‘Team Australia’ is bouncing back, Josh Frydenberg declares, as budget promises $30bn in tax cuts and big spending on services

Josh Frydenberg has declared “team Australia” is “coming back” from a grim Covid recession using his budget to extend tax cuts for business and workers and provide a multibillion-dollar boost to aged care and mental health services.

The treasurer’s budget promises $30bn in tax breaks and boosts financial support for Covid-hit industries including the arts and tourism as the government seeks to cement growth in the economy and drive down unemployment.

Banking on a resurgence in household spending and business investment after Australia’s first recession in 30 years, Frydenberg said Australia was bouncing back from a downturn as a result of the global pandemic that could have been “so much worse”.

But the upbeat forecasts – which have growth returning to 4.25% next year and unemployment dropping to below 5% – rely on a “population wide vaccination program” being in place by the end of 2021, assuming that everyone who is eligible and wants a Covid vaccine will have two jabs by year’s end. An extra $1.9bn has been allocated to the vaccine program.

Despite ongoing risk of a potential Covid outbreak and delays to the government’s vaccine strategy, the budget banks on Australia’s internal borders remaining open, domestic activity restrictions being lifted, and migration gradually resuming from mid-2022.

And even as the prime minister, Scott Morrison, maintains the government’s hardline rhetoric on border closures, the budget says the opening of borders is “crucial for the recovery” of sectors such as tourism and education, and for filling skills shortages in some industries.

While Frydenberg says the private sector will drive a “sustainable recovery”, spending on government services is also expected to help stimulate growth, with the Coalition unveiling a $17.7bn aged care package, $13.2bn extra on the national disability insurance scheme and a $2.3bn mental health package.

Charting a stronger than expected recovery compared with the dire forecasts released last year, Tuesday’s budget shows that higher iron ore prices and lower than expected jobseeker costs have enabled the government to post a deficit for 2020-21 of $161bn – $53bn better than the $213.7bn forecast six months ago.

The deficit for 2021-22 is $106.6bn, with net debt peaking in in June 2025 at $980bn – 40.9% of GDP.

Committing the government to “maintaining momentum” in the wake of last year’s recession, Frydenberg said the pandemic budget remained focused on the first phase of the government’s fiscal plan, which was to ensure a private-sector led recovery before it turned its attention to stabilising and reducing debt.

“A sustainable recovery requires a strong private sector,” Frydenberg said in his budget speech. “Our record investment incentives are filling the order books of the nation.

“Jobs are coming back. The economy is coming back. Australia is coming back and this budget will ensure we come back even stronger, securing Australia’s recovery.”

In a move aimed at shoring up consumer spending, the government has extended the low and middle income tax offset, giving 10 million workers a tax cut of between $255 and $1,080, at a cost of $7.8bn, while extending business tax relief at a cost of $20.7bn.

The business tax measures include extending tax write-offs for new equipment and loss carry-back provisions, which the government says will support business investment and job creation.

Economic and health support measures since the start of the pandemic now total $311bn, with an extra $41bn in economic stimulus committed since the 2020-21 midyear economic forecast.

The new measures are aimed at driving economic growth and creating 250,000 jobs by the end of 2022-23, with real GDP set to grow by 5.25% in 2021, and by 2.75% in 2022. In 2020, GDP fell 2.5%

The budget papers say the turnaround in the economy is the result of a broad-based recovery, reflecting a stronger outlook for household consumption, dwelling investment and new private business investment.

But to achieve the rosy growth forecasts, individuals will need to start spending, with household consumption forecast to jump 5.5% next year after growing just 1.25% in 2020-21.

Non-mining business investment is also forecast to rebound strongly on the back of the extra stimulus, with a 12.5% pick-up in investment in 2022-23 after rising just 1.5% in 2021-22.

The government says the business tax relief will unlock about $320bn in investment and create 60,000 jobs by the end of 2022-23.

While the government has resisted calls to extend the jobKeeper wage subsidy for hard-hit sectors, the budget includes an extra $1.2bn in industry assistance for the aviation and tourism sectors, and a $300m arts package to support the reopening of the cultural sector.

It will also expand the jobtrainer fund at a cost of $2.7bn to create 170,000 apprenticeships.

The $17.7bn aged care centrepiece of Tuesday’s budget, described as a “once in a generation” reform, provides $7.5bn for home care, including an extra 80,000 care packages, $7.8bn for residential aged care, about $1bn for quality and safety measures, $652m on workforce measures and $698m on governance.

The government has accepted most of the recommendations of the royal commission into aged care quality and safety, but has rejected calls for a levy to pay for the changes, and has not accepted a recommendation to put in place penalties for any provider who fails to provide quality care.

A separate $2.3bn mental health package will put in place new adult mental health centres modelled on the HeadSpace initiative for young people, and fund a new office of national suicide prevention. $150m will go towards aftercare for people who have attempted suicide, and a further $250m into prevention and early intervention measures.

The government has also announced a $1.7bn childcare package that comes into effect next year to help families with multiple children, and a $1.8bn women’s economic security package.

Infrastructure spending for the states will total $5.9bn over the forward estimates, with an extra $2bn for road projects.

A stronger than expected economic recovery has seen tax receipts surpass the dire forecast of last year, with an improvement of an extra $84.5bn over the four-year forward estimates.

Before the pandemic hit, the 2019-20 budget was forecasting an $11bn surplus for 2020-21, suggesting a turnaround of almost $200bn on the government’s balance sheet since the pandemic shut Australia’s borders.

Across the four-year forward estimates, deficits total $342bn, with the underlying cash balance to fall to $106.6bn in 2021-22.

In last year’s October budget, the deficit for 2020-21 was forecast to be $213.7bn, with deficits totalling $480.5bn over the four years.