26 October 2022

The first Albanese/Chalmers Federal Budget was highly anticipated in the context of a potential upcoming recession.

Many people were hoping that rising electricity prices, the increasing cost of living and the current economic outlook would be addressed by this new Government in its first budget. Unfortunately, as the Budget began to roll out, it became evident that the Treasurer was painting a picture that these factors are not going away any time soon and the pain will be felt hardest by people on low incomes or those with heavy mortgages.

As the Budget states; “many indebted households will be more significantly impacted…..low-income households will be more heavily affected.”

By the Government’s own estimates, the cost of electricity is set to rise by 20% to 30% each year. A far cry from the $275 power savings we were promised ad-nauseam during the election earlier this year.

In addition, there was little mention of the slated Stage 3 tax cuts due to come into effect in July 2024, and whether the Government would honour them.

The Stage 3 tax cuts will flatten the individual marginal tax rates by removing the 37% tax bracket entirely, ensuring no individual earning up to $200,000 per year will pay greater than 30%.

Going into last night’s budget, many people were wondering if the Government would cancel stage 3 to make other tax announcements to assist in cost of living relief. Afterall, tax is the main cost to households.

Unfortunately, from a tax perspective, the Low and Middle Income Tax Offset was confirmed to be cancelled effective 30 June 2022, meaning ten million Australians will pay between $675 and $1,500 more tax as result of its scrapping.

The important question for individuals and small to medium businesses, is what other reduction in tax burden in going to be put in place to assist during a time when pressure is being felt so hard?

The focus within this Budget related to government targeted spending areas, most of which had been previously announced, such as:

• Paid Parental leave up to 26 weeks from 20 weeks.

• Childcare costs will be slashed from July next year.

• 480,000 free TAFE places over four years, and an extra 20,000 university places over two years, targeting skills shortage areas.

• Support for electric vehicle (EV) buyers, with a $345m cut to fringe benefits tax on EVs.

• Big infrastructure spends, such as the Suburban Rail Loop in Melbourne, Queensland’s Bruce Highway, and high-speed rail between Sydney and Newcastle, and even a tram in Canberra!

• Increase in number of minutes nursing home residents will receive care, up to 215 minutes per day by October 2024.

With interest rates increasing, high inflation, and labour costs rising, individuals and businesses looking for assistance from the Government to navigate these headwinds will most likely be disappointed by this Budget.

We will have to wait and see how the markets respond to last night’s Budget and in the leadup to the next Federal Budget in May, let’s hope there is better news for us then. But, at this stage, it doesn’t sound like it.

If you’d like to discuss any of the changes announced in the Federal Budget, get in touch with our Accounting and Business Advisory team.