2023/24 Federal Budget

The 2023 Federal Budget focuses on providing cost of living relief through lower power bills, higher welfare payments and more support for small business and housing.

Economic and Fiscal Impact

In recent years, the perceived impact of the Federal budget on the economy and financial markets has been relatively subdued, with investors and markets focussed more on the much longer-term rates trajectory.  Not so for the 2023-2024 budget.  With inflation significantly elevated and the RBA still in the midst of a tightening cycle, the importance of the 2023-2024 budget on the Australian economy has been significantly elevated.  While not wanting to stoke further inflation, the Labour Government is also facing increasing pressure to address the rising cost of living, particularly for lower income earners. Solving for these two somewhat competing objectives was always going to be difficult.

Last night Jim Chalmers announced a federal budget that came with a surplus of $4.2bn, the first time in 15 years that a budget has been delivered in the black, a move squarely aimed at the inflation genie.  At the same time, he delivered a $15 billion package of welfare increases, bulk-billing incentives and energy bill discounts, aimed at alleviating cost of living pressures.  So, has the Government been able to perfectly solve for Australia’s two key challenges? Unlikely.  Firstly, the budget surplus was largely delivered courtesy of high commodity prices, a strong job market and a boost in net migration. The surplus is expected to be wiped out relatively quickly, from FY24 onwards, with deficits returning over the forwards estimates because of structural spending programs and a limited amount of productivity enhancing reforms. Secondly, while the cost of living subsidies were delivered in such a way that could actually help lower measured inflation, the RBA will likely look through this and continue to flag upside risks to services inflation. Consequently, we believe further RBA rates hikes are still likely.

There were however some key positives. Forecast net debt as a % of GDP is considerably lower, peaking at around 24%, compared to the previous estimate of over 30%. This will help increase the sustainability of various structural spending programs such as Medicare and the NDIS. On the negative side however, productivity enhancing reforms to raise potential GDP are still needed to reduce the structural deficit more meaningfully. There is also an ongoing reliance on favourable parameter variations in the budget, such as higher commodity prices for longer, to deliver the positive upside Budget surprise.

Summary of impact on inflation and monetary policy

Various subsidies such as those on electricity bills, child-care and rental assistance will help reduce headline inflation. The electricity bill subsidy alone will shave 0.75ppts. However, these subsidies also increase household disposable income. The estimated boost to household incomes over the forward estimate is around $AU17bn. This makes the net impact on underlying inflation more ambiguous, with inflation risks remaining tilted to the upside. Essentially households could spend more because of these subsidies. As a result, we fear the RBA will increase rates again at the June Monetary Policy Board meeting.

Summary

Superannuation

Better targeted superannuation concessions:

The Government will reduce tax concessions on certain superannuation accounts for individuals with a ‘total super balance’ (TSB) of more than $3 million (unindexed). The earnings on any balance that exceeds the $3 million threshold will be subject to an additional tax of 15% (up to 30% in total). Individuals with a TSB less than $3 million will not be impacted by this change, and investment earnings on the accumulation balance will continue to be taxed at the maximum rate of 15%.

Increasing the payment frequency of employer super payments:

Employers will be required to pay their employees’ super at the same time as their salary and wages from 1 July 2026.

Non-arms length income measures for SMSFs and SAFs:

From 1 July 2023, amend the non-arm’s length income (NALI) provisions which apply to expenditure incurred by superannuation funds by:

Limiting income of SMSFs and small APRA regulated SAFs that are taxable as NALI to twice the level of a general expense.  Additionally, fund income taxable as NALI will exclude contributions.
Exempting large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund.

Exempting expenditure that occurred prior to the 2018-19 income year.

Cost of Living

Energy bill relief:

An electricity bill credit of up to $500 will be available in 2023/24 for:

Pensioners
Commonwealth Seniors Health Card holders and other concession card holders
Recipients of Carer Allowance and Family Tax Benefit A and B
Veterans, and those eligible for existing State and Territory electricity concession schemes

Eligible small businesses will receive a credit of up to $650. The amount of the credit will vary depending on the location, with no further details revealed in the Budget.

Pharmaceutical Benefits Scheme changes:

Individuals will be allowed to buy twice as many common medicines for the price of one script under changes to the Pharmaceutical Benefits Scheme from 1 July 2023. This will allow a patient access to 60 days worth of medicine for each script.

The change will save general patients up to $180 a year per subsidised prescription. Concession card holders are expected to save up to $43.80 a year per medicine.

Increased bulk billing:

Children under the age of 16, pensioners and other Commonwealth concession cardholders will have increased access to free healthcare under this measure, with bulk billing incentives being tripled for the most common consultations. This includes face‑to‑face, telehealth and video conference consultations.

Household energy upgrades:

A number of low-cost loans will be provided to access energy-saving home upgrades, such as battery-ready solar panels, modern appliances and other energy efficiency improvements.

Social Security & Aged Care

Increase to working age payments:

The fortnightly rate of JobSeeker Payment and certain other benefits will increase by $40 ($1,040 pa) on 20 September 2023. The minimum age for the higher rate of JobSeeker Payment will also reduce from age 60 to 55 and over for those who have received the payment for nine or more continuous months. Single recipients aged 55 to 59 with nine continuous months on payment will receive an extra $99.40 pf as a result of both changes.

Increasing Rent Assistance:

The maximum rates of Rent Assistance will increase by 15% on 20 September 2023. This will provide recipients with up to $31 extra per fortnight.

Increase to Home Care packages:

As part of a package to improve the in-home aged care system, the Government will increase the number of Home Care packages by 9,500 in 2023/24. This may help reduce the wait time for individuals who are waiting for a package to be assigned to them.

Simplifying home care & assessments:

Combining the Commonwealth Home Support Program (CHSP) and Home Care Packages (HCP) into a new Support at Home program has been deferred a further year until 1 July 2025. This allows further time for consultation and program design.   The new single assessment system (to replace the Regional Assessment Service (RAS) and Aged Care Assessment Teams (ACAT)) is still planned to commence from 1 July 2024.

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.

Increasing the Medicare levy low-income thresholds:

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors or pensioners from 1 July 2022. This means low-income earners will be able to earn more income before being liable to pay Medicare levy.

Small Business Taxation

Small Business Energy Incentive:

Small businesses with an annual turnover of less than $50 million may receive an additional 20% deduction on spending that supports electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business. Eligible assets or upgrades will need to be first used or installed and ready for use between 1 July 2023 and 30 June 2024. Examples of eligible assets include electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

$20,000 instant asset write-off:

Small businesses with an annual turnover of less than $10 million will also be eligible to immediately deduct the full cost of eligible assets costing less than $20,000 for assets that are first used or installed ready for use between 1 July 2023 and 30 June 2024.  Small businesses can instantly write off multiple assets as the $20,000 threshold will apply on a per asset basis.

Housing

Changes to eligibility for home buyer guarantee schemes:

From 1 July 2023, joint applications may be made by friends, siblings and other family members under the First Home Guarantee and the Regional First Home Buyer Guarantee. Non-first home buyers who have not owned a property in Australia in the last ten years will also be eligible. Eligibility for the Family Home Guarantee is also expanding to include eligible borrowers who are single legal guardians of children such as aunts, uncles and grandparents. The number of guarantees available and other eligibility criteria are unchanged.

Note: These changes are proposal only and may or may not be made law.

Disclaimer

The contents of this publication are only intended to provide a summary and general overview of matters of interest in the financial markets and in the economy and are distributed in order to promote broad discussion. The publication does not constitute investment or financial product advice, it does not constitute an offer or invitation to purchase a financial product or financial service, nor does it of itself create a client-financial adviser relationship. To the extent that any part of the contents of this publication may be said to constitute “general advice” we warn you not to act on any matter referred to in this publication without first seeking qualified financial product advice appropriate to your particular circumstances, needs and objectives before acting or relying on any content in this publication. TWD Licensee Services Pty Ltd (ABN 88 605 064 480 – AFSL 475964) makes no warranties or representations about the accuracy or completeness of the content of this publication, and excludes, to the maximum extent permissible by law, any liability which may arise as a result of the use of the content of this publication.