Federal Budget 2022: what it means for you

The Federal Treasurer, the Hon Dr. Jim Chalmers, delivered the second Federal Budget of 2022 and the first by the Albanese Labor Government on 25 October 2022. As expected, the October 2022-23 Federal Budget has focused on families, education, health, aged care, energy, and affordable housing. 

Please find below a summary of the key Federal Budget proposals:

Superannuation

• Expanding eligibility for Downsizer Contributions - 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 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.
• Previously announced in the 2021/2022 Budget, the residency requirements applicable to SMSFs and small APRA funds were set to be relaxed through:

           o The extension of the central management and control test “safe harbour” from two to five years, and
           o The removal of the “active member” test – which would allow members who are temporarily absent from Australia to continue contributing to their SMSF.

Personal income tax

• No changes to the currently legislated personal income tax arrangements.
• Digital currencies will not be taxed like foreign currencies.

Business owners

• Depreciation – reverse taxpayers to self-assess the effective life of intangible depreciating assets.
• Powering Australia – Electric Car Discount - The Government will cut taxes on electric cars so that more Australians are able to afford them.
• Improving the integrity of off-market share buy-backs.

Social security

• Plan for Cheaper Child Care.
• Boosting Parental Leave to Enhance Economic Security, Support and Flexibility for Australia’s Families.
• Lifting the Income Threshold for the Commonwealth Seniors Health Card. - The Government recommitted to increasing the income thresholds for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles, from $98,054 to $144,000 for couples and from $122,568 to $180,000 for couples separated by illness, respite care, or prison.

Other

• Philanthropy – updates to specifically listed deductible gift recipients.
• New cyber security measures.

What does the Federal Budget mean for the market?

The Albanese Government has delivered a prudent budget, consistent with the need to keep fiscal expenditure expansionary but with the intention of limiting any additional inflationary pressures. Treasury is now forecasting a more difficult outlook for the Australian economy. It expects GDP growth to decline to only 1.5% in 2023/23, unemployment to rise by 75bps, and for inflation to remain at higher levels through the next 3 years.

Who wins? 

Against a backdrop where economic growth is slowing, but where the fiscal position remains strong, the budget prioritises four key areas with targeted spending addressing: 

• Cost of living; - The focus of this budget is to ease the cost of living, albeit, in a manner that does not generate further inflationary pressures. Unlike the previous budget, cost of living supports are largely indexation-based compared to direct cash handouts.
• Parental and childcare support - Households earning less than a combined $350,000 in income can access paid parental leave, expanding the eligibility criteria that previously depended on an individual income threshold ($150,000). Parents can now also take leave at the same time.
• Infrastructure - The budget will allocate $9.6 billion towards several nationally significant infrastructure projects; 
• Health, education, and community services. The Government will provide additional funding over three years from 2022-23 to support people with disability and their families

Who loses?

This budget did not propose any major long-term reforms that structurally alter the Australian economy. While some modest spending supports environmental restoration and research, a targeted boost to infrastructure and tax breaks for electric vehicles will encourage cleaner transportation, there is little to promote a substantial transition to a more sustainable economy in the near term. In addition, there will be no cash handouts via direct intervention. A cut to the fuel excise will not be reinstated, and cost of living supports will be adjusted via indexation, as opposed to immediate payments.

This is a very targeted budget. It aims to address the government's long-term debt position, which supports Australia’s AAA credit rating but does not provide any large-scale fiscal relief. We do not see it as providing a major boost for the equity market aside from housing and to a lesser extent infrastructure.
In line with growth downgrades through 2023/24, it removes any upside surprises from government spending. Further, we don’t see the budget providing much additional support for the Australian Dollar which is now reliant on interest rate (and to a lesser extent growth) differentials.

Please note the Budget announcements still need to be passed by both the House of Representatives and the Senate and are not yet law.

Should you wish to discuss the announcements and the possible implications in relation to your financial planning strategy, please free to contact our office at 03 9695 5600 or email finplanning@required.com.au.

Source: https://budget.gov.au/index.htm