The lead up to and delivery of this year’s federal Budget was surrounded by plenty of hype, and for good reason – being an election year, the Budget was delivered early and with high expectations. With cost of living pressures rising quicker than wages, many were rightly concerned about how households may fair.
Importantly, with our nation advancing towards a post-pandemic life, Australians were eager to know how budgetary measures would affect them, their investment activity and retirement plans.
As expected, this Budget was about winning votes. Targeted at giving a little to a lot is exactly the strategy that one would expect the race is expected to be close. The budget is about jobs and it’s about financial responsibility. But it’s also about casting the net as wide as possible. This is important given that every person gets one vote.
There’s several key items financial advisers look for when interpreting the Budget each year and how it will impact their clients. Naturally, we also look out for how the Budget and any associated regulatory or compliance change will impact the industry in which we operate.
There were few standout Budget announcements having major material impact on a large part of the population, with measures geared towards easing cost of living pressure for low-to-middle income earners. However, my observations this year are:
Tax and levies
- Minor tax offset changes for low- and middle-income earners
- Medicare low-income threshold increased
- An immediate halving of the fuel excise applied to diesel and petrol to 21c per litre for six months
- No changes to individual tax rates up until 2023-24
Support for business
- PAYG instalments to be calculated based on financial performance from 31 December 2023
- Expanded access to Employee Share Schemes in unlisted companies up to $30,000 per year plus 70% of dividends/cash bonuses
- From 30 June 2022 small businesses with a turnover of less than $50m can:
- Deduct an additional 20% of expenditure incurred on education and training provided to employees
- Deduct 20% of costs incurred on expenses associated with digital adoption
Superannuation and retirement
There wasn’t a lot for superannuants. I guess for this we should be thankful. Australians are tired of the superannuation tinkering. However, I fear this will be short-lived. The attraction for governments that is superannuation will be too hard to resist if budgetary pressures build. Some of the more notable changes:
- A range of threshold changes have been implemented worth noting to individuals and business owners, taking effect from 1 July 2022:
- Superannuation guarantee increased up to 10.5%
- Extension of 50% reduction in minimum pension drawdown to 30 June 2023
- Legislative changes applied from 1 July 2022 will mean new non-arm’s length income (NALI) and expenditure rules will prevent superannuation funds from circumventing contribution caps and artificially inflating fund earnings
Cost of living and social security
- Tax exempt support payments up to $250 will be offered to eligible recipients across a range of concession car holder areas
- The Pharmaceutical Benefit Scheme net thresholds reduced to $1,457.10 for general patients and to $244.80 for concessional patients
- Enhanced paid parental leave integrating dad and partner paid parental leave up to 20 weeks
- Broadening income test to include additional household income of $350,000/year for paid parental leave
What does it mean for investors?
Broadly, The Federal Government’s 2022-23 Budget provides reason for optimism as the nation recovers economically and socially from COVID-19. Aussie shares should benefit from the continued government spending, however bond investors must remain cautious in anticipation of an RBA rate hike in the coming months.
Now we wait for the Federal election in May to determine which of the current Coalition Government’s budget commitments will be delivered – or axed – pending the result. Stay tuned for some campaign announcements over the next few weeks form both sides as the seek to lure the swing voters and the what’s in it for me crowd.