With seven months before the 2023-24 Budget released in May 2023, this Federal Budget is a shuffling of the deck not a new set of cards due to externalities – war, floods, global uncertainty and cost of living pressure.

While some initiatives such as the increase to child care subsidies will help, the Budget flags some fairly bracing economic expectations:

• Inflation expected to peak at 7.75% in the December quarter and will persist at higher rates for longer than expected before easing to 3.5% by June 2024.
• Real GDP is forecast to grow to 3.25% in 2022-23 then retract to 1.5% in 2023-24.
• Electricity prices are expected to increase nationally by an average of 20% in late 2022, with retail electricity prices expected to rise by a further 30% in 202324.
• The deficit sits at $36.9bn, while this is better than originally estimated, the deficit expands to $49.5bn by 2025-26.

Here is the Reserve Bank of Australia’s snapshot of the Australia economy as of 10 October 2022:

Click to skip to the relevant item/s:

• Individuals and Families
• Superannuation and Investors
• Business and Employers
• Government and Regulators
• The Economy

Individuals and Families

Child Care Subsidy increase

From 2022-23

As previously announced, the maximum Child Care Subsidy (CCS) rate will increase from 85% to 90% for families earning less than $80,000. Subsidy rates will then go down one percentage point for each additional $5,000 in income until it reaches zero per cent for families earning $530,000.

The current higher CCS rates for families with multiple children aged 5 or under in child care will be maintained, with these rates ceasing at 26 weeks after the older child’s last session of care, or when the child turns 6 years old.

In addition, from 2022-23, a base entitlement to 36 hours per fortnight of subsidised early childhood education and care will be implemented for families with First Nations children, regardless of activity hours or income level. In addition, there will be requirement of an electronic payment of early childhood education and care gap fees to weed out fraudulent claims when using the Child Care Subsidy.

Paid parental leave reforms

From 1 July 2023

As previously announced, from 1 July 2023 the Government will introduce reforms to change the Paid Parental Leave Scheme 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’re eligible.

Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.

From 1 July 2024, the Government will begin expanding the scheme from the current 18 weeks by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis.

Note: Sole parents will be able to access the full 26 weeks.

Encouraging pensioners back into the workforce

From 2022-23

Age and veterans pensioners will now be able to work and earn more before their pension is reduced.

The Government is providing a one-off $4,000 credit to their Work Bonus income bank. The Work Bonus increases the amount an eligible pensioner can earn from work before their pension rate is reduced. The Work Bonus operates in addition to the pension income test free area.

This allows pensioners who work on an ad hoc basis to not be disadvantaged compared to those with regular fortnightly income.

Lifting the income limit on Seniors Health Card

As previously announced, the income test limits will be increased for access to the Commonwealth Seniors Health Card (CSHC), which provides subsidised pharmaceuticals and medical benefits.

The income test captures adjusted taxable income plus deeming on account-based pensions unless grandfathered under the pre-1 July 2015 rules. The CSHC is not asset tested.

Aged care reform

As previously announced, $2.5bn will be provided over 4 years to improve the quality of aged care in residential aged care facilities by requiring all facilities to have a registered nurse onsite 24 hours per day, 7 days a week from 1 July 2023. Care minutes will also be increased to 215 minutes per resident per day from 1 October 2024.

Income support asset test extended on proceeds of sale of main residence

As previously announced, the Government is:

• Extending the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients, and
• Changing the income test, to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.

The exemptions apply until the income support recipient acquires another main residence or the 24-month period expires. The Bill enabling the extension is currently before Parliament.

Electric car discount

Fringe benefits provided on or after 1 July 2022 for eligible cars first held and used on or after 1 July 2022

Fringe Benefits Tax and import tariff exemption for certain battery, hydrogen fuel cell and plug in hybrid vehicles.

Superannuation and Investors

‘Downsizer’ eligibility reduced to 55

From First quarter after Royal Assent

As previously announced, the Government will reduce the age an individual can make a ‘downsizer’ contribution to superannuation from the current 60 years to 55 years of age.

Currently, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.

Downsizer contributions can be made from the sale of your principal residence in Australia that you have owned for the past ten or more years. These contributions are excluded from the age test, work test, and your total superannuation balance (but not exempt from your transfer balance cap).

Relaxation of SMSF residency requirements – Delayed

The 2021-22 Budget announced that the residency rules for Self-Managed Superannuation Funds (SMSFs) and small APRA regulated funds (SAFs) will be relaxed by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.

This measure was due to commence from 1 July 2022. The Government has announced that it will defer the start date to the income year commencing on or after the date of Royal Assent of the enabling legislation.

3 year SMSF audit requirement – Scrapped

Back in the 2018-19 Budget the Government announced that SMSFs with a history of good record-keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.

The Government has now officially announced that this measure will not be proceeding.

Cryptocurrency not a foreign currency

As previously flagged, the Government will legislate to clarify that digital currencies such as Bitcoin will continue to be excluded from the Australian income tax treatment of foreign currency.

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 and Employers

Self-assessment of intangible assets – Removed

Announced in the 2021-22 Budget and due to commence on 1 July 2023, the measure enabling taxpayers to self-assess the effective life of certain intangible assets, rather than being required to use the effective life currently prescribed by statute, has been removed.

Companies to declare their subsidiaries

From 1 July 2023

New reporting requirements from 1 July 2023 will require:

• Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile;
• Tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence); and
• Large multinationals, defined as significant global entities, to prepare for public release of certain tax information on a country by country (CbC) basis and a statement on their approach to taxation, for disclosure by the ATO.

Government and Regulators

ATO targets in sharp focus

Personal income tax deductions and incorrect reporting

The ATO will receive an additional $80.3 to crackdown on non-compliance including:

• Overclaiming deductions; and
• Incorrect reporting of income

The spend is expected to increase tax receipts by $674.4m and payment by $80.3m over 4 years.

Cash payments and tax evasion by business

The ‘shadow economy’, cash-in-hand payments including underpayment of wages, visa fraud, and other nefarious activity that deprives the economy of the income from tax receipts, will come under scrutiny with the extension of the ATO’s Shadow Economy Program for a further 3 years from 1 July 2023. Over this period, the program is estimated to increase tax receipts by $2.1bn and payments by $685.2m over the 4 years from 2022-23.

Multinational business and the Tax Avoidance Taskforce

The ATO’s Tax Avoidance Taskforce will receive an additional $200m over 4 years from 1 July 2022 primarily to pursue multinational enterprises and large public and private businesses. This taskforce is expected to deliver a whopping $2.8bn in additional tax receipts and $1.1bn in payments over the 4 year period.

The Economy

The Government appear keenly aware of the economic balancing act taking place, keeping the budget predominantly to election promises and redirecting existing initiatives to avoid inflationary pressures.

The global economic environment has sharply deteriorated. Inflation has risen rapidly across advanced economies. The Russian invasion of Ukraine has significantly driven up global energy costs and exacerbated the impact of poor weather on global food prices. All of this impacts on Australia.

Here are the highlights:

GDP – Real GDP is forecast to grow by 3¼ per cent in 2022-23 before slowing to 1½ per cent in 2023-24, as cost of living pressures and rising interest rates increasingly weigh on household disposable income and consumption. The Government warn that with the highly uncertain global economic outlook, there are significant risks that could cause a sharper slowdown in domestic activity.

Inflation – forecast to peak at 7¾ per cent in the December quarter of 2022. Supply disruptions have resulted in large price increases in home building, fuel and energy. Food prices remain elevated and have been further exacerbated by recent floods. Some of these pressures are expected to persist into 2023. Inflation is expected to remain elevated at 5¾ per cent over 2022-23 and 3½ per cent over 2023–24 before gradually easing and returning to within the Reserve Bank’s inflation target by 2024-25.

Deficit – lower the originally estimated at $36.9bn. However, the deficit is expected to climb to over $51bn by 2024-25 with the impact of higher inflation on indexed payments for services, the NDIS in particular.

Gross debt – is close to one trillion dollars and is at the highest level as a share of GDP in over 70 years.

Tax receipts – revised up by $54.4bn in 2022-23 and $142.0 billion over the 4 years to 2025-26.

Unemployment and wages growth – labour market conditions are expected to remain tight. The unemployment rate is forecast to rise to 4½ per cent by the June quarter of 2024. Tight labour market conditions are expected to see annual wage growth pick up to 3¾ per cent by June 2023. However, high inflation is expected to see real wages fall over 2022-23 before rising slightly over 2023-24.

Energy – Electricity and gas prices are expected to rise sharply over the next 2 years, as the cost of energy market disruptions are passed through to households. Treasury has assumed retail electricity prices will increase by an average of 20% nationally in late 2022. Retail electricity prices are expected to rise by a further 30% in 2023.

Domestic gas prices remain more than double their average prior to Russia’s invasion of Ukraine. Retail prices are expected to increase by up to 20% in 2022-23 and 2023-24.

Other

Some other changes in the Budget include:

• A $1.7 billion investment over six years to support women’s safety
• A $3 billion investment to deliver better aged care 
• 480,000 fee-free TAFE places and $50 million invested in a TAFE technology fund to modernise the institutions to try and improve the capabilities of Australians
• Delivery of 10,000 affordable homes over five years from 2024
• Extra funding of $166.2 million over the next four years to the ATO and ASIC to continue rollout of Modernising Business Registers program, which will consolidate over 30 business registries into a modernised registry platform, including the operation and regulation of the director ID regime.  

For advice on any of the topics mentioned in the Federal Budget, contact us today!