In this environment, inflation remains our primary economic challenge – it drives rate rises; it erodes real wages – which is why this Budget is carefully calibrated to alleviate inflationary pressures, not add to them.

Hon Dr Jim Chalmers MP - Parliament of Australia

Budget Speech 2023–24 delivered on 9 May 2023

The Government is in a fortunate position, receiving windfall gains from higher corporate tax due to strong commodity prices and lower welfare payments as a result of strong employment.

The main thrust of the Budget was to ease cost of living pressure over the coming years via energy price relief and reducing out-of-pocket health expenses.

The biggest challenge to the economy is inflation. According to David Bassanese, chief economist at Betashares, the budget is expected to move from a small surplus of $4.2 billion this financial year to a deficit of $13.9 billion next year. This is largely due to $12 billion of net new spending, i.e. money in pockets.

The Prime Minister and the Treasurer are suggesting that the new spending will not add to inflation, which can only mean higher rates and more pain for longer. Bassanese’s take on this is that “contrary to all the talk of a surprise budget surplus for 2022-23, the 2nd Labor Budget under Treasurer Jim Chalmers is unambiguously expansionary, with a boost to GDP growth equivalent to around 1.5% over the next two years. This adds to the risk that the RBA will feel the need to raise interest rates at least once and possibly twice more in the coming month.

The Treasurer has forecast that inflation would slump from 6 per cent to 3.25 per cent over a year while wages would grow by 4 per cent and real GDP growth would fall from 3.25 per cent to 1.5 per cent. Robert Gottliebsen, journalist for The Australian, says that there’s a good chance the forecasts are wrong and, on the balance of probability, inflation will not fall as expected in the budget and there is “risk that a shocked Reserve Bank will not cut rates and may even be forced to raise them.”

To be fair, other commentators do not see the budget as inflationary.

So, whilst the budget was a bit of a yawn without a lot of new measures introduced (the new super surcharge was announced in February), Mr Chalmers is taking a risk that the budget is stimulatory and will add to inflation when it is the highest it’s been since the 1970’s.

I hope his forecasts are right.

The budget analysis provided here focuses on key measures that may impact our pre- and post-retiree clients. It is important to note that at this time these proposed measures are not yet law and could change through implementation.

SUPERANNUATION

Tax concession reduction on super balances over $3 million

The Government has proposed that from 1 July 2025, earnings on an individual’s total super balance

(TSB) of more than $3 million (not proposed to be indexed) will attract an additional 15% tax.

Individuals with a TSB of less than $3 million will not be affected.

In its consultation paper released on 31 March 2023, Treasury outlining the design of the proposal. Whilst no further guidance was provided in the Budget, other than to reiterate that it will be based on a member’s TSB.

The industry had hoped the Government might adjust the method used to calculate the tax (to avoid a current criticism that the proposed method effectively taxes unrealised gains), might index the $3 million threshold or might allow those who exceed it to withdraw some of their super even if they hadn’t yet reached the age where this would normally be allowed. It seems that won’t be happening

No further extension of the halving of the super pension minimums

The government did not announce any extension of the halving of the pension minimum drawdown requirements, which have been in effect since 2019-20. As a result, the minimum drawdown requirements are likely to revert to 100% of the standard minimum from 1 July for relevant income streams, including account-based pensions.

Account-based pension holders who have reduced their pension payments to take advantage of the halved minimums may be forced to increase their pension payments from 1 July. Although the government could still announce an extension of the current halving of the minimum drawdown requirements for these pensions prior to the end of the year, given this wasn’t announced in the Budget it is considered unlikely.

Indexation of the general transfer balance cap to $1.9 million

From 1 July 2023, the general transfer balance cap (TBC) – the amount that can be transferred into an account-based pension – indexes from $1.7 million to $1.9 million as a result of an increase to the CPI.

This is the second time the general TBC has increased due to indexation. Proportional indexing rules mean it is becoming increasingly complex to calculate actual TBCs for those who have already commenced an account-based pension.

Even when the general TBC is increased, not everyone will have a personal TBC of $1.9m – some people will stay on $1.6m or $1.7m and others will receive just some of the $200,000 increase. 

Each person will need to confirm their personal TBC when making decisions relating to super income streams.

SMSF residency rules

While not addressed in the Budget, it is worth bearing in mind the proposed changes to SMSF residency rules.

In the 2021-22 Federal Budget the previous Government had proposed to allow the relaxation of residency requirements for SMSFs and Small APRA Funds (SAFs) by extending the central management and control test safe harbour rule from two to five years for SMSFs, and removing the active member test for both SMSFs and Small Apra Funds.

It was expected for this measure to take effect from 1 July 2022.

The current Government has previously reaffirmed its support for this measure with the effective date to be delayed to the income year commencing on or after the date of Royal Assent of the enabling legislation but no further detail in relation to this proposed measure has been announced.

Increase to the Superannuation Guarantee (SG) rate

Effective 1 July 2023, the SG rate will increase from 10.5% to 11%. As already legislated, the SG rate is set to increase in 0.5% of gradual increments each year until it reaches 12% on 1 July 2025.

Individuals should check with their employers if the increase in SG is being paid in addition to their base salary or if their base salary will be adjusted in order to offset the increase in the SG rate.

Individuals who salary sacrifice to maximise their concessional contributions cap space will need to ensure that the increase in SG will not push them over their allowable cap.

Aligning timing of Superannuation Guarantee payments to payday

Effective 1 July 2026, Superannuation Guarantee (SG) payments made by employers will be required to be paid on the day salaries and wages are paid. Currently SG payments are required to be made on or before a quarterly due date schedule.

A 1 July 2026 commencement date will allow time for the ATO, payroll service providers and superannuation funds to make necessary system changes and for employers to adjust their cash flow practices.

Rules regarding the SG charge will also be amended to align with the increased payment frequency.

TAXATION

No changes to the legislated stage 3 personal income tax changes

There were no announcements to any changes to the legislated stage 3 personal income tax cuts.

This means that from 1 July 2024, the personal income tax rates will be:

2022-23 and 2023-24

From 2024-25

$0 to $18,200

Nil

$0 – $18,200

Nil 

$18,201 – $45,000

19% for amounts over $18,200

$18,201 – $45,000

19% for amounts over $18,200

$45,001 – $120,000

$5,092 + 32.5% for amounts over $45,000

$45,001 – $200,000

$5,092 + 30% for amounts over $45,000

$120,001 – $180,000

$29,467+ 37% for amounts over $120,000

$200,001, and over

$51,592 + 45% for amounts over $200,000

$180,001 and over

$51,667 + 45% for amounts over $180,000

 

 

The table below outlines potential reduction in personal income tax, excluding Medicare Levy and tax offsets, for income earners on specific income amounts.

Income

Personal income tax

2022-23

Personal income tax

2023-24

Difference

in tax

$18,000

Nil

Nil

Nil

$50,000

$6,717

$6,592

$125

$100,000

$22,967

$21,592

$1,375

$150,000

$40,567

$36,592

$3,975

$200,000

$60,667

$51,592

$9,075

$250,000

$83,167

$74,092

$9,075

SMALL BUSINESS

Small Business Support – $20,000 instant asset write-off

From 1 July 2023 until 30 June 2024, eligible small businesses with aggregated turnover of less than $10 million will be able to immediately deduct the full cost of eligible assets costing less than $20,000.

The $20,000 threshold will apply on a per asset basis so that eligible small businesses can claim a full tax deduction for multiple assets. 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 after that.

Small Business Energy Incentive

Small and medium businesses will be incentivised to save on energy bills through the electrification of assets and improvement to energy efficiency. Business with aggregated annual turnover of less than $50 million, will be able to deduct an additional 20% of the cost of eligible depreciating asset that support electrification and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.

Full details of eligibility criteria will be finalised in consultation with stakeholders. Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Certain exclusions will apply to depreciating assets such as electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

AGED CARE

People accessing aged care services have avoided an increase in aged care fees, despite the government needing to find an additional $11.3 billion over the next four years to fund the 15% increase in award wages for 250,000 aged care workers. However, the Budget commentary did signal a potential for client contributions to be reviewed and adjusted, potentially when the new Aged Care Act is introduced on 1 July 2024.

Other measures announced in the Budget continued to show the Government’s commitment to ongoing aged care reform, in line with the Royal Commission findings and commenced in 2021 by the previous Federal Government.

Key initiatives announced in the Budget include commitments to:

  • Fund the 15% award wage increase decided by the Fair Work Commission, which will apply from 1 July 2023
  • Establish a new Aged Care Taskforce to review funding arrangements and provide options that are fair and equitable for all Australians
  • Reduce residential care ratios, in favour of assisting older Australians to stay in their own homes for longer
  • Increase home care packages, making another 9,500 packages available in 2023-24
  • Introduce a new Aged Care Act from 1 July 2024, with reform focussing on a more person-centred and rights-based approach.

OTHER

Age Pension age will be 67 on 1 July 2023

No changes were announced to the legislated increase in Age Pension age. From 1 July 2023, the Age Pension eligibility age will rise to 67 for those born on or after 1 Jan 1957.

The eligibility age was set to increase every two years by six months until it reached 67 on 1 July 2023.

More incentives for Medicare bulk billing

The Government has proposed to triple the incentive provided to general practitioners to bulk bill patients holding a Commonwealth concession card (such as the Pensioner Concession Card and the Commonwealth Seniors Health Card) and patients under the age of 16.

 These increased incentives would apply to:

  • all face-to-face general practice consultations more than 6 minutes in length
  • all telehealth general practice services which are between 6 and 20 minutes in length (Level B consultations)
  • longer telehealth general practice consultations where a patient is registered with their GP through MyMedicare.

It is important to understand that the information provided in this update is a guide only based on our understanding of the 2023-24 Federal Budget Report. The measures covered are not yet legislated and may change or not become law.

As always, if you would like to discuss the likely impacts and considerations for your personally, please contact us to make an appointment.

General disclaimer

This content is intended only to provide a summary and general overview of the subject matter covered. It is not intended to be comprehensive nor does it constitute advice. We attempt to ensure that the content is accurate and current but we do not warrant the content nor its currency. You should seek professional advice before acting or relying on any of the content.

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