Pandemic

Josh Frydenberg says he will bring down a &ldquo;pandemic budget&rdquo; on Tuesday, warning that despite Australia&rsquo;s strong recovery, there is &ldquo;still a great deal of uncertainty out there&rdquo;.

The Treasurer points to new strains of the coronavirus, the COVID crisis raging in India, and local lockdowns. &ldquo;We can&rsquo;t take for granted the strong economic recovery we&rsquo;ve seen. We&rsquo;ve got to lock in those gains,&rdquo; he said on Friday, speaking to The Conversation.

In measures on housing, it will increase from $30,000 to $50,000 the maximum amount of voluntary contributions aspiring home buyers can take from the First Home Super Saver Scheme.

This scheme allows people to make voluntary contributions to superannuation to save for their first home.

At present these contributions are capped at $15,000 a year and $30,000 in total.

With the rise in house prices, the current cap on the amount that can be released is a diminishing proportion of the deposit needed.

There will also be another 10,000 places added to the First Home Loan Deposit Scheme, which can only be used for new housing. This means-tested measure allows first home buyers to build a new home or buy a newly-built one with a deposit of as little as 5%.

The budget will have an &ldquo;improved bottom line, particularly in 2021&rdquo;, compared with the earlier forecasts, Frydenberg confirmed.

This will be thanks in large part to a stronger-than-expected labour market as well as high iron ore prices.

The aim of pushing unemployment down below 5% will be a central feature of the budget.

In measures on housing, it will increase from $30,000 to $50,000 the maximum amount of voluntary contributions aspiring home buyers can take from the First Home Super Saver Scheme

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Frydenberg promises housing breaks in 2021 budget

EXPERT INSIGHT

Treasurer Josh Frydenberg calls this a &ldquo;pandemic budget&rdquo; &ndash; one to sustain the economy in times that are still uncertain &ndash; but it also has a substantial element of an election budget.

That&rsquo;s not to suggest Prime Minister Scott Morrison will rush to the polls this year. But given the election has to be held by May 21, 2022, this is likely to be the last budget of the cycle. Another could be squeezed in, as in 2019, but it would have to be brought forward from the normal time.

Last year the treasurer said budget repair and debt repayment &ndash; otherwise known as the hard and unpleasant decisions &ndash; wouldn&rsquo;t be undertaken before unemployment was &ldquo;comfortably&rdquo; below 6%.

Now unemployment is 5.6% (the March figure) but Frydenberg has shifted the goal posts, so the emphasis remains on recovery, with more difficult reckonings a way off &ndash; beyond the election.

Given a grim COVID picture internationally and a long way to go with the vaccine program locally, that is sound &ndash; and also politically convenient.

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In this budget, the government&rsquo;s policy approach is firmly aligned with that of the Reserve Bank, with Frydenberg embracing the bank&rsquo;s objective of pushing unemployment well below pre-pandemic levels, which means to a rate with a 4 in front of it.

Two central spending areas in the budget have been, in effect, imposed on the government.

It had to respond to the damning findings of the aged care royal commission. The fact most Australian COVID deaths occurred in aged care underlined how unfit for purpose the system is. Frydenberg told the ABC there will be more than $10 billion spending on aged care over the forward estimates.

The budget&rsquo;s &ldquo;women&rsquo;s&rdquo; focus &mdash; a sharp contrast to last year &mdash; has drivers that go beyond the urgent need to do more to combat violence against women, and other imperatives.

Morrison&rsquo;s &ldquo;women problem&rdquo;, which exploded with the demonstrations following the high-profile allegations of rape, most obviously increased the attention on women in this budget, which will include a women&rsquo;s statement with initiatives on health, safety, and economic security.

Also, Labor&rsquo;s decision to make childcare one of its main policy pitches, promising a big spend, reinforced economic considerations pushing the government to produce its own childcare policy (which doesn&rsquo;t start until July 2022).

Even in the middle of the pandemic last year, few would have thought that by now we&rsquo;d still have no firm idea when our international borders will re-open.

Morrison is cautious about it, and judges that&rsquo;s in line with the thinking of the Australians public at the moment. He can read those state electoral results as well as anyone &mdash; he knows people put health safety above all else.

&ldquo;International borders will only open when it is safe to do so&rdquo;, he said on Facebook at the weekend. &ldquo;Australians are living like in few countries around the world today.&rdquo;

On the other hand, the pressure for students to come, migration to resume and people to be allowed to travel must build sooner or later.

The budget&rsquo;s assumptions will put the reopening in 2022, Frydenberg told the ABC at the weekend

Economist Saul Eslake says while keeping the country closed to the outside world is obviously not sustainable in the long run, it has, in a perverse way, some short run plusses for the government&rsquo;s economic objectives.

&ldquo;It&rsquo;s very easy to get unemployment down when the border is closed. You only need to create 5000 new jobs a month to prevent unemployment rising.

&quot;Previously [with migrants coming] you needed 16,000 new jobs a month. Currently we&rsquo;re creating 60,000 a month,&rdquo; Eslake says.

Migrants stimulate growth. But so does having Australians unable to travel overseas, Eslake says. They can only spend domestically &ndash; or save &ndash; the $55 billion they would normally be spending abroad. They appear to be spending quite a deal of it on things like home equipment, furnishings, renovations, cars, and even clothing.

While fiscal repair is formally delayed, the budget will show it is gradually, to a degree, repairing itself.

The quicker-than-expected bounce back of the labour market, which reduces welfare costs and boosts tax revenue, and the similar rebound in corporate profits, help the bottom line. Frydenberg says that, despite JobKeeper coming to an end, 105,000 people came off income support in April. High iron ore prices are also a godsend to revenue.

Chris Richardson, from Deloitte Access Economics, has forecast a deficit for this financial year of about $167 billion, compared with the December budget update figure of $198 billion. For 2021-22 , the Deloitte forecast is a deficit of about $87 billion compared with the update&rsquo;s forecast of $108 billion.

Still, a balanced budget will be some years off, Richardson says.

He gives four reasons: substantial structural spending on aged care, mental health, childcare, disability and the like; low wage and price inflation (inflation helps budgets); missing migrants; and interest payments on debt (helped by low interest rates but still significant).

On what we know, the budget will be safe rather than adventurous. And while budgets can always unexpectedly trip over their own feet, and inevitably have plenty of critics, this will be the sort of benign one that doesn&rsquo;t go out of its way to hurt or offend voters.<img alt="The Conversation" height="1" hub="" o3us6t2oy="" src="https://counter.theconversation.com/content/160594/count.gif?distributor=republish-lightbox-basic" width="1" />

<a href="https://theconversation.com/profiles/michelle-grattan-20316">Michelle Grattan</a>, Professorial Fellow, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a>

This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/view-from-the-hill-a-budget-for-a-pandemic-with-next-years-election-in-mind-160594">original article</a>.

Treasurer Josh Frydenberg calls this a “pandemic budget” – one to sustain the economy in times that are still uncertain – but it also has a substantial element of an election budget

Pandemic

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