Federal Budget 2022-23
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With Australia’s deficit tipping $30 billion and rising inflation projected to peak at 7.75% later this year, before moderating to 3.5 per cent in 2023-24, Labor’s first budget since 2013, focuses the bulk of government spending on health, education, aged care, and defence.
The budget papers paint a pessimistic debt and deficit picture over the decade, with $11bn in higher deficits expected in 2024-25 and 2025-26. As a proportion of GDP, the deficit is worse in 2032-33 than the current financial year
In a shock for households and businesses, Treasurer Jim Chalmers warned Australians to brace for energy price hikes of up to 56 per cent – increasing an average of 20 per cent nationally in late 2022 and a further 30 per cent in 2023-24, and a two-year freeze in real wages as the federal budget is hit by an explosion in costs to service the NDIS and the interest bill on the national debt.
Dr Chalmers was yet to determine how the government would tackle the structural deficit but signalled there would be a combination of new taxes and spending cuts.
The budget presented a $7.5 billion package was a five-point plan for cost-of-living relief – providing little to drive economic growth and tackle structural spending pressures.
Personal income tax
Business owners
Superannuation
Social security
Other
Delivering his first Budget speech on Tuesday evening, Mr Chalmers said the Budget aims to “confront Australia’s housing problem”.
With rental costs set to jump “considerably” in the next two years adding strain to household budgets and fuel inflation amid stronger population growth and limited housing stock a new housing accord between governments, investors and industry announced by Dr Chalmers on Tuesday, backed with an initial $350m pledge, has an ambition of building “one million new, well-located homes over five years from 2024”.
With supply not keeping up with demand Mr Chalmers said that “most of this supply needs to come from the market, not the government”. He added that the government would “play a leading role” by coordinating and kick-starting investment.
Building a million homes
Among the measures are a range of investments relating to affordable housing.
This includes through the $10 billion Housing Australia Future Fund (to be managed by the Future Fund Management Agency) to build 30,000 social and affordable homes over five years. The fund will provide 20,000 new social housing dwellings and 10,000 new affordable housing dwellings, including for frontline workers.
As such, a National Housing Accord – which has been developed following months of consultation with state governments, the building industry, and members of the superannuation industry and institutional investors – forms part of Labor’s plan to help build a million “new, well-located homes” over the next five years.
The Budget earmarks an additional $350 million in funding under the Accord, which will help incentivise superannuation funds and other institutional investors to make investments in social and affordable housing. This aims to help deliver another 10,000 affordable homes over five years from mid-2024 “as capacity constraints are expected to ease”.
This will be delivered through an ongoing funding stream to help cover the gap between market rents and subsidised rents – making more projects commercially viable. There will be ongoing availability payments over the longer term, to deliver an additional 10,000 affordable dwellings.
States and territories will also support up to an additional 10,000 affordable homes, increasing the dwellings that can be delivered under the Accord to 20,000. State and territory governments will also help expedite approvals for social and affordable housing when it comes to zoning, planning and land release, for example.
Home Guarantee schemes and Help to Buy
While the Labor party is seeking to address cost-of-living expenses through “productivity” measures (such as delivering cheaper child care and providing longer paid parental leave to better support working parents) rather than providing additional grants or subsidies – there are still some grants available for housing.
These include the continuation of the Coalition Government’s First Home Guarantee, Family Home Guarantee – and Labor’s new Regional First Home Buyer Guarantee – which will support 10,000 new homeowners each year to 30 June 2026.
The Budget also sets aside money for its new Help to Buy Scheme (set to commence from July 2023).
The government will spend $324.6 million over four years from 2022–23 to establish the Help to Buy scheme to assist people on low to moderate incomes to purchase a new or existing home with an equity contribution from the Government
The shared equity scheme (first pitched during the ALP’s election campaign), involves an equity contribution from the federal government of up to a maximum of 40 per cent of the purchase price of a new home (and up to a maximum of 30 per cent of the purchase price for an existing home).
Buyers would only need to have a deposit of at least 2 per cent and they will not need to pay lenders mortgage insurance (LMI). There will be 10,000 places each financial year.
Mr Chalmers noted that this will therefore allow up to 40,000 eligible Australians to own their own home “with a lower deposit and smaller mortgage”.
The program will be open to Australians with a taxable income of up to $90,000 per annum, or for couples with a combined income of $120,000, who currently don’t own or have an interest in a residential property. It is not only open to first home buyers.
A Defence Home Ownership Assistance Scheme
The Government is also committing $46.2 million to assist current and former Australian Defence Force members to purchase their own home through the Defence Home Ownership Assistance Scheme.
This will support veterans and Australian Defence Force members to purchase a home through monthly subsidies on mortgage interest payments.
The expansion will reduce the minimum service periods for subsidised mortgage interest payments and remove the current post separation timeframe to allow veterans to access the scheme any time after they leave the ADF.
Reducing downsizer age
More older Australians will also be encouraged to downsize their homes, freeing up housing stock for younger families.
The Australian Government is extending the exemption of home sale proceeds from pension asset testing from 12 months to 24 months. This will give pensioners more time to purchase, build or renovate a new home before their pension is affected. In addition, the Australian Government is expanding access to downsizer superannuation contributions for people aged 55 to 59.
“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,” the Budget document reads.
“Both members of a couple can contribute and contributions do not count towards non-concessional contribution caps.
“This measure provides greater flexibility to contribute to superannuation and aims to encourage older Australians to downsize sooner to a home that better suits their needs, thereby increasing the availability of suitable housing for Australian families.”
The Albanese Government did not make any changes to the stage three tax cuts however announced some significant and wide ranging proposals.
This summary provides coverage of the key issues of most interest to you.
Personal income tax
No changes to the currently legislated personal income tax arrangements
Digital Currency – clarifying that digital currencies are not taxed as foreign currency
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. This measure removes uncertainty following the decision of the Government of El Salvador to adopt Bitcoin as legal tender and will be backdated to income years that include 1 July 2021.
The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.
Business owners
Depreciation – reverse taxpayers to self-assess the effective life of intangible depreciating assets
The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021-22 Budget.
Reversing this decision will maintain the status quo – effective lives of intangible depreciating assets will continue to be set by statute. This will avoid the potential integrity concerns with the previously announced measure and contribute to budget repair.
Electric Car Discount (previously announced)
The Government will cut taxes on electric cars so that more Australians are able to afford them.
From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 in 2022‑23). The car must not have been held or used before 1 July 2022.
Employers will need to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
Improving the integrity of off-market share buy-backs
The Government will improve the integrity of the tax system by aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. This measure will apply from announcement on Budget night (7:30pm AEDT, 25 October 2022).
Superannuation
Superannuation – expanding eligibility for downsizer contributions (previously announced)
The Government will allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. The measure will have effect from the start of the first quarter after Royal Assent of the enabling legislation. This was a pre-election announcement.
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. Both members of a couple can contribute and contributions do not count towards non-concessional contribution caps.
Social security
Plan for Cheaper Child Care
The Government will provide $4.7 billion over 4 years from 2022–23 (and $1.7 billion per year ongoing) to deliver cheaper child care, easing the cost of living for families and reducing barriers to greater workforce participation. This includes $4.6 billion over 4 years from 2022–23 to:
Boosting Parental Leave to Enhance Economic Security, Support and Flexibility for Australia’s Families
The Government will introduce reforms from 1 July 2023 to make the Paid Parental Leave Scheme flexible for families so that either parent is able to 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.
Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
Lifting the Income Threshold for the Commonwealth Seniors Health Card
The Government will increase the income threshold for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.
Other
Philanthropy – updates to specifically listed deductible gift recipients
The Government will amend the tax law to specifically list Australians for Indigenous Constitutional Recognition as a deductible gift recipient (DGR) for donations made from 1 July 2022 to 30 June 2025.
The Government will also extend the listing of Australian Women Donors Network as a DGR for 5 years, for gifts made from 9 March 2023 to 8 March 2028.
Taxpayers may claim an income tax deduction for donations of $2 or more to DGRs.
New cyber security measures
The October 2022-23 Budget will provide $31.3 million in additional funding in 2022-23, providing cyber security services to agencies with fewer resources as part of its whole-of-Government Cyber Hub program uplift package.
(Source: Macquarie – what it means: https://www.macquarie.com.au/advisers/federal-budget-oct-2022/clients.html)
Anthony Landahl | Managing Director Equilibria Finance
This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.
Equilibria Finance is a mortgage broking practice specialising in delivering residential and commercial mortgage and business and asset finance solutions to the clients of financial advice and accounting practices.
