Australian Federal Budget 2022
The AfterPay Budget
Vote Now Pay Later!
Last night, Treasurer Josh Frydenburg delivered the Australian Federal Budget for the next 12 months. But in reality, with the election about to be announced – with an expected poll date of May 14, 2022, (the PM mentioned this date on 2GB this morning) the budget’s main aim is solely to get the Government to that date, and, they hope, elected, despite all polling indications, for a further term of Parliament. The key elements announced and widely reported relate to what the Government calls ‘cost of living’ support. With costs rising over the last few years and significantly in the last few months due to rising fuel prices, supply issues and a lack of wage rises for most Australians, a ‘correction’ in the economy, with an easing of the financial pressure that many have been feeling over the last few years is desperately needed. So what has been offered and forecast?
$250 one-off payment to those on the following payments:
• Age Pension.
• Disability Support Pension.
• Parenting Payment.
• Carer Payment.
• Carer Allowance (if not in receipt of a primary income support payment).
• Jobseeker Payment.
• Youth Allowance.
• Austudy and Abstudy Living Allowance.
• Double Orphan Pension.
• Special Benefit.
• Farm Household Allowance.
• Pensioner Concession Card holders.
• Commonwealth Seniors Health Card holders.
• Eligible Veterans’ Affairs payment recipients and Veteran Gold cardholders.
The payments are exempt from tax and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under two or more categories outlined above. The payment will only be available to Australian residents. This is a one-off payment and NOT an ongoing increase to any of these benefits. The ongoing discussion of the appropriate level of support for pensioners and Jobseekers has not been addressed In the budget. The payment will occur in April 2022 – i.e. after the election has been called but before the polling date.
Temporary reduction in Fuel Excise
The Government will help reduce the burden of higher fuel prices by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel, and all other fuel and petroleum-based products except aviation fuels, for six months. This measure will commence from 12.01 am on March 30 2022, and will remain in place for six months.
However, this may take 2-3 weeks to be seen ‘at the bowser’ as existing stocks are sold and then replaced. Ongoing fluctuations of the crude oil price, production costs and exchange rates may add to or diminish any benefit actually seen at the bowser.
Note that the calculation of indexation will continue to happen over the 6 month period that this ‘relief’ will occur, so when the excise is returned to its ‘normal’ levels in October, we may see a price increase that is well above the 22 cents per litre reduction that we are currently hoping for.
Increase in low and middle-income tax offset
For a number of years, there has been a ‘non’ cash refundable’ tax offset that has been continually extended for ‘one more year’. We have this situation again, but this time with a last ‘bonus’ of $420.
This is the “$420” relief payment that has been described as a ‘cost of living’ tax offset in the budget.
It will apply to everyone who has a taxable income of LESS then $126,000, and its timing is dependent on the lodgement of your 2022 tax returns. i.e. it will NOT be paid before July 1, 2022, and may not be received by many until well into the second half of the year.
Note also that if your total tax payable is less than the total value of the rebate, you may not receive all or any of the benefits.
What has not been mentioned is that this is – at this stage – the FINAL year of this offset, which has been extended year after year for some years now. With the stage 3 tax cuts due to be introduced in 2024-25, people on ‘middle incomes’ ($45,000 to $126,000) will face an effective tax increase in the 22/23 year (i.e. from July 1), So while anyone with an income under $126,000 will receive a benefit of an extra $420 after July this year, they face an additional tax take of $1,080 after July next year. The ‘Afterpay’ effect!
Changes effective for business – and ‘creating growth opportunities’
Skills and training boost.
Some exclusions will apply, such as for in-house or on-the-job training and Expenditure on external training courses for persons other than employees. (Without any legislation, this is open to debate, but it may mean that directors of companies/self-employed business owners CANNOT claim their OWN external training. But until we get details, we cannot be certain. That is not likely to occur until after the election as the changes required for this are not likely to pass through Parliament before the election.)
But while this applies to eligible Expenditure incurred from today, the actual benefit (tax deduction) will not occur until June 30, 2023. i.e. Expenditure from today to June 30, 2022, can ONLY be claimed in the NEXT tax year.
So, using Frydenburgs example from budget night. If you spend $100 on training your staff ‘today’, you can claim a $120 tax deduction (which, with a corporate tax rate of 25%, gives a tax benefit of $30 in 2023 instead of $25 in 2022) and reduce your tax sometime after July 1, 2023.
Technology Investment Boost
Small and medium-sized businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of Expenditure incurred on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems or subscriptions to cloud-based services).
An annual cap will apply in each qualifying income year so that Expenditures up to $100,000 will be eligible for the boost. This equates to a maximum additional deduction of $20,000 per eligible year.
For eligible Expenditure incurred by June 30 2022, the boost will be claimed in tax returns for the following income year. For eligible Expenditure incurred between July 1 2022, and June 30 2023, the boost will be claimed in the income year in which the Expenditure is incurred.
Whether this applies to current subscriptions (such as Xero, office 365 etc.) that are being used or only ‘new’ acquisitions is unclear. And, in the same way, as the ‘skills’ boost, anything incurred that can be claimed in the current year will not be claimed – or provide a tax benefit – until the end of the 22/23 tax year – so the ‘financial benefit’ will not be seen until after July 2023.
Varying the quarterly tax instalments
For those who have ongoing PAYG instalment payments (company tax instalments, investment income or sole traders), the annual calculation of the instalment has often been based on ‘last year’s income plus 10%’ to work out the expected income on which the tax is calculated.
For the next 12 months, the Government has reduced this ‘uplift’ to 2%, so the amount required to ‘cover’ the quarterly instalment will be lower.
While this will assist cash flow in the short term, the kicker is that if your business HAS increased its profit substantially in the year, it will have a LARGER year-end tax bill, as you will have paid less tax ‘as you go’.
The next change – proposed for January 2024 – is to base PAYG instalments on the ACTUAL quarterly performance “Where Business accounting software permits this”. i.e. we may be approaching the need to lodge ‘adjusted profit reports each quarter’ to calculate the tax instalment that needs to be paid. This may have some benefits where income and expenses are very ‘seasonal’ or where there is a large fluctuation in profit each quarter, meaning less tax is paid when times are harder and more paid when funds are flowing – but it will also require all businesses to be ‘on the ball’ with their accounts every month to keep track of their tax liabilities as they go. There will be more on this AFTER the election!
Apprentices and trainees
Frydenberg said the Government would also support an additional 800,000 training places with a A$3.7 billion investment.
There are budget commitments for faster rail projects from Brisbane to the Sunshine Coast, from Sydney to Newcastle, Perth’s METRONET project, the North-South Corridor in South Australia, Great Eastern Drive in Tasmania, and Central Australian Tourism Roads in the Northern Territory.
There is also an investment in the Melbourne Intermodal Terminals to increase the efficiency of the national freight network, and more than A$500 million for local councils to deliver priority projects and A$880 million to better connect regional Australia with ports, airports and other transport hubs.
The worry here is the usual – announcements, not action. And As Leigh Sales on 7:30 last night stated – if you overlay the location of most of the announced plans with the electoral map, they are focused on marginal seats, or seats that the Government need to retain or win. Infrastructure Australia has approved only 12% of the projects, so the announcements don’t tie in with economic or social priority or need in many cases.
Ok, so what are the costs and the losses?
The Rise and Fall of The Arts
Total Federal spending is forecast to reduce by 20% in 22/23, with a $140 million reduction in the RISE funding – from $160 million to $20 million, and then no further after the 22/23 year. This funding supported the ‘rebuild’ of various festivals, tours, exhibitions etc., but needs to continue to help rebuild a sector that was decimated over the last 2 years. There is no growth (beyond marginal CPI increases) in any other part of the Arts funding either. In fact, the total funding is expected to fall from $799 million in 22/23 to $744 million in 25/26. Australian Music Administration spending drops from 6.3 million in 22/23 to nothing in 24/25. Regional Arts funding falls from $18 million to $7 million in 22/23.
At a time when Film Production and post-production, animation, gaming, and music production has the ability to grow and be globally significant, with an “Australian flavour”, the support to grow the sector in all parts of the country is being removed.
Do you wanna build a submarine, I mean a snowman?
Ring the bell – its closing time…
Temporary Full expensing will finish June 2022 – so if you want to claim a full 100% tax deduction ‘up front’ for your equipment or business vehicle purchase, it now MUST be ordered by this June 30 and installed for use by June 30, 2023. Any expectations that this would continue have now finished, and from July 1, 2022, the previous depreciation rates will apply again.
This may also have implications for other ‘instant asset write-offs’, which will need to be examined as regulations and legislation are put in place.
But, Unemployment is being defined as Less than 1 hour of work per week. If we used the same definition as the last time Australia had a sub 4% unemployment rate, we would be looking at something closer to 16.3% taking into account the underemployed levels, so the expectation of wage growth, being based on ‘supply and demand issues alone’ has to be tempered by this factor. Wages won’t necessarily rise if a large pool of underemployed staff can simply have their hours extended instead of being paid ‘more per hour’.
Inflation is forecast to reduce from 4.25% to 3% 2.75% in 23/24, but this will be very dependent on commodity prices falling (including oil), supply change improvements, and exchange rate stability. Any or all of these factors could see inflation stay over 4% p.a. or climb higher – which may lead to interest rate adjustments happening sooner rather than later.
The deficit for the current year is now forecast to be $80 Billion – down by $20 Billion on last year’s forecast (due to higher commodity prices for what we dig up and ship overseas), and ‘stabilise’ at around $78 Billion for the 22/23 year. With ongoing tax revenue increases – arising out of wage and profit growth leading to more tax being paid – the budget is still expected to be $40 Billion in deficit in 25/26.
The Treasurer claims that we have ‘turned the corner’ because the debt peak will now be ‘not as high’ and ‘a bit sooner’ than previously forecast. This sounds like the “Back in Black” pronouncements in the year before the pandemic – which were already proven wrong before that nasty little virus shut most of us into our homes and 5 km walk zones for the last 2 years! A treasurer’s forecasts are often as accurate as the old Lou Richards Kiss of Death Football Tips, so we take much of this with a large pinch of salt.
Total Government spending is around 26% of GDP – It never peaked above 23% of GDP under the previous Labor government. Tax revenue is around 24% of GDP (also higher than the Labor years). So, currently, the Government has what is called a ‘structural deficit’ (in basic terms – it is spending much more than it is earning). While I won’t fall into the simplistic’ home budget’ comparisons, and there are many who will argue that it does not matter if a government runs deficits all the time (as who is going to bankrupt them?), it is much like developing a business – at some point in time, you DO expect that the revenue is going to be greater than the spending, and you recover some or all of the money that you have spent or invested in getting the business going. Repeated waste and inefficiency or politically motivated decisions make this harder to overcome, and governments need to improve their performance in this aspect regardless of their political colours. Much of the deficit could be recovered in this way. E.g. Defence spending, while overall being necessary, has seen so many examples of botched equipment purchases that have cost billions and produced nothing. This money could have been re-purposed for far better uses and saved considerable money and pain.
This budget is not as fiscally responsible as the Government would like you to believe when it’s claiming to be the party of good economic management, but nor is it as fiscally irresponsible as it would like you to believe when it is claiming to have fixed your problem with the cost of living.
We await the Opposition’s reply, and let the election campaign begin!