The 2023 Federal Budget was short of significant reform to deliver Australia a sustainable revenue system. Instead, the budget targeted cost of living pressures for families and greater funding for the ATO – there appears to be an emphasis on a compliance push. Benefits for small businesses were relatively immaterial. The government also wants to slow NDIS growth to 8.0% pa from 13.8% currently, which is inherently unsustainable.
A large revenue windfall from higher personal tax collections, higher commodity prices, and company profits, in general, projects a $4 billion budget surplus for FY2024, the first surplus in 15 years. Last year the projection for FY2024 was a $37 billion deficit. However, medium-term deficits, whilst lower than previously forecast, remain. This is due to long-term spending pressures posed by interest payments on debt, NDIS, aged care, health, and defense, as well as lower productivity growth.
Some government projections include:
- Persistent inflation and higher interest rates are expected to slow real GDP growth to 1.5% in FY2024, before increasing to 2.25% and 2.75% in the years ahead.
- Inflation of 3.25% in FY2024, then reducing back down to 2.5% pa, which is with the Reserve Bank’s target band.
- Wages growth of 3.75% in FY2023, 4.0% in FY2024, and then moderating around 3.25% pa.
Below we summarise the key Budget points that may impact strategies for our clients or their businesses. There were no new announcements we expect to materially impact any client strategies.
SUPERANNUATION
- Transfer Balance Cap – no measures to prevent the maximum amount of super funds you can use to start a 0% tax account-based pension increasing from $1.7 million to $1.9 million effective 1 July 2023.
- 30% tax on $3 million+ individual account balances – As previously announced, the Government intends to introduce legislation to reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025. The measure will not place a limit on the amount of money an individual can hold in superannuation. The Government’s intention to introduce a tax on unrealised gains on super funds will be the first of its kind, and more information is still required to understand how this tax will be applied in practice. No other entity in the tax system has ever had to pay tax on unrealised gains before, and this could set a precedent for the taxation of other entities in the future.
- Employer super contributions (SG) to be paid on payday – from 1 July 2026, employers will be required to pay their employees’ SG entitlements on the same day they pay salary and wages (whether that be weekly, fortnightly, or monthly). Currently, employers are only required to pay their employees’ SG on a quarterly basis. Employers will need to ensure they immediately link new employees to their Single Touch Payroll system to avoid non-compliance.
- 50% reduction to minimum pensions to end 1 July 2023 – as expected, the 50% reduction to minimum annual pensions during COVID will cease for FY2024. The minimum pension percentages will be 5% for 65–74-year-olds and 6% for 75–79-year-olds.
- Superannuation Guarantee – there were no changes to currently legislated rates of the superannuation guarantee, which will increase from 10.5% now to 11.0% on 1 July 2023:
INDIVIDUALS
- Stage 3 tax cuts – these tax cuts legislated by the Morrison government are still expected to occur effective 1 July 2024. Taxable income between $45,001 and $200,000 will be taxed at 30%, and income over $200,001 taxed at 45% + Medicare levy (current top marginal tax rate of 47% will apply at $200,000 rather than the current $180,000). For those earning $200,000+ the annual tax saving will be $9,000.
- Sunset on FBT exemptions for plug-in hybrids – the FBT exemption for plug-in hybrid electric cars will cease from 1 April 2025. The exemption will continue for 100% electric vehicles.
- Aged pensioners – will be able to earn up to $11,800 per annum before their aged pension is reduced, encouraging workforce participation.
SUPPORT FOR BUSINESS
- $20,000 instant asset write-off – The Government will temporarily increase the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024 for small businesses with aggregate annual turnover of less than $10 million. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
- Energy initiative – businesses with aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy, such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. The maximum bonus deduction is $20,000. Assets must be installed between 1 July 2023 and 30 June 2024.
AGED CARE
- Regulatory reform – additional funding of $310 million to implement the recommendations from the Royal Commission into Aged Care Quality and Safety. Funding will support:
- enhancements to the Star Rating system to improve accountability and transparency of approved aged care providers.
- funding IT infrastructure to establish a national worker screening and registration scheme from 1 July 2024.
- improving food and nutrition in aged care through the development, monitoring and enforcement of food and nutritional standards.
- Pay increases – provide $515.0 million over five years to increase award wages by 15% from 30 June 2023 for many aged care workers.
OTHER
- E-cigarette ban – Australia is set to ban the importation of most vapes, introduce plain packaging and strip them from convenience store shelves under world-first reforms. The sale of vapes will be limited to pharmacies by prescription only for people seeking to use vapes to help quit smoking. [If you have young teens in the family, this is great, but how this initiative costs as much as $234 million to implement is mystifying].
- Long-COVID research – The Medical Research Future Fund will receive a further $50 million for research into post-acute sequelae of Covid-19 (PASC) — commonly known as Long Covid.
- SMS scams – $10 million allocated to launch the country’s first SMS sender ID registry and help prevent scammers from spoofing industry or government brand names — such as Linkt or myGov — in text message headers. The registry is intended to assist telcos stop scammers from imitating trusted and established brand names through SMS.
- Women’s Safety – invest a further $326.7 million to improve women’s safety, including addressing violence against First Nations women and children, improving justice response for victim-survivors of sexual violence, and expanding family law property pilot programs to improve separating families.
- Global minimum tax and a domestic minimum tax – based on the OECD Global Anti-Base Erosion Model Rules, which are designed to ensure large multinationals pay an effective minimum level of tax on the income arising in each jurisdiction where they operate. The global minimum tax rules would allow Australia to apply a top-up tax on a resident multinational parent or subsidiary company where the group’s income is taxed below 15 percent overseas. This rule applies to companies with annual global revenue of A$1.2 billion or more.
Contributed by friend of Alman Partners Rick Walker of Lorica Partners.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.