The depth of the recession will be revealed this week, with the June quarter national accounts to be released on Wednesday. The economy contracted by 0.3 per cent in the March quarter with economists tipping a hit of between 5 and 7 per cent in the June quarter.
Government gross debt last week reached a record $768.6 billion with another $7 billion in debt slated to be sold over the next few days. It is now on track to surpass $1 trillion within the next three years.
Industry group chief executive Innes Willox said the October budget had to be focused on measures which secured Australia’s recovery out of recession.
He said while restoring the nation’s finances would be a challenge over coming years, the government should implement policies now even if they did add to the deficit in the short term.
“For the 2020-21 budget it would be premature and detrimental to both the near and longer-term objectives to hold back on well-considered measures even though they will add to the budget deficit,” he said.
The second round of the government’s tax cuts are due to start in mid-2022, with the 19 per cent tax rate threshold lifted to $45,000 and the low-income tax offset increased to $700. The 32.5 per cent tax rate threshold is also due to increase to $120,000.
Two years later, the 32.5 per cent rate will be reduced to 30 per cent for incomes of between $45,000 and $200,000 while the 37 per cent tax bracket will be abolished.
The industry group wants both the $45,000 threshold and the 32.5 per cent rate cut to 30 per cent for people earning between $45,000 and $90,000 to start from January 1 next year
Businesses with a turnover of less than $1 billion would qualify for the cut in the company tax rate to 25 per cent that is currently limited to firms with a turnover under $50 million.
The group is also backing a $500 million allocation of capital grants to scale up energy systems including heat pumps, electric induction furnaces and energy management systems.
The government has signalled it is considering bringing forward some of its tax cuts in a move that would add between $5 billion and $10 billion to the budget deficit.
But it is also under pressure from its own backbench to abandon an already legislated increase in the superannuation guarantee levy that is due to lift to 10 per cent from 9.5 per cent next year.
Mr Frydenberg on Sunday gave his clearest indication yet that abandoning the increase was being considered.
“We’re considering the issue bearing in mind that we are in the middle of a crisis,” he told Sky News.
In a sign of the political fight such a move would unleash, shadow treasurer Jim Chalmers said dropping the increase on top of the at least $31 billion withdrawn from superannuation in recent months would hurt the financial futures of millions of people.
“Scott Morrison and Josh Frydenberg are laying the groundwork to break their election promise to safeguard Australians’ retirements despite recommitting to the superannuation guarantee increases multiple times since the election,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.