Federal Budget October 2022

The Treasurer Jim Chalmers delivered the Albanese Government’s first budget on Tuesday, fulfilling their election commitment to reprioritise expenditure allocated by the previous Government in March of this year.   

To this end, the Treasurer has made modest changes that largely reflect the priorities of the new Government as outlined in their election platform. Additionally the Treasurer has demonstrated restraint in pushing recent windfall revenues from strong commodity prices through to the bottom line, reducing the deficit materially for the current year.

The economic environment surrounding the two budgets of 2022 is materially different. The narrative that deficits are acceptable in response to the extraordinary circumstances of the pandemic has been replaced with the burgeoning understanding that the budget must provide for increasingly higher interest payments to service this debt and are cognition that the unconstrained nature of budget measures introduced in past years must be addressed. 

The increase in the National Disability Insurance Scheme (NDIS) payments should not be a surprise, but addressing it today will be a challenge akin to the unwinding of free tertiary education introduced in1974 with fees being reintroduced in 1989. 

The NDIS is a case study in the challenges of legislating social policy that has individual merit but unknown parameters. As noted in our 2013 newsletter when discussing the introduction of the disability scheme (when $1 billion was allocated and $10 billion pushed to some point in the future) … Perhaps Disability Care is an expenditure that is socially responsible but the decisions as to what we as a nation are going to forego to find this money have all been pushed into the future.

In 2018 the budget forecasted the cost at $9billion. Today it is $35 billion and forecasted to reach $52 billion in 2032.Our view back in 2018 was as follows and this view has not changed… The NDIS is a good example of how programs can impact the budget for many years simply because of the subjective nature of the policy’s intent. It will be challenging for future Governments to curtail this expenditure because each individual example will have social merit to be funded. It is only collectively when an expenditure appears unsustainable.

The Budget papers show expenditure to cover debt repayments and the NDIS are each increasing at 14% per annum. These two figures already account for two thirds of the increase in spending pressures over the next decade. These payments must be brought under control before a government(of either side) could comfortably consider introducing new expenditure initiatives.

The Treasurer noted the need for the Government to make the difficult decisions many times but didn’t articulate any details. When you consider the politics of the 3 year Federal Government election cycle, the upcoming Budget in May 2023 becomes the best opportunity to bring bold measures that address the budget’s structural challenges. 

This Budget is largely well accepted without material surprises. The priorities are consistent with what the incoming Government said they wanted to prioritise. We are likely to have to wait until May 2023 to gauge the conviction of the Albanese Government in addressing the structural deficiencies in the Budget that are highlighted in these documents. The measures provided in Tuesday’s Budget are summarised below.

Superannuation

Expanding eligibility for the downsizer contribution: Legislation has been introduced to reduce the downsizer eligibility age from 60 to 55. This measure will take effect from the first quarter after passing into law, which is expected to be 1January 2023.

SMSF and tax residency: The Government confirmed its intention to continue with the2021/22 Budget measure of extending the temporary trustee absence period from two years to five years and removing the ‘active member’ test. These changes will help SMSFs continue to maintain their Australian tax residency even while members are overseas and allow them to continue to contribute to their funds even if they become non-tax residents.

Three-year audit cycle for SMSFs not proceeding: Originally announced as part of the 2018/19 Budget, it was confirmed the current Government will not proceed with this measure.

Superannuation Guarantee: Legislated increases to continue in accordance with original timetable. Currently, Superannuation Guarantee (SG) is 10.5%. It is legislated to increase by 0.5% at the start of each financial year until it reaches 12% on1 July 2025. There is no change to the legislated increase of SG.

No extension to the halving of superannuation income stream minimums: There was no announcement in relation to extending the halving of the minimum amount members are required to withdraw from their pension account beyond the 2022/23 financial year.‍

Social Security

Increased income thresholds for Commonwealth Seniors Health Card: The Government has committed to increasing the income thresholds for the Commonwealth Seniors Health Card to $90,000 for singles and $144,000 combined for couples.

Deeming rate freeze: The Government has also confirmed its intention to retain the current deeming rates until at least 30 June 2024.

Plan for cheaper medicines: From 1 January 2023, the general patient co-payment for Pharmaceutical Benefits Scheme treatments is expected to reduce from $42.50 to $30.

Reducing assessment of former home proceeds: For individuals on social security benefits, the temporary assets test exemption of home sale proceeds is to be extended 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. Note: This exemption only applies to the portion of the proceeds expected to be used in a new home purchase.

Work Bonus deposit for older Australians: Age pensioners and veterans over service pension age are expected to receive a one-off credit of $4,000 into their Work Bonus income bank. The Work Bonus typically offsets $300 per fortnight of income earned from employment or self-employment activities, allowing pensioners to receive a higher age pension whilst still working.

Childcare subsidy changes: As part of a package of reforms to encourage parents to return to the workforce, the maximum childcare subsidy from 1 July 2023 will increase to90% 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 $530,000or above. The higher rate of subsidy for families with multiple children in care will continue under its current arrangements, ceasing once the eldest child reaches six years old or has been out of care for 26 weeks.

Paid parental leave increases: Announced before the Budget, from 1 July 2024 the Paid Parental Leave Scheme will increase the maximum period of leave by two weeks each year, reaching a maximum of 26 weeks by 1 July 2026.

Further, from 1 July 2023 both parents will be able to access leave at the same time or enter into more flexible arrangements than currently available under the limited Dad and Partner Pay limits, and requirements to take 12 weeks as a continuous period. The paid parental leave income test will also be extended to include a $350,000 family income test, which can be used to help families who do not meet the individual income test.‍

Personal Taxation

No changes to personal income tax: The Budget did not contain any measures announcing changes to personal income tax. This includes:

• no changes to the Stage 3 tax cuts which will take effect from 1 July 2024, and
• no extension of the Low and Middle Income Tax Offset, which ended 30 June 2022.

Helping enable electric car purchases: For purchases of battery, hydrogen, or plug-in hybrid cars with a retail price below $84,619 (the luxury car tax threshold for fuel efficient vehicles) after 1 July 2022, fringe benefits tax and import tariffs will not apply. Note: Employers will still need to account for the cost in an employee’s reportable fringe benefits.

Home Ownership

Housing affordability measures: A key focus of the Budget were measures to help individuals secure housing. This is expected to occur largely via the Housing Accord – which will bring Federal, State and Local Governments together to work on housing affordability and homelessness. Measures announced include:

• A commitment to the ‘Help to Buy’ scheme which will support first home buyers to buy a home with the Federal Government     being a part owner, resulting in a lower balance to be funded by the individual themselves.
• A Regional First Home Buyer Guarantee from 1 October 2022 which, similar to the existing First Home Deposit Guarantee     scheme, is expected to provide up to 10,000 first home buyers with a guarantee over their mortgage, removing the need for lenders mortgage insurance.

Aged Care

The Government is increasing funding to reform aged care, including:

• Establishing an aged care complaints commissioner, introducing new financial reporting requirements, supporting the sector in providing better food for residential and home care recipients and establishing a national registration and code of conduct for workers.
• Capping administration and management fees in the Home Care Packages Program and abolishing exit fees.
• Requiring all facilities to have a registered nurse onsite 24 hours per day, 7 days a week from 1 July 2023 and     increasing care minutes to 215 minutes per resident per day from 1 October     2024.
• Improving aged care infrastructure and services that support older First Nations people, and older Australians     from diverse communities and regional areas.

Education

Free technical and education courses: The Government is providing 480,000 fee-free TAFE and community-based vocational education places to give Australians access to the skills they need for the jobs of the future. A $1 billion one-year National Skills Agreement will deliver 180,000 fee-free TAFE and community-based vocational education places throughout 2023, with a further 300,000 places to follow from 2024.‍

NDIS

The Government will provide additional funding over the next three years to support people with disability and their families:

• $385 million in 2023/24 in additional funding to the National Disability Insurance Agency (NDIA) for operational funding     to support NDIS participants.
• $21.2 million over three years from 2022/23 for NDIS Appeals providers to support people with disability and their     families with the Administrative Appeals Tribunal (AAT) appeals process.
• $18.1 million over two years from 2022/23 to review NDIS design, operations and sustainability.
• $12.4 million in 2022/23 to introduce an expert review pathway to resolve disputes arising from NDIA decisions, reduce the number of appeals to the AAT, and provide better and earlier outcomes for NDIS participants.

Advancing gender equality measures

Women’s safety: The Government announced they will provide funding for an additional 500frontline service and community workers across Australia to increase the support available for women and children experiencing family, domestic and sexual violence.

Tackling the gender pay gap: This Budget puts forward several measures to close the gender pay gap, including embedding gender equity in the Fair Work Commission’s decision making process requiring the Commission to consider gender equity when setting minimum wages.

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