In 2022 our Federal Budget is a little earlier than usual due to the election expected in May. And the Budget certainly looks like an ‘election budget’. The Government needs a winner – bookies have them at $3.00 vs Labor at $1.35 to win.
The economy has recently faced natural disasters, COVID, labour market shortages (the unemployment rate reached 4%, the lowest rate in almost 50 years), supply-chain constraints, and rising costs of living. There is a focus on providing short-term relief for these challenges. There is no great reform to help the economy into the future.
The deficit for 2021-22 is expected to be $79.8 billion, with total deficits across the four-year estimates totaling $224 billion. This will result in Australia’s gross debt exceeding $1 trillion by 2025-26, which will equate to 33% of Global Domestic Product (GDP).
Overall, the Australian economy is proving resilient, and the post-pandemic recovery is better and faster than expected. The projected underlying cash balance over the next five years has already improved by over $100 billion since a budget update was provided in December 2021. The prices for gas, coal, iron ore, and wheat are fuelling the economy at present.
Inflation is expected to peak at 4.25% this year before reducing to 3% in 2022-23 and 2.75% in 2023-24.
Here are the key Budget points that may impact strategies for our clients.
- 50% reduction to minimum pensions in 2022-23 retained – the 50% reduction to minimum annual pensions was introduced in 2020 to assist people trying to save money during the pandemic. The measure has been extended once again into 2022-23.
- Superannuation Guarantee – there were no changes to currently legislated rates of the superannuation guarantee, which are:
Otherwise, there was an absence of changes affecting superannuation.
- Fuel Tax 50% reduction for 6 months – fuel excise duties will immediately be reduced by 50% (excluding aviation fuel) to 28 September 2022. This equates to an expected fuel saving of 24.3 cents per litre including the GST impact. This change should enhance economic growth by reducing transportation costs.
- Cost of Living Tax Offset – the low- and middle-income tax offset (LMITO) will be extended and increase by $420 to $1,500 for the 2021-22 income year. It will be paid once tax returns are lodged. Taxpayers with incomes of $126,000 or more will not receive the additional $420.
- Cost of living payment – essentially a cash handout, $250 will be paid in April 2022 to eligible recipients who receive the age pension, youth allowance payments, Commonwealth Senior Health Care Card holders, and disability support payments. The payment is tax-exempt and will not count towards any income tests for support payments.
- Paid parental leave – the Government has announced changes to enhance the Paid Parental Leave Scheme and improve economic security for women from 1 March 2023. This scheme rolls Dad and Partner Pay into a single Parental Leave pay scheme of up to 20 weeks (combining the 18 weeks for primary carers and 2 weeks for secondary carers), which is fully flexible and able to be shared between eligible working parents as they see fit. It will give families the opportunity to take leave at any time within two years of the birth or adoption of a child. The intent is to reduce the gender pay gap.
- Home Guarantee Scheme – introduced in 2021 and has guaranteed 10,000 mortgages for eligible individuals to purchase a home with a minimum 5% deposit. This year the Government has extended the scheme to provide 35,000 places to first home buyers, 5,000 places to single parents, and 10,000 places for buyers in regional areas in the newly released Regional Home Guarantee.
The Family Home Guarantee is available to single parents with at least one dependent and allows them to obtain a loan with a minimum deposit of 2% without having to pay lenders mortgage insurance. Individuals with a taxable income up to $125,000, and couples with a taxable income up to $200,000, will be eligible for the First Home Guarantee.
This policy will assist a broader range of people to enter the housing market. However, with increasing interest rates looming, and the housing affordability crisis spurred on by COVID, the long-term affordability of these schemes will eventually come into question.
Support for Business
- Skills & Training – for every $100 a small business (annual turnover of less than $50 million) spends on training its employees; it will receive a $120 tax deduction. The external training courses must be delivered by entities registered in Australia. The deduction applies to expenditure between 29 March 2022 and 30 June 2024.
- Technology investment – for every $100 a small business spends on digital technologies like cloud computing, e-invoicing, cyber security, web design, and the purchase of depreciable assets, it will receive a $120 tax deduction. An annual cap of $100,000 will apply. The deduction applies to expenditure between 29 March 2022 and 30 June 2023.
- Company PAYG installment system – business taxpayers can now choose to have the ATO automatically calculate their quarterly PAYG installment amounts based on live financial information captured from their accounting software, subject to certain tax adjustment calculations. This is advertised as an improvement to the current system which relies on projecting expected income tax based on past tax returns. Allowing businesses to automatically report their financials aims to reduce compliance burdens and produce installments more reflective of the end of year tax amount due. The Government expects this system to be in place by 1 January 2024. Worth noting live information being fed to the ATO will create less room for error and possibly less scope for business tax planning.
- Asset expensing – Under the current law and in response to COVID, eligible businesses with aggregated turnover of less than $5 billion are entitled to an immediate deduction for the cost of depreciating assets purchased after 7:30pm AEDT on 6 October 2020. The Budget confirmed this measure will cease on 30 June 2023.
- Medication Management – In recognition of the issues facing residential aged care providers in the management and administration of medication, including the overuse of antipsychotics, the government has committed $345.7 million over 4 years to provide access to an on-site pharmacist or a community pharmacy service for all residential aged care facilities.
- Migration – The Budget announced the program numbers for the 2022-23 permanent Migration Program planning levels will be maintained at the current level of 160,000.
- Defense – 10-year defense capability plan bringing the total funding to $575b by 2029-30. Investments will include an east coast submarine base (let us hope it has some submarines in it!), a large-vessel dry berth in Perth, and upgrades across major defense sites.
- Cyber defense – the Government has committed to investing $9.9 billion in Australia’s intelligence and cyber capabilities. This includes strengthening our alliances and partnerships with the Five Eyes, AUKUS, and Indo-Pacific nations. Cyber threat intelligence seeks to identify the specific cyber threats – answering the who, what, when, why and how questions of a cyber-attack which will allow organisations to be better prepared.
- Mental Health – Every year, more than 3,000 people lose their lives to suicide, and suicide remains the leading cause of death for Australians between the ages of 15 and 44. The Government is providing $547 million over 5 years from 2021-22 to implement reforms under the National Mental Health and Suicide Prevention Plan. This investment includes $285.5 million over 5 years from 2021-22 for a range of mental health treatment initiatives. Priority areas include services for young Australians with severe mental illness, innovative pilot programs to address the needs of people with eating disorders, and digital mental health services.
- Infrastructure – additional funding for the following projects:
- $1 billion for the Sydney to Newcastle Faster Rail Upgrade
- $352 million for the Milton Ulladulla Bypass
- $336 million for upgrades to the Pacific Highway
- $1.6 billion for the Brisbane to Sunshine Coast Rail Extension
- $1.1 billion for the Brisbane to Gold Coast Faster Rail Upgrade
Contributed by friend of Alman Partners – Rick Walker of Lorica Partners
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.