New South Wales Treasurer Dominic Perrottet budget will focus on saving and creating jobs while driving the state economy out of pandemic-induced recession.
The 2020-2021 budget (pdf), released on Nov. 17, projects the Berejikilian government will generate 270,000 jobs by 2024—reducing state unemployment to 5.25 percent—using unprecedented stimulus, tax cuts and a boost to the state’s $103 billion infrastructure pipeline.
The government also aims to turn around a record $16 billion budget deficit by 2024-25, which has grown from $6.9 billion in 2019-2020, backed by economic and productivity reforms that will lead to lasting recovery and long-term growth.
“Our strong budget position has allowed us to weather the most severe economic storm in a generation, and we will continue to lead the way in job creation and supporting business through the 2020-21 Budget,” Perrottet said on Nov. 16.
NSW Premier Gladys Berejiklian said the state government was determined to increase the employment rates as soon as possible.
“While we all wait for the COVID-19 vaccine to arrive, the NSW Government is determined to treat the economic symptoms of the pandemic by saving and creating as many jobs as possible,” Berejiklian said. “Our targeted stimulus measures are aimed at returning the economy to a positive footing after the challenges of COVID-19.”
Boost to SME and Targeted Industry
One of the most significant initiatives to bolster businesses is payroll tax relief, which is hailed by the NSW Business Chamber as “a huge boost for job creation across the state.”
The move will increase the payroll tax threshold permanently from $1 million to $1.2 million and cuts payroll tax rate from 5.45 percent to 4.86 percent since July 2020 for two years.
This will exempt around 3,500 small and medium businesses from the payroll tax, and generate 2.4 billion cash saving over the next two year, freeing up much-needed capital for reinvestment and recruitment.
Businesses below the new threshold are eligible for digital vouchers worth $1,500 to cover government fees and charges.
Among other business-boost initiatives include the $250 million Jobs Plus program which aims to create up to 25,000 positions by mid-2022 by encouraging business to relocate to NSW. Under the program, businesses that create at least 30 new jobs will receive payroll tax relief for up to four years.
The government will also provide stimulus to hospitality and entertainment business, including restaurants, cafes, cinemas, zoos and museums with every adult NSW resident receiving $100 in digital vouchers to spend in those areas.
Businesses in the construction sector are also among the major beneficiaries, thanks to record shovel-ready projects worth $107 billion including transport projects, education and skills infrastructures. This is expected to create 270,000 jobs over four years.
Move to Phase Out Stamp Duty
The budget also acknowledged the longer-term health of our economy required “a steady return to robust competition and a business-led recovery,” which will only be achieved by ambitious reforms including creating a more efficient tax system.
Leveraging the NSW Productivity Commission’s Green Paper and the NSW Review of Federal Financial Relations, Perrottet proposed a pathway to transit from stamp duty to an annual property tax, which gives property buyers the choice of paying either stamp duty in a lump sum or a smaller annual property tax.
The reform will see existing stamp duty concessions for first home buyers replaced with a grant of up to $25,000. Once a home was subject to property tax, subsequent owners would also have to continue paying it.
Traditionally one of the state’s most significant revenue sources, stamp duty has earned NSW $7.4 billion and $6.9 billion, respectively, in the past two financial years.
However, the tax has been criticised as an inefficient and inequitable distortion of market activity.
Real Estate Institute of NSW chief executive Tim McKibbin welcomed the stamp duty reform as a long-overdue move, saying this tax has been one of the biggest financial barriers to homeownership.
“Not only does it discourage people from moving—especially downsizers who would otherwise free up housing stock—it also limits the additional expenditure home buyers could otherwise engage in,” McKibbin said in a statement on NOV 17.
Modelling shows that scrapping the duty could end up injecting more than $11 billion into the State economy in the first four years and boost NSW Gross State Product by 1.7 per cent over the long term.
A public consultation process has kicked off online, and submission will close in March 2021.