On Tuesday 29 March, Treasurer Josh Frydenberg dropped his fourth federal budget amid pre-election campaigning.
After a tumultuous couple of years, replete with pandemic induced business strain, several new tax and cash incentives, unprecedented natural disasters, and a soaring cost of living, this will be a budget worth paying attention to.
While we unpack the content and implications of this year’s budget, it’s prudent to note the election timing of the announcements and the broader context that this budget has fermented in.
We’re staring down the barrel of a sizeable deficit, which will have long lasting effects, tempered by currently favorable economic buoyancy.
With low unemployment (under 4%), a strong labour market, solid exports, and high consumer spending, the health of the current economy could certainly be worse.
This is tempered by the continuing negative effects of COVID-19, increased natural disasters, the conflict in Ukraine, stalled wage growth, and the rising cost of living.
In real terms, the federal government expects a deficit of $79.8 billion for 2021-22 and $78.0 billion for 2022-23. The net debt is expected to be around $714.9 billion for 2022-23 and forecasts predict this will increase to $864.7 billion in 2025-26. Future generations will likely be feeling the brunt of this.
Tax implications and changes
Any accountant worth their salt will be looking squarely at the tax implications of this year’s budget. Let’s uncover the main components.
LMITO extension and temporary increase
The LMITO (or lamington) has been extended for one more year, impacting low and middle income earners and sole traders.
On top of the legislated one-year extension, there’s also an additional, one-off payment of $420. This means the current lamington at $1080 will increase to $1500 for the 2021/2022 tax year.
In Treasurer Josh Frydenberg’s words, “There’s tax relief for more than 10 million low-and-middle income earners with a new one-off $420 cost of living tax offset worth $41.1 billion. It is due to kick in after the election on July 1.”.
20% increase to certain small business deductions
Small businesses across Australia will be incentivised to invest in training, invoicing, cloud computing, cybersecurity and web design.
For every $100 a business invests in these areas, they’ll receive a $120 tax deduction. This will be capped at $100,000 per year.
Small businesses are defined as those turning over less than $50 million a year, so the scope will encompass around 3.6m Australian businesses.
Personal tax rates remain unchanged
As previously legislated, the Stage 3 personal tax rates will not change from their already slated position and will go ahead as planned for the 2024/2025 tax year.
Trust income will be digitalised
Those who file trust tax returns will now be granted the choice to do so electronically. Electronically filed tax returns can be prefilled and include automated ATO assurance processes. Slated to kick off from 1 July 2024, software providers will be consulted and generally expected to help facilitate this.
Companies will have their options for PAYG installments expanded from 1 January 2024. A company may then choose to have their PAYG installments calculated form their current financial performance. This would involve gathering data from accounting software and would then be possibly subject to tax adjustments.
What will this budget mean for superannuation? Let’s look at the two primary changes and considerations that were laid out.
Extension to Super pension drawdown measure
The existing and temporary 50% reduction to the minimum payment amounts for super pensions will be extended for a year. This means the drawdown measure will stay in place for the 2022/2023 tax year.
No changes to Super Guarantee rate
The Super Guarantee rate rise (from 10% to 10.5%) that was slated for the 2022/2023 tax year will remain unchanged and in place.
Other incentives, handouts, and measures
There are a number of other interesting, if temporary, measures that have been introduced in this year’s budget. While helpful to SMEs and taxpayers, these could also be seen as electioneering tactics.
Incentives to hire apprentices
A new $1.3 billion investment will be aimed at increasing the number of tradies in training, while also assisting job completion stats.
The initiative is targeted at industry areas with work shortages and will also entail specific investment in encouraging women to uptake roles in traditionally male dominated employment areas.
Apprentices in selected industries will receive $5000 paid over two years.
If a business employs such apprentices, they’ll will receive wage subsidies up to 10% for hiring those trainees.
Petrol excises for personal and work vehicles
All motorists, including those businesses with work vehicles, will receive a modest measure to temporarily reduce their fuel costs.
The fuel excise will be halved for six months, to a rate of 22.1%. This roughly equates to a saving of $11 for a 50 litre tank.
If you extrapolate those savings over the six months, motorists will see a few hundred dollars reduced from their vehicle operating costs.
This measure will be policed by the competition watchdog and will kick in immediately from midnight on Budget night.
$250 cost of living payment
A very modest, one-off payment of $250, allegedly to offset the rising cost of living, will be offered to eligible concession card holders, pensioners and veterans.
Three-month extension to apprentice wage subsidies
The two apprentice wage subsidy measures, ‘Boosting Apprenticeship Commencement’ (BAC) and ‘Completing Apprenticeship Commencements’ (CAC), will be slightly extended by three months to 30 June 2022.
Future generations will bear the cost
The future generations of Australia, including up and coming business owners, will likely bear the long-term brunt of this budget.
There’ll be a very sizeable deficit to accompany the short term focused and high spending budget, which future Australians may need to shoulder.
Coupled with yet more inaction on climate change, the environmental and economic cost of this continued inaction will reverberate for generations to come.
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