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Governance Institute of Australia’s guide to the 2021 Federal Budget

Governance Institute of Australia has welcomed tonight’s Federal Budget, in particular its funding for essential aged care reforms.

In the 2021 Federal Budget, Treasurer Josh Frydenberg announced $17.7 billion for aged care. A funding boost for women of $3.4 billion over five years and a major jobs injection were among the other key measures.

Governance Institute CEO Megan Motto said it was imperative that the momentum sparked by the royal commission into aged care be maintained with appropriate funding, and the $17.7 billion announcement, including $6.5 billion over four years to clear the home care package waitlist, certainly assists.

Ms Motto said the budget places a focus on reducing unemployment to fuel Australia’s economic recovery from the pandemic.

“We strongly support the measures to return Australians to work, support business, reduce regulatory red tape, and encourage investment. The budget’s target of a jobless rate of 4.75% by mid-2023 shows the Government is serious about protecting Australia from long-term economic damage.”

Key governance and risk management takeaways:

Aged care

A major funding boost of $17.7 billion over four years for the aged care sector forms a core part of the budget announcement.

The budget addresses several immediate funding gaps, with the single largest measure being $6.5 billion over four years to clear the home care package waitlist – a key recommendation of the Royal Commission. The Government is also starting the work on longer-term systemic reforms such as the creation of a new Aged Care Act and new independent advisory councils.

However, the budget did not provide further detail on the Government’s commitment to fund governance training for around 1000 aged care organisations, training that will help address the governance issues in the sector identified in the final report of the aged care royal commission.

“While the budget does not provide further clarity on the model of governance training, we urge government to continue to engage with the sector to ensure governance training is high quality and targeted to areas of need,” Ms Motto said.

Digital economy and innovation

Governance Institute welcomes the commitment of $1.2 billion in funding over six years for a Digital Economy Strategy designed to boost Australia’s digital credentials. This funding includes more than $600 million to overhaul online portals, myGov and My Health Record, a funding boost of $111.3 million for the rollout of the Consumer Data Right, and $42.4 million for enhanced cybersecurity protections.

The Government will also introduce a ‘patent box’ to encourage Australian biotech innovations to stay onshore through corporate tax concessions.

“It is great to see the Government put in place a coordinated digital strategy and invest substantially in innovation,” Ms Motto said.

“Funding and support are needed. However, it is also crucial for Australia’s digital regulatory frameworks to be agile and responsive to emerging technologies. There must also be the regulatory frameworks to support innovation and to protect consumers.

“Building digital trust in government’s delivery of digital services is equally important, so we will be monitoring the implementation of reforms to myGov, My Health Record and digital IDs closely.”

Deregulation and modernising business communications

This year’s budget has a strong focus on deregulation, with the Government committing $134.6 million to reduce the regulatory burden for businesses interactions with the public sector.

Key measures of interest to members include $800,000 to examine options to enable electronic document execution and a further $10 million to modernise business communication by amending legislation in the Treasury Portfolio to be technology neutral. There is ongoing funding of implementation of the Modernising Business Registers project – a key initiative to modernise Australia’s outdated business registry systems and provide the backbone for transforming business interaction with government.
“We welcome this funding which is an important stepping stone in bringing Australia’s business landscape into the 21st century,” Ms Motto said.

“Our members have daily dealings with regulators and government agencies and know full well the drain of outdated, onerous and paper-based compliance on productivity.”

Safety and stability of Australia’s financial markets

The budget also contains a Financial Market Infrastructure Regulatory Reforms package to protect Australia’s financial markets.

Under the reforms, the Reserve Bank of Australia (RBA) will be able to manage a failure at a clearing and settlement facility, the RBA and ASIC will be given enhanced supervisory and licensing powers, and there will be a streamlining of regulatory powers to improve the efficiency of regulatory administration.

The reforms would be accompanied by a facility for the RBA to draw up to $5 billion per event as a last resort measure to ensure the continued operation of clearing and settlement facilities, with any funding to be recovered once a crisis is resolved.

Governance Institute will update members on these reforms as more details become available.

Women and diversity

The Federal Government has announced $3.4 billion over the next five years for initiatives aimed at women. These include more generous childcare subsidies and domestic violence support services.

While measures to support childcare and domestic violence have been flagged by the government as measures to assist women, Ms Motto said these are structural productivity issues.

“These initiatives represent productivity-boosting measures that essentially assist all parents to participate more fully in the workforce.
Funding of $9.3 million over four years was announced to continue the implementation of the government’s response to the Respect@Work Report.

Climate change

The budget addresses climate change with $1.6 billion to promote investment in clean energy technologies and $1.2 billion to enhance Australia’s resilience to natural disasters, including the establishment of the Australian Climate Service, $100.1 million for cleaner oceans.

However, the budget appears to lack an overarching climate policy.

“Directors and governance professionals recognise the importance of climate policy. Customer, shareholder and regulatory pressure is growing. Climate issues are impacting directly on organisations in all sectors,” Ms Motto said.

“The Government’s most important role here is to adopt policy settings that ensure a smooth transition to a low-carbon future. This budget contains several targeted measures but appears to lack a coordinated approach that will give industry the long-term certainty it needs.”


Governance Institute welcomes the additional $222.9 million in additional funding over two years for the arts sector, one of the not-for-profit (NFP) sectors hardest hit by COVID-19.

It appears the only other significant budget measure aimed at the NFP sector is a funding increase for the ATO to crack down on charities improperly claiming income tax exemptions.

“As uncertain times continue, there has never been a greater need for the charitable sector, which is under significant pressure,” Ms Motto said.
“Tonight’s budget was the right moment to step in and make a real difference for those sub-sectors that have been hardest hit. We hope to see continued support from the Government for our charities.”

Governance Institute will continue to advocate for the implementation of reforms agreed last year at National Cabinet level aimed at harmonising Australia’s complex and outdated charitable fundraising laws. Governance Institute is a founding member of the #FixFundraising campaign established in 2016.

Commonwealth Integrity Commission

Governance Institute had hoped to see a recommitment from the Government to funding the Commonwealth Integrity Commission. However, there was no mention of this in the budget papers. Draft legislation to establish the Commission is currently in consultation.

To drill down further into the key budget issues this year, we asked economist and Vice-Chancellor’s Fellow at the University of Tasmania, Saul Eslake and RBC Capital Markets chief economist Su-Lin Ong — to share their expert views and outlook.

Saul Eslake

Compared to previous federal budgets, what are the major differences we are seeing in this year’s budget, and why?

No budget in living memory was like last year’s: Spending up 23%, revenue down 1.2%, a deficit forecast to be over $210bn or 11% of GDP, the largest since World War II.
Actually, the projected outcome for 2020-21 won’t be quite as bad as that. The forecasts for 2021-22 will almost certainly be: Spending down (by more than 10%), revenue up (by perhaps 1-2%) and a substantial decline in the deficit (to less than $100bn). And that will happen almost by ‘remote control’ — that is, without the Government having to lift a metaphorical finger in order to bring it about.

That’s because almost all of the spending decisions which accounted for about half of the blow-out in the 2020-21 deficit were, by design, ‘time-limited’ — that is, the programs which were introduced in response to COVID-19 (in particular JobKeeper), were programmed to ‘switch off’ without the need for a subsequent decision to terminate them. And the drop in tax revenues which was responsible for most of the rest of the increase in this year’s deficit was almost entirely attributable to the downturn in economic activity induced by the restrictions imposed to contain the spread of the virus — and the subsequently earlier and stronger-than-expected recovery in the economy will also drive a stronger-than-previously-forecast rebound in tax revenues.

There will in fact be some new significant new spending initiatives — for example in aged care, child care, what the Government will call ‘women’s economic security’, and in defence. And unlike last year’s spend-up, these will be permanent additions to spending. But the Government isn’t going to fund them, at least in the short term, by making cuts in other areas of spending, or by raising taxes.

Are the main initiatives likely to have the desired outcomes?

The most important change in ‘fiscal strategy’ was actually announced by the Treasurer at the end of April. The Government isn’t going to embark on the task of ‘discretionary budget repair’ — that is, consciously cutting spending or raising taxes — until the unemployment rate is well below 5%.

That’s a significant change from the strategy foreshadowed in last year’s Budget, when the Treasurer said that the Government wouldn’t go down the ‘budget repair’ path until unemployment was ‘comfortably below 6%’, a milestone which (at the time) wasn’t expected to be attained until mid-2024. Instead, the Government is going to ‘hold off’ from cutting spending or raising taxes until unemployment is ‘much lower’ than it was before the onset of the pandemic. This means that fiscal policy (as implemented through the Budget) and monetary policy (as administered by the Reserve Bank) will be working in harmony in pursuit of the goal of lower unemployment. This is in contrast to much of the past two decades when fiscal and monetary policy were, more often than not, working at ‘cross purposes’.

And for the next two years or so, that’s a Good Thing. The time will come when the Government does need to take some ‘harder’ decisions to rebuild Australia’s ‘fiscal buffers’ (that is, to return the Budget to surplus) so that it is well-placed to deploy fiscal policy in response to the next economic downturn, whenever it occurs, as it did in response to the most recent one. But there’s no urgency about that.

A quick snapshot on how Australia is currently faring — and the outlook

Australia’s economy has done much better than almost any other ‘advanced’ economy (with the exceptions, perhaps, of New Zealand and Taiwan) for two reasons. First, we’ve been more successful than most at keeping the virus at bay – partly because, as an island a long way from anywhere else, it’s been easier to keep it out by closing our border than it has been in other countries which have contiguous land borders with other nations; but also because, unlike many other countries, our governments have (for the most part) acted on scientific and medical advice, and our people have (for the most part) done what they’ve been asked to do, and not done what they’ve been asked not to do.

Second, Australian governments (federal and state) have done more (relative to the size of our economy) to support households and businesses through the difficult times of the past year than all but three other ‘advanced’ economies. The prolonged closure of our borders means that Australians are spending at home a significant proportion of the more than $50bn per annum that they would have spent overseas if they’d been allowed to; and that those Australians looking for work aren’t competing with recently arrived migrants for what is now the highest number of job vacancies since before the financial crisis 13 years ago.

So we will almost certainly succeed in getting the unemployment rate down to the ‘four-point something’ which both the Government and the Reserve Bank are now targeting. However, what’s not yet clear is whether there is any appetite for the sort of broad-ranging reforms that are necessary to lift our long-term growth rate above that which had become the ‘norm’ in the five or so years between the end of the ‘resources boom’ and the onset of the pandemic – particularly if we choose not to return to the same levels of immigration as we had before last year, and given the likely long-term deterioration in the bilateral relationship with our most important trading partner.

Su-Lin Ong

Compared to previous federal budgets, what are the major changes we are seeing in this year’s budget and why?

There is a clear shift in fiscal strategy underway which will be central to the budget. Fiscal policy is being recalibrated for a still uncertain recovery despite the strength to date and a sharpened focus on jobs with a desire to push the unemployment rate as low as possible. The conservative nature of the Government on debt strategy has been sidelined with budget repair, fiscal austerity and lower debt no longer the aim over the medium term. This dovetails with the RBA’s strategy to set policy to achieve full employment. With both the Government and the RBA’s estimates of full employment revised lower, probably at least 4.5%, if not below, this budget will contain measures to boost employment generation and longer-term growth.

The shift in the fiscal stance reflects two drivers.

Firstly, we note that budgets are first, and foremost political documents. A federal election is likely within the next 12 months and new expenditure on a raft of important measures — childcare, aged care, skills and training and infrastructure — are not particularly surprising. Indeed, some are well overdue, notably aged care and mental health.

Secondly, we suspect it goes beyond the politics. Policymakers in Australia and globally appear determined to deliver stronger labour markets post-pandemic especially with limited risk in running economies and labour markets much stronger given the subdued pace of inflation. And it is likely to be more than just achieving a full employment headline UR number. Rather, policy will be calibrated to ensure broader and inclusive gains in the labour market including for the underemployed, and more disadvantaged cohorts.

Are the main initiatives likely to have the desired outcomes?

As always, there have been numerous leaks in the run-up to the budget. Likely new measures are modest in size and ambition in terms of lifting productivity and long-run growth, but they are a step in the right direction. Likely changes to childcare subsidies and the annual cap will encourage greater workforce participation, additional infrastructure spending will contribute to greater productive capacity, extension of JobTrainer will help lift skills and education and extra expenditure on aged care and mental health is well overdue.

All of these initiatives will contribute modestly to productivity and growth over the medium term.

However, this does not appear to be a large-scale reform budget with no centrepiece policy.

Is anything key missing from the budget?

At this juncture, there appears to be limited initiatives in terms of green, renewable or sustainable measures. With the government under pressure to commit to net zero by 2050 and, indeed, adopt a more ambitious timeframe in line with the global push, it would make sense from a policy, growth and jobs perspective for more focused measures and incentives.

A quick snapshot on how Australia is currently faring — and our outlook

The Australian economy, underpinned by a largely successful C-19 strategy, has proved remarkably resilient with a much stronger recovery in activity and the labour market currently underway.

The economic success is, in part, a function of the health strategy coupled with historically large fiscal stimulus and monetary support which has moved into unconventional territory. The success on the C-19 front has delivered confidence to households and businesses to spend, invest and hire.

The recession last year was mild compared to developed economies with the -2.4% contraction in CY2020 around half the developed world average. Activity, confidence and the labour market have largely surprised to the upside since late last year and we expect GDP of close to 5% in CY2021. With both fiscal and monetary policy set to remain supportive, momentum should continue for much of the next 12 months helped also by a stronger synchronized global upswing.

Thereafter, however, familiar headwinds and challenges may re-emerge as stimulus begins to fade and pent-up demand is largely satiated. The lingering impact of C-19 on net migration and population will also be a longer-term handbrake to growth. It is why measures in the budget that help to lift workforce participation and productivity are so critical.

Governance Institute of Australia responds to Federal Budget 2021

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