Last night Treasurer Jim Chalmers delivered the first Federal Budget for the Albanese Labor Government.
It is a relatively simple budget. Policies on economic reform or changes to Australia’s tax system will have to wait for the May 2023 Budget, or later.
The Budget appears consistent with the need to keep fiscal expenditure expansionary but with the intention of limiting any additional inflationary pressures. It also aims to address the government’s long-term debt position, which supports Australia’s AAA credit rating.
Treasury is now forecasting a more difficult outlook for the Australian economy. It expects GDP growth to decline to only 1.5% in FY24, unemployment to rise by 0.75% and for inflation to remain at higher levels for the next 3 years. Inflation is forecast to reach 5.75% by mid-2023, before falling to 3.5% in 2024.
Treasury’s economic outlook:
The budget position has improved compared to Treasury’s forecast in March. A combination of a tight labour market, high commodity prices, and a strong rebound in economic activity compared to last year sees the budget deficit declining to $37 billion in 2023.
Traditionally, budgets don’t have a major or prolonged impact on the equity market, and we don’t see the current combination of policies as anything different. Few households or businesses are likely to feel worse off, but, simultaneously, few will feel much better off as any cost-of-living adjustments are quickly absorbed.
Here are the key Budget points that may impact strategies for our clients.
Superannuation announcements were largely absent from the Budget. Two things to note:
- Expanding eligibility for downsizer contributions – the minimum eligibility age for making downsizer contributions will reduce from 60 to 55 years of age (but this legislation is already going through parliament). The measure should take effect from 1 January 2023. The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home of 10 or more years.
- SMSF audits – the Budget ruled out a proposal by the previous Government announced but never implemented – replacing annual SMSF audits with a three yearly cycle.
- Superannuation Guarantee – there were no changes to currently legislated rates of the superannuation guarantee, which are:
Commonwealth Seniors Health Card
- Lifting the Income Threshold for eligibility – the income threshold to be eligible for the Commonwealth Seniors Health Card (which provides cheaper pharmaceuticals for those aged 67+) will increase from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. Again, these changes are well progressed in parliament.
Personal Income Tax
- Tax Rates – No changes to the currently legislated personal income tax arrangements, meaning the stage 3 tax cuts legislated for 1 July 2024 will proceed. All taxpayers earning over $45,000 and up to $200,000 will pay a marginal tax rate of 30%, effectively removing the 37% tax bracket.
- Digital currencies not taxed like foreign currencies – The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. This maintains the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment.
- Depreciation – the Government has not announced any extension of the temporary full expensing (TFE) measure which currently permits a deduction for the full cost of certain depreciating assets acquired and used by eligible businesses. The TFE measure will continue to apply in relation to eligible depreciating assets which are installed and ready for use by 30 June 2023. Subject to any further announcements, from 1 July 2023, all accelerated depreciation measures will have ended, other than the instant asset write-off under the small business simplified depreciation measures, which will revert to a $1,000 asset cost cap and is limited to taxpayers with aggregated turnover less than $10 million. In addition, a previously announced initiative to allow taxpayers to self-assess the effective life of intangible depreciating assets has been abandoned. The effective lives of intangible depreciating assets will continue to be set by statute.
- Paid Family and Domestic Violence Leave – The Government will provide $3.4 million over 4 years to support the development and delivery of education, technical advice and support services targeting the needs of small business employers to support the implementation of the Government’s election commitment to legislate 10 days of paid family and domestic violence leave.
- Electric Cars FBT exemption – The Government has announced that it will provide an exemption from Fringe Benefits Tax (FBT) in relation to electric vehicles commencing from 1 July 2022. This measure was previously announced, and legislation has already been introduced to Parliament. The FBT exemption will apply to battery, hydrogen fuel cell and plug-in hybrid electric cars that are below the luxury car tax threshold for fuel efficient cars (being $84,916 in FY2023) and first held and used from 1 July 2022.
- Plan for Cheaper Child Care – The Government will provide $4.7 billion over 4 years to deliver cheaper childcare. This includes:
- The maximum Child Care Subsidy (CCS) rate has increased to 90% from 85% in prior years.
- An increase to the CCS rate for all families earning less than $530,000 in household income.
- Whilst the current higher CCS rate for families with multiple children aged five or under has remained unchanged, the higher rate will cease 26 weeks after the oldest child’s last session.
- A comprehensive 12-month inquiry into the cost of childcare undertaken by the Australian Competition and Consumer Commission, and a review of the childcare sector by the Productivity Commission.
- Large providers required to publicly report their CCS-related profits, to improve transparency of the childcare sector.
These additional subsidies will result in the equivalent of 37,000 extra full-time workers being available to employers, which is a positive outcome.
- Paid Parental Leave – from 1 July 2023 either parent can claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time. From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year from 20 weeks until it reaches a full 26 weeks from 1 July 2026. Eligibility will be expanded through the introduction of a $350,000 family income test, which families can be assessed under if they do not meet the individual income test. Paid parental leave will continue to be paid at the rate of the national minimum wage, with no superannuation.
- Aged Care Reform – $2.5 billion over 4 years to fund the following:
- All facilities required to have a registered nurse onsite 24 hours per day, 7 days a week from 1 July 2023 and increasing care minutes to 215 minutes per resident per day from 1 October 2024.
- Establishing the Aged Care Complaints Commissioner within the Aged Care Quality and Safety Commission.
- Financial transparency through the introduction of new financial reporting requirements for residential aged care providers.
- Providing better food for residential aged care and home care recipients.
- Establishment of a national registration scheme and code of conduct for personal care workers in the aged care sector.
- Improve governance in the aged care sector by strengthening regulation of aged care providers.
- Cap administration and management fees charged by providers in the Home Care Packages Program.
- Incentivising Pensioners to Downsize – Changes to the assets and income tests for the age pension when a recipient sells their home. Currently sale proceeds are excluded from the assets test for 12 months if they will be used to buy a new home. This is to be extended to 24 months. In addition, there will be a special rule to calculate “deemed income” on the proceeds at the lowest possible rate for 24 months. Again, both changes are already well progressed.
- Cheaper Medicines – The Government will provide $787.1 million over 4 years to decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme from $42.50 to $30.00 on 1 January 2023.
Ending Violence against Women
- On average, one woman is killed by an intimate partner every 10 days, almost two in five women have experienced sexual harassment at work between 2013-18, and one in three women have experienced violence by a partner, other known stranger, or a stranger since the age of 15. The Government has attempted to combat these statistics through a record investment of $1.7 billion over six years to end violence against women and children. This is underpinned by the implementation of the National Plan to End Violence against Women and Children 2022-32, a policy framework guiding efforts and action. Key budget highlights include:
- Investing $240 million to support the ongoing demand for individualised financial support packages to assist individuals in establishing a life free from violence, through the Escaping Violence Payment (up to $5,000 for eligible individuals).
- Providing $169.4 million over four years to fund 500 frontline service and community workers to support women and children experiencing family, domestic and sexual violence.
- Regional First Home Buyers Guarantee – to support eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5% deposit, with 10,000 places per year to 30 June 2026.
- Great Barrier Reef – $204m allocated to protect, manage, and restore the reef.
Contributed by friend of Alman Partners, Rick Walker of Lorica Partners.
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