October 2022 Federal Budget Update
Introduction
The Albanese Government has handed down its self-described "solid and sensible" budget in a very different economic environment to March this year when the Morrison government was revealing theirs.
It has outlined several key measures focussed on cost-of-living pressures, however with the need to prove their credentials as effective economic managers, there was little by way of significant additional spending particularly in the current inflationary environment. Rather than more traditional tax cuts or cash handouts, this budget was focused on taking the first step on fixing more structural taxation and economic issues to reduce longer-term pressure on inflation and interest rates.
In positive news, with low unemployment and higher export prices, this year’s budget bottom line is expected to improve from a forecast $78b deficit 6 months ago, to $36.9b today, but there are major challenges to the budget ahead.
How does the Budget impact you?
We have prepared a summary of the most relevant changes, but as always, please speak to your FMD adviser if you have any questions about your personal circumstances.
Superannuation
Downsizer contribution age reduced from 60 to 55
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. Other eligibility criteria remain the same.
Social Security
Reducing Assessment of Home Sale Proceeds
For individuals on social security benefits, home sale proceeds intended for the purchase, repair or renovation of a home will see an extension of the temporarily assets test exemption of from 12 months to 24 months. Additionally, these proceeds will only be deemed to earn a return at the lower deeming rate (currently 0.25% per annum) for this period. This exemption only applies to the portion of the proceeds expected to be used in a new home purchase.
Cheaper Medicines
The Government has committed to reduce the cost of the general co-payment on the Pharmaceutical Benefits Scheme (PBS) from $42.50 to $30.00 per script from 1 January 2023.
This will cost $787 million over the next four years.
Commonwealth Seniors Health Card
To increase the number of people eligible for the Commonwealth Seniors Health Card which offers significant savings, 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.
Deeming Rates
To assist with the rising cost of living for older Australians who rely on income from deemed financial investments, as well as the pension, the Government will freeze the current social security deeming rates of 0.25% (lower rate) and 2.25% (higher rate) at their current levels for a further two years until 30 June 2024.
Work Bonus
To support pensioners who want to work for more hours and boost the supply of labour to help meet current shortages, the Government will provide age pensioners and veterans a one-off $4,000 credit to their Work Bonus income bank for 2022-23.
The temporary income bank credit will increase the amount pensioners can earn this financial year from $7,800 to $11,800 before their pension is reduced.
Personal Income Tax
Cessation of the Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) will cease from 2022-23. This will affect individuals who are earning between $37,000 and $126,000 in personal income – and may result in increased tax payable.
No changes to Stage 3 tax cuts
There were no changes announced to the legislated Stage 3 income tax cuts, which come into force from the 2024/25 financial year onwards and result in:
- The 37% marginal tax rate being abolished,
- The 32.5% tax rate reducing to 30%, and
- The threshold for the top marginal tax rate (45%) increasing from $180,000 to $200,000
These changes will result in the following likely tax implications for individuals, from the 2022/23 FY onwards:
^ Additional tax payable in 2022/23 compared to 2021/22 financial year
^^ Tax savings in 2024/25 compared to 2022/23 financial year
Changes to share buybacks
The Government has announced that the tax treatment for off market buybacks by listed companies will be treated in the same way as on market share buybacks. ASX-listed companies like BHP and Rio have undertaken off market buybacks at a lower price than the on-market price using franking credits to equalise the value.
This has been of particular benefit to low (or no) tax entities such as superannuation pension accounts where the franking credits were then received as a rebate. This measure is expected to save the budget $550m over 3 years.
Home Ownership and Affordability
National Housing Accord
In effort to assist more people into home ownership, the Government has announced the National Housing Accord which brings government, institutional investors including super funds and the construction sector together with an aspirational target of delivering one million affordable, well-located homes over five years from 2024.
This is on top of measures previously announced including the Housing Australia Future Fund, which promised 30,000 new social and affordable housing properties in five years, the Regional First Home Buyers Support Scheme where the government guarantees up to 15% deposit for eligible buyers removing the need for lenders mortgage insurance and the shared equity Help to Buy scheme which will support first home buyers to buy a home with the Federal Government being a part owner.
Families
Paid Parental Leave
From 1 July 2023, the Government is proposing to give families access to more leave and greater flexibility by combining ‘Parental Leave Pay’ and ‘Dad and Partner Pay’ into a single scheme of up to 26 weeks leave, which can be shared between eligible parents on a ‘use it or lose it’ basis, and single parents will be able to access all 26 weeks.
The leave can be taken in blocks as small as a day at a time, between periods of paid work. The paid parental leave income test will be extended to include a $350,000 family income test to help families who do not meet the individual income test.
Child Care Subsidy (CCS) Changes
The Government aims to ease the cost of living for families and encourage parents to return to workforce participation by increasing the maximum CCS rate from 85% to 90% for families earning less than $80,000. For every $5,000 earned over this threshold the subsidy will reduce by 1% reducing to zero for incomes $530,000 or above. The higher rate of subsidy (up to 95%) for families with multiple children in care will continue, ceasing once the eldest child reaches six years old or has been out of care for 26 weeks.
Aged Care
Aged Care Reform
Continuing the task of improving aged care following the Royal Commission into Aged Care Quality and Safety, the budget includes a number of aged care spending measures.
As previously announced, the Government will provide an additional $2.5 billion over 4 years from 2022–23. Some of the measures include the requirement for a registered nurse on site 24 hours per day, 7 days per week, and an increase in care minutes per resident.
As low wages in the sector have been an impediment to recruitment and the quality of care, the Government had also previously agreed to fully fund the wages increases which are expected to flow from the pending Fair Work Commission hearing. While these increases are yet to be finalised, the government has deposited an undisclosed sum of money (some estimates are of $3 billion or more) into a contingency reserve to fund this.
The Government will allocate a further $540 million over 4 years from 2022–23 to improve oversight of the system including establishing a national registration scheme and code of conduct for personal care workers and an Aged Care Complaints Commissioner.
Home Care Package Fees
In the March Budget the previous Government added 80,000 Home Care Packages aimed at keeping older Australians in their own homes longer.
This Budget includes measures that attempt to improve the home care services by introducing price caps for the administration and management fees component of home care packages and removing exit fees charged by providers.
NDIS
The Budget papers show that NDIS costs will increase by 14% next year which in the Treasurer’s own words is “putting incredible pressure on the budget”.
While this Budget focuses on measures to crack down on fraud and smoothing access to the unwieldy system of service delivery, there will need to be a careful review of the program for the next budget, as on it’s current trajectory the NDIS could cost the budget as much as the Aged Pension in just a few years.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.