This is indicative of a 50-52% reduction in emissions per capita, alongside a 64-65% reduction in the emissions intensity of the economy.
In relation to policies, the budget includes support for Agriculture and Farming. With the National Water Grid Fund at $3.5 billion, new irrigated areas will be opened to provide greater water access and create more jobs. However, one could critique that this policy is more focussed on job creation as opposed to addressing environmental concerns.
The budget also includes an Energy Policy with $215.4 million to support investments in the generation and delivery of more affordable and reliable power to supplement the growth in renewable energy.
To fund the Australian Climate Service, $209.7 million will be put towards climate and natural disaster risks. An additional $11 million will be spent to improve Australia’s recycling capacities in response to the waste export ban under the National Waste Policy Action Plan. This was implemented due to China banning our rubbish exports, meaning this is a reactive plan that forced Australia to deal with our waste internally.
The environmental component of the federal budget reflects a lack of leadership in response to climate change. This is reiterated in the UN (United Nations) environment program which listed Australia as having done the least in driving a green recovery against the 50 largest economies in the world.
The Climate Tracker Analysis also points to no intention of the Government updating the Paris Agreement or the adoption of a net-zero emissions target. Despite the increasing climate issues of bushfires and floods, there is a severe lack of climate action on the Government’s behalf, and the federal budget strongly reflects this.
This is a brief overview of the federal budget for the 2021-22 Australian federal budget, and can hopefully guide you in fiscal and macroeconomic essays for the HSC. Remember to critically analyse how different policies interrelate and demonstrate an understanding between these different concepts!
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Nandini Dhir is a Content Writer at Art of Smart and is currently studying a Bachelor of Arts (majoring in Marketing) and a Bachelor of Advanced Studies (Media and Communications), as a Dalyell Scholar, at Sydney University. She enjoys covering local issues in her area and writing about current events in the media. Nandini has had one of her pieces published in an article with the Sydney Morning Herald. In her free time, Nandini loves doing calligraphy, ballet, and sewing, or is otherwise found coddling her cats.