The Mid-Year Fiscal and Economic Outlook (MYEFO) announcements handed down today included the creation of 1 million new jobs and an expected wages increase of about 11.24 per cent, while inflation is tipped to grow by 10.25 per cent between now and 2024-25. These developments reflect a positive business growth outlook linked to increased business investment and the economy getting back on track following a disruptive year.
However the MYEFO update also revealed a combined blowout of more than $50 billion over the next four years. This was largely due to over $26.4 billion in unexpected costs as part of the National Disability Insurance Scheme (NDIS), and a total cost of almost $25 billion in Delta COVID disaster payments and business support in response to the State lockdowns.
From this MYEFO update we can see evidence the Federal Government’s various COVID payment schemes have done their job and largely provided protection for Australians and their businesses. While positive jobs growth is good for the individual, the economic challenge will be the predicted wages growth in an environment where businesses are trying to claw back whatever they can from the impacts of Delta, particularly as we’re on the brink of entering another challenging period as Omicron takes hold.
MYEFO also predicted increased confidence in business investment as this is expected to rise to 16 per cent over the next two years, up from the previously predicted 12 per cent. This is due to unemployment being at a historically low level currently at 5.2 per cent, which is forecast to fall to 4.5 per cent by the end of June next year – the lowest rate we’ve seen since the Global Financial Crisis began in September 2008.
We are currently experiencing a strong emerging economy following the COVID shut downs with consumers spending, businesses investing, and more people getting back to work. We must carefully watch what happens in the first half of 2022 as the economy responds to a massive spike in COVID case numbers, which will ultimately impact the already strained workforce through increased sick leave and people choosing to stay home.
As we face the Omicron challenge and head into the unknown again, what plays out over the next few months will have a huge impact on the Federal Government’s next Budget currently scheduled for March 2022. Interesting to note the Government also added a line item in the MYEFO update for $16.1 billion attributed to “decisions taken but not yet announced”, this is most likely for costs associated with the upcoming election to be announced ahead of the 2022 poll. At Grant Thornton we are watching this space very carefully and we will swiftly deliver the latest information on both the Federal Budget and Federal Election, and the impact for our clients.