On 11 May, Treasurer, Josh Frydenberg gave his third annual Budget statement.
There was much speculation that this was a pre-election Budget, and that the government will look for a fresh mandate at the end of 2021.
In theory, they could wait until 2022, but economic indicators suggest that the long-term economic forecast isn’t good, so it’s been suggested that this Budget “primes the pumps” for an election sooner rather than later.
Despite the positive news in terms of reduced infection rates and vaccine rollout, the pandemic loomed large over this statement, and the signs are that its impact will continue to be felt for years to come.
Here is an overview of the key announcements made, and how some of these could impact on your personal finances.
When putting his Budget together, the Treasurer based his decisions on a series of assumptions:
- The whole Australian population will be vaccinated by the end of the year.
- There will be no sustained state border closures this year.
- There will be no further major Covid outbreaks.
- International borders won’t start to operate reasonably normally until the middle of next year.
Massive public spending commitments
In their pre-Budget analysis, the Sydney Morning Herald were able to list more than 50 spending commitments that the government had already announced would be included in the Budget.
These range from $74.6 billion spending on job creation, including tax cuts, business tax breaks and big spending on social services, down to funding to support the Brisbane bid for the 2028 Olympics.
It’s therefore clear that the coalition are hoping that this level of spending will boost the economy enough to help reduce the massive debt.
Support for businesses
The $74.6 billion referred to above includes a year-long extension of easier rules for businesses. If they have up to $5 billion in annual turnover, they can deduct the full cost of assets they buy, if they do so by June 2023.
The government are also extending a scheme to allow small businesses to “carry back” old losses and cut their tax bills. This means any losses incurred up to June 2023 can be offset against prior profits made going back to the 2018/19 financial year.
These announcements are clearly good news for business owners.
Changes to superannuation
The government announced two changes to superannuation that could provide some valuable flexibility for anyone close to retirement and looking to boost their super fund.
- Voluntary contributions can now be made to a super without a “work test” being required.
- Those aged over 60 can contribute up to $300,000 into their super if the money is raised from them downsizing and moving to a smaller home.
They also enhanced the Pension Loan Scheme by providing immediate access to lump sums of around $12,000 for singles, and $18,000 for couples.
These supernation changes are expected to take effect on 1 July 2022 pending the passage of legislation through Parliament.
Tax offset extended for a further year
The tax offset for low- and middle-income earners will remain in place for another year, expiring on 30 June 2022.
This tax rebate, which you receive after submitting your tax return, is worth different amounts to different income groups.
This is how much you can expect to receive:
No changes were announced to tax thresholds, though you will recall that the Treasurer previously brought forward changes to these in his October 2020 statement, so a further change so soon after wasn’t expected.
The upper threshold of the 19% tax rate therefore remains at $45,000, and the upper threshold of the 32.5% tax rate remains at $120,000.
Back in 2019, the government announced that further tax cuts would come into force in 2024/25. No indication was given in the Budget that this will change.
Although not officially part of the Budget announcement, interest rates clearly impact on economic activity.
A week prior to the Budget, the Reserve Bank of Australia kept official interest rates on hold. The cash rate currently sits at 0.1%, where it has remained since November 2020.
This clearly makes borrowing money cheap and should therefore boost business investment. However, with little further scope for a rate reduction, it does raise the importance of government spending to encourage economic growth.
The road ahead
The Covid-shaped hole in the economy clearly dwarfed all other considerations when it came to setting this Budget, although the forthcoming general election probably ranked a close second.
Treasurer Frydenberg sees expanding the economy and boosting growth as the best way to reduce the deficit, projected to reach $1 trillion by 2023/24.
However, many of the government’s key announcements this year are expansions to ongoing services, and therefore adding to underlying year-on-year spending.
This means that at some stage, public spending will have to be cut, and that the deficit will be a looming problem for years to come.
Get in touch
Please get in touch with us if you would like to know more about how the 2021/22 Budget could impact on your financial planning.