On Tuesday 9 May, Australian Treasurer, Jim Chalmers, delivered his Federal Budget – the second since the Labor Party came to power in May 2022.
Read our summary of the Budget, and about some of the key announcements that could affect your financial planning arrangements.
The economic backdrop to this Budget statement
According to Forbes, over the 12 months to the March quarter, the Consumer Prices Index (CPI) was 7%, down from the high of 7.8% from the December quarter.
In an official statement on 2 May 2023, governor Philip Lowe announced that the Reserve Bank of Australia (RBA) was raising the RBA base interest rate to 3.85%.
Furthermore, the most recent International Monetary Fund (IMF) report outlined an uncertain international outlook and forecast Australia’s economic growth at only 1.6% this year and 1.7% in 2024.
However, the IMF also suggested that Australia’s inflation was set to reduce more quickly than forecast by the RBA, projecting it to fall to 4% by the end of the year and to 3% by the end of 2024.
Despite a welcome surplus, the future health of the economy is uncertain
Rising energy and commodity prices and increased productivity meant the Treasurer had a welcome $4.2 billon surplus to announce – the first in more than a decade.
Clearly this surplus, and consequent improvement in national debt figures, are welcome. However it’s highly possible that global, and consequently Australian growth could deteriorate, causing commodity prices to decline in the coming year.
It’s noticeable that the Treasury’s GDP and inflation forecasts are higher than the RBA’s more pessimistic estimates for 2023/24 and 2024/25.
Inflation still remains a very real threat to future prosperity
There has been much debate surrounding whether this Budget helps reduce inflation. The answer isn’t clear.
Firstly, the energy bill relief announced by the Treasurer will temporarily reduce the cost of energy in the headline CPI figures. However, the other new initiatives announced marginally increase fiscal spending and may increase underlying inflationary pressure.
This could be exacerbated by the Treasurer’s focus on ensuring lower-income households largely benefited from the measures announced and are likely to spend most, if not all, of the extra money.
On balance, the impact is likely to be slight and may show up as a slower return to the 2% – 3% CPI target, rather than an increase in inflation.
As a result, it’s not yet clear if the RBA feel a further increase in interest rates will be necessary to help bring inflation down.
The key headlines from this year’s statement
There were five key announcements in the Treasurer’s statement:
- There will be $14.6 billion of cost of living relief, including help with energy bills, a reduction in health costs and the creation of more affordable housing.
- The government is allocating $11.3 billion over four years to provide aged-care workers with an interim wage increase of 15%.
- An extra $40 a fortnight will be delivered for JobSeeker, youth allowance, and Austudy recipients.
- The Medicare bulk billing incentive for doctors will be tripled for the most common type of consultation. The Sydney Morning Herald estimate that this will improve access for 11.6 million children, concession cardholders, and pensioners.
- The maximum rate of Commonwealth Rent Assistance will be increased by 15%.
You should benefit from the “stage 3” tax cuts that are to be retained
The Treasurer confirmed that the previously planned third tranche of tax cuts will come into effect in July 2024.
These will:
- Remove the 37% marginal tax bracket completely
- Lower the 32.5% marginal tax rate to 30%
- Raise the threshold for the 45% marginal tax rate, meaning everyone earning between $45,000 and $200,000 will pay the same 30% tax rate.
The changes are expected to cost $69 billion over the next four years.
Your super arrangements could be affected by 2 changes announced
There was mixed news when it came to superannuation with two contrasting announcements:
1. A reduced tax concession for those with substantial super funds
The government will reduce tax concessions on certain superannuation accounts if you have a “total super balance” (TSB) of more than $3 million.
The earnings on any balance that exceeds the $3 million threshold will be subject to an additional tax of 15%, so raising it to 30% in total.
If you have a TSB less than $3 million you will not be affected by this change, and investment earnings on your accumulation balance will continue to be taxed at the maximum rate of 15%.
2. An increase in the payment frequency of employer super payments
From 1 July 2026, employers will be required to pay super contributions at each payday, rather than quarterly.
The ATO estimate that $3.4 billion of super contributions went unpaid in the 2019/20 financial year.
It’s hoped that the move to monthly payments will ensure more people get paid the superannuation they are owed, and help employees benefit through compounding interest.
If you own a small business you could benefit from 2 tax measures announced
While big businesses will be largely unaffected by the Budget, two supportive measures were announced that will benefit smaller businesses:
1. A new Small Business Energy Incentive
If you own a small business with an annual turnover of less than $50 million you could receive an additional 20% deduction on spending that supports electrification and more efficient use of energy, such as new heating and cooling systems.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 for each business.
The relevant upgrades will need to be first used, or installed and ready for use, in the 2023/24 tax year.
2. Confirmation of a $20,000 instant asset write-off
If your small business has an annual turnover of less than $10 million, you will also be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use in the 2023/24 tax year.
This will apply to each asset, so you will be able to write off multiple assets up to the $20,000 threshold for each.
Get in touch
We will cover any key issues that may affect you at your next annual review, but, in the meantime, if you have any particular concerns please get in touch with us.
Please note
All statistics have been sourced from the ABC News website unless otherwise stated.
These changes are currently only proposals and are subject to legislation.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO legislation, which is subject to change.
