Rapid Covid tests will be made tax deductible for workers and businesses, but the treasurer, Josh Frydenberg, says other economic support measures must wind up as the economy returns to normal.
In a major economic speech to the Australian Industry Group on Monday, the treasurer will also announce that he has tasked the Productivity Commission with undertaking another five-yearly review into reforms to enhance productivity.
The speech from the treasurer comes ahead of the parliamentary sitting fortnight where the Coalition is expected to come under pressure from Labor over the government’s handling of the pandemic, including on rapid antigen test supplies and the crisis in aged care.
The prime minister, Scott Morrison, will also come under fire for divisions within the government after revelations that the deputy prime minister, Barnaby Joyce, branded him a “liar and a hypocrite” in a message sent to the former Liberal staffer Brittany Higgins.
On Sunday, Morrison said he “could not care less” about the text messages, as Labor’s shadow treasurer Jim Chalmers labelled the government a “smoking ruin of division and disunity”.
In an attempt to recast the political narrative to the government’s economic management in the final sitting fortnight before the budget, Frydenberg will talk up the government’s health and economic response as being among the best in the world.
“Our track record shows that we have got the big calls right – protecting lives and livelihoods but also ensuring our fiscal position remains strong,” Frydenberg will say, according to draft excerpts of the speech.
Pointing to Australia’s falling unemployment rate, Frydenberg will highlight the increased mobility in the labour market, with government payroll data showing workers who had moved jobs “typically experienced pay increases of between 8 and 10%”.
“They also move to more productive firms, helping those firms grow,” Frydenberg will say.
“When workers are in high demand, businesses are more likely to invest in capital, making workers more productive and businesses more efficient.
Frydenberg describes the movement of workers in the tight labour market as a “great reshuffle”, with the government’s jobkeeper payment avoiding the large number of job losses that had been seen in other economies hit by the Covid pandemic.
Treasury figures show more than 1 million workers started new jobs in the three months to November 2021, with Australia’s unemployment rate now sitting at a 13-year low of 4.2%.
At a speech to the National Press Club last week, Morrison flagged that an unemployment rate below 4% could be achieved in the second half of 2022, revising down expectations outlined in December’s mid year budget update of an unemployment rate of 4.25% by 2022-23.
Frydenberg says the government’s decision to end jobkeeper was “not easy”, but the economic rebound following the end of lockdowns showed the move was necessary.
He also says maintaining government spending at pandemic levels would end up doing more economic harm than good, and it is now time to “start confidently moving back towards normalised economic settings”.
“The reality is the economy simply cannot be conditioned to the level of unprecedented support that has been required over the last two years,” Frydenberg will say.
“This level of government intervention must not become entrenched and become a permanent feature of our system.”
The treasurer’s speech will also raise the spectre of higher inflation, saying that workforce shortages and supply chain disruptions are exacerbating inflationary pressures in Australia, where inflation is sitting at 3.5% through the year to December.
Inflation is rising faster than at any point in the past decade, with the cost of non-discretionary goods rising faster than discretionary goods, but is subdued compared to the US where inflation is now topping 7%.
Morrison last week was unable to answer a question about the cost of a loaf of bread, a litre of petrol or a rapid Covid test, but said the government’s focus was on strong economic management that would keep the cost of living down.
Frydenberg said that the “pandemic related challenges” of inflation, workforce shortages and supply chain disruptions would remain for most of the year, and would be the government’s focus in the March budget.
RAT write-offs
Under the changes to the tax system to allow for Covid tests to be tax deductible, both PCR and rapid antigen tests will be covered, with the scheme to apply from the 2021-22 financial year.
This means that someone on a marginal tax rate of 32.5% will receive a refund at tax time of about $6.50 for every dual pack of RAT bought for $20.
A small business would reduce its fringe benefit tax liability by about $20 for every dual pack of RATs bought for $20 and provided to employees.
While there are limits to how tests can be claimed under current tax laws, the proposed amendments will clarify that all Covid tests bought for work-related purposes will be tax deductible for income earners, and exempt from FBT for businesses.
“COVID-19 tests are an important tool being used by businesses to protect their workforce and to ensure they can keep their doors open and our supply chains running,” Frydenberg said.
Chalmers said if Labor won the election the party would manage the budget more responsibly than the Liberals and Nationals.
“We’ve put lots of thought into the economic conditions that we would inherit; skyrocketing cost of living, real wages going backwards, a trillion dollars of debt in the budget and not enough to show for it,” Chalmers told Sky News.
The Productivity Commission review, which comes five years after the Shifting the Dial report completed in 2017, will examine the factors that have affected Australia’s productivity growth and set out a “roadmap” for future reform.
The inquiry will undertake a public inquiry process and report within 12 months.
