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The Morrison government will bring forward tax cuts, give pensioners two cash payments of $250, create a time-limited hiring credit for businesses prepared to engage unemployed workers under 35 and supercharge business concessions in an attempt to drag the Australian economy out of its first recession for 30 years.

© Provided by The Guardian Photograph: Sam Mooy/Getty Images

While the prospect of a V-shaped recovery seems optimistic given the uncertainties of the coronavirus crisis, Tuesday’s budget assumes the Australian economy will contract by 3.75% in 2020 before rebounding strongly off the low base to grow by 4.25% in 2021 – a rate of growth double pre-crisis levels and faster than growth recorded at the height of the mining boom.

© Photograph: Sam Mooy/Getty Images In his 2020 budget speech, Josh Frydenberg said the Covid-19 crisis had revealed ‘the invisible strength’ of Australia.

As well as the upbeat growth assumption, the Treasury also assumes the best-case scenario for the pandemic. It assumes an effective vaccine for Covid-19 will be available next year, that internal borders reopen, and international students and migrants return in the latter half of 2021.

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In his budget speech on Tuesday night, the treasurer, Josh Frydenberg, declared the Great Depression and two world wars “did not bring Australia to its knees, and neither will Covid-19”.

Frydenberg said the crisis demonstrated the resilience of Australians and had revealed “the invisible strength” of a nation. He declared the economy was already fighting back but he acknowledged “there remains a monumental task ahead”.

He said the budget plan was informed by the government’s values, which were “providing a helping hand to those who need it, personal responsibility, reward for effort and the power of aspiration”.

The $98bn of spending and business concessions outlined in Tuesday night’s budget will see the deficit reach $213.7bn this year. Net debt is also forecast to peak at a record $966bn or 44% of GDP by June 2024.

Not all economists are convinced that tax cuts are the most effective way to stimulate the economy at a time when the household saving ratio has hit record highs, but the budget measures include bringing forward stage two of the government’s income tax cuts by two years.

The government says more than 11 million people will get a tax cut backdated to 1 July compared with the tax settings that applied in 2017-18. The tax cuts reduce receipts by $17.8bn over the next four years.

The proposal involves lifting the 19% threshold from $37,000 to $45,000, and lifting the 32.5% threshold from $90,000 to $120,000.

To ensure the benefit doesn’t flow entirely to workers on higher incomes, the government will retain the low and middle income tax offset for an extra 12 months. That gives middle income earners a one-off hip-pocket benefit of $1,080 in 2020 before the offset ends.

With boosting consumption a priority, pensioners, a cohort with a higher propensity to spend rather than save because of their low income, will be given two cash payments of $250 – one before Christmas and another in March.

In an effort to stimulate investment, business will gain access to full expensing – a measure that will decrease revenue over the forward estimates by $26.7bn. Businesses with turnover of up to $5bn will be able to write off the full value of any eligible asset they purchase for their business until June 2022.

A separate loss carryback measure will allow companies to offset their losses against previous profits on which tax has been paid, which means around 1m companies could be in a position to generate a refund. Under the measure, losses incurred to June 2022 can be offset against prior profits made in or after the 2018-19 financial year.

The Treasury estimates that measure will hand tax relief worth $4.9bn to eligible firms over the forward estimates. It says the two measures combined – the expensing and the loss carryback – could boost gross domestic product by around $2.5bn in 2021-22.

With unemployment forecast to peak at 8% by the end of the year, the government says the 2020 budget is focused on job creation. The centrepiece of that effort, as well as a wage subsidy for apprentices, is a new time-limited hiring credit for unemployed workers aged between 16 and 35.

To gain access to the credit, people will have to work at least 20 hours a week. The program will cost $4bn and run for 12 months.

Any business, apart from the banks, will be eligible to gain access to the credit that will be paid at $200 a week for people under 30, and $100 a week for people aged between 30 and 35.

While the lived experience with previous recessions suggests that it is older workers who struggle to find work if they lose employment during the downturn, Frydenberg told parliament on Tuesday night it was important to ensure young people remained engaged with the labour market because having a job meant economic security, independence and opportunity.

He said the pandemic and the recession should not deprive young people of having a sense there were prospects for them.

As well as topping up university research funding by $1bn – a boost that follows rolling controversy about the government’s decision to leave the sector out of income support through the jobseeker wage subsidy during the crisis – the budget also allocates $2bn for research and development incentives that will apply from next July.

The government has also provided a top-up for home care packages for aged care. Outbreaks in residential aged care during the pandemic have resulted in more than 600 deaths, and more than 100,000 elderly Australians are on the waiting list for home care packages.

The government committed to 23,000 additional home care packages in Tuesday night’s budget, at a cost of $1.6bn. Frydenberg acknowledged on Tuesday night there was more to do after the royal commission into aged care handed down its findings, and this would acknowledge “significant additional investment”.