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Federal budget: Here’s what you need to know

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Treasurer Jim Chalmers delivered the Albanese government’s second federal budget on Tuesday evening, 9 May, outlining a number of key cost-of-living measures alongside a slim surplus. 

The Treasurer has forecast a “small” surplus on the back of a surge in revenue driven by high iron ore, coal, and gas prices, alongside low unemployment and wage growth. If realised, this will be the first budget surplus in 15 years. 

“We are now forecasting a small surplus in 2022–23 — which would be the first in 15 years,” Treasurer Chalmers said. 

“The forecast surplus in 2022–23 of $4.2 billion (0.2 per cent of GDP) is a dramatic turnaround from the $77.9 billion deficit we inherited from the previous government.”

But the Treasurer warned that the return to black is only temporary and that smaller deficits are expected after that. 

“We expect that to be followed by a deficit of $13.9 billion in 2023–24,” he noted. 

“And lower deficits across the forward years compared to recent budgets leading to a $125.9 billion improvement over five years and a much lower public debt burden.” 

The Treasurer explained that the slim surplus had been achieved by banking up to 87 per cent of the proceeds of upward revisions to revenue. 

The Treasurer confirmed that gross debt to GDP is now expected to peak lower and earlier at 36.5 per cent of GDP in 2025–26, where it will be $154 billion less than was expected in March 2022.

“And because we are returning most of the welcome improvement in revenue to the budget, debt will be almost $300 billion lower by the end of the medium term, saving $83 billion in interest costs over the next 12 years,” he said. 

According to the budget, persistent inflation and higher interest rates are expected to slow real GDP growth to 1.5 per cent in 2023–24, before it lifts to 2.25 per cent in 2024–25. 

Meanwhile, the unemployment rate is projected to remain low by historical standards, rising modestly to 4.25 per cent in 2023–24 and 4.5 per cent in 2024–25.

Inflation is expected to fall to 3.25 per cent in 2023–24 and return to the Reserve Bank’s target band in 2024–25. 

Higher taxes 

There was no news on the Morrison government’s Stage 3 tax cuts, which are scheduled to be implemented on 1 July 2024 and are anticipated to primarily benefit the wealthiest individuals.

PRRT

Measures to increase tax revenue include changes to the Petroleum Resource Rent Tax (PRRT).

“The government is reforming the Petroleum Resource Rent Tax to ensure a fairer return to the Australian community from Australia’s liquefied natural gas resources while providing certainty to industry and investors to support domestic gas supply and ensure Australia remains a reliable trade and investment partner,” the government said.

The government has forecast $2.4 billion more in petroleum resource rent tax over four years by capping the proportion of PRRT assessable income that can be offset by deductions to 90 per cent.  

The change, to take effect from 1 July, will bring forward the date that liquefied natural gas projects are expected to pay PRRT.

Multinational tax crackdown

During the election campaign, Labor announced its support for the OECD/G20 two-pillar solution on reforms that included a global minimum corporate tax rate of 15 per cent.

The idea is to ensure that multinationals pay their fair share of tax, help stop the “race to the bottom” on corporate tax rates and support the domestic and global economy. 

On Tuesday, the budget papers confirmed that the government will implement key aspects of Pillar Two of the OECD/G20 two-pillar solution to address the tax challenges arising from digitalisation of the economy. 

These include a 15 per cent global minimum tax for large multinational enterprises with the Income Inclusion Rule applying to income years starting on or after 1 January 2024 and the Undertaxed Profits Rule applying to income years starting on or after 1 January 2025.

Also included is a 15 per cent domestic minimum tax applying to income years starting on or after 1 January 2024.

Cost of living 

Tuesday’s budget included a $14.6 billion cost of living relief package over four years. 

“Our $14.6 billion cost‑of‑living plan will provide help with power bills, bring down out‑of‑pocket health costs, support vulnerable Australians, create more affordable housing, and boost wages,” the Treasurer said.

The funds cover energy relief for households and small businesses, a boost to JobSeeker of $40 per fortnight as of 20 September, and an increase to the age cut-off for the Parenting Payment (Single) from eight to 14 from 20 September 2023. 

Energy costs

Some 5.5 million Australian households and 1 million businesses are to receive financial support with their rising energy bills under a multi-billion-dollar package. 

From July 2023, this plan will deliver up to $500 in electricity bill relief for eligible households and up to $650 for eligible small businesses.

Small Business Energy Incentive 

Moreover, the Treasurer unveiled the Small Business Energy Incentive scheme, under which small businesses that embrace energy-efficient technology will qualify for bonus tax rebates of up to $20,000, with the program projected to incur expenses of approximately $314 million over a span of four years.

The small business energy incentive is billed as a “bonus tax deduction” — providing businesses (annual turnover of less than $50 million) with an additional 20 per cent deduction on spending supporting “electrification and more efficient use of energy”. 

Small businesses would be permitted to claim up to $100,000 of total expenditure, with a maximum bonus tax deduction of $20,000 per business.

Businesses would need to deploy or install eligible assets between 1 July 2023 and 30 June 2024.

Alongside the tax rebates, small businesses can also tap into the Energy Efficiency Grants for Small and Medium Sized Enterprises (EEGSME) scheme, which was first announced in March. 

Under this scheme, small and medium sized businesses can apply for up to $25,000 in federal government grants, with the funding intended to help enterprises install new energy-efficient technology and investigate ways to effectively reduce their power usage. 

Superannuation 

Payday super

The government reflected on the earlier announced payday super, which obliges employers to pay super at the same time as their employees’ salary and wages from July 2026. 

It confirmed in the budget papers that from 1 July 2026, employers will be required to pay their employees’ SG entitlements on the same day that they pay salary and wages.

The government will also provide $40.2 million to the Australian Taxation Office (ATO) in 2023–24, which includes $27.0 million for the ATO to improve data matching capabilities to identify and act on cases of SG underpayment by employers and $13.2 million for consultation and co-design.

In total, this package is estimated to increase receipts by $835.0 million and decrease payments by $243.1 million over the five years from 2022–23.

New tax rate

Also featured is the introduction of a new tax rate of 30 per cent on superannuation balances over $3 million. 

In February, Treasurer Jim Chalmers confirmed that the government intends to increase the concessional tax rate applied to accumulation phase earnings from 15 per cent to 30 per cent for individuals with super balances exceeding $3 million from the 2025–26 financial year. 

According to the government, the changes are expected to apply to less than 80,000 individuals in 2025–26, or approximately 0.5 per cent of individuals with a superannuation account. The measure will not place a limit on the amount of money an individual can hold in superannuation. The current contributions rules continue to apply.

In the budget, the government confirmed that this measure is estimated to increase receipts by $950.0 million and increase payments by $47.6 million over the five years from 2022–23. This includes $50.0 million in receipts associated with updating the notional contribution calculation methodology, applicable to all defined benefit members. 

In 2027–28, the first full year of receipts collection, the measure is expected to increase receipts by $2.3 billion. 

Amending measures of the former government

The government confirmed that it will amend measures announced by the former government to provide greater certainty to taxpayers, including amending the start date of the 2016–17 MYEFO measure: Tax integrity – franked distributions funded by capital raisings from 19 December 2016 to 15 September 2022. 

Also among the amendments are changes to the non-arm’s length income (NALI) provisions which apply to expenditure incurred by superannuation funds by: 

  • limiting income of self-managed superannuation funds and small Australian Prudential Regulation Authority (APRA) regulated funds 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.

Sustainable finance

The government intends to provide $14.2 million over four years from 2023–24 to support its sustainable finance agenda, including:

  • $8.3 million over four years from 2023–24 (and $1.3 million per year ongoing) to establish a sovereign green bond program to raise capital for environmental and climate change-related programs;
  • $4.3 million in 2023–24 for the Australian Securities and Investments Commission (ASIC) to ensure the integrity of sustainable finance markets by investigating and undertaking enforcement action against market participants engaging in greenwashing and other sustainable finance misconduct;
  • $1.6 million in 2023–24 to support the initial development of a sustainable finance taxonomy for classifying economic activities according to their impact on sustainability goals.

Funding for ASIC activities will be cost recovered through levies under ASIC’s industry funding model.

Small business relief

The government has pledged to improve cash flow and reduce compliance costs for small businesses by temporarily increasing the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024.

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

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

Additionally, the government is providing approximately 2.1 million eligible small businesses with cash flow relief by halving the increase in their quarterly tax instalments for GST and income tax in 2023–24.

Instalments will only increase by 6 per cent instead of 12 per cent to reflect the economic conditions currently faced by the sector.

Housing investment incentives 

The budget also confirmed that the government will provide a number of investment incentives to help boost supply in Australia’s housing market.

Specifically, the withholding tax rate for eligible fund payments from managed investment trusts to foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024 will be halved from 30 to 15 per cent.

Additionally, the capital works tax deduction depreciation rate for eligible new build-to-rent projects will be lifted from 2.5 per cent to 4 per cent per year for projects.

“Industry estimates this could unlock 150,000 rental properties over 10 years, boosting the supply of high-quality, long-term rentals in the Australian market,” the budget said.

Net Zero Authority 

As announced last week, the government will legislate a national Net Zero Authority. The funding will come from the $1.9 billion Powering the Regions Fund to support existing industry and new clean energy industries, creating a $400 million industrial transformation stream.

In a joint statement, Prime Minister Anthony Albanese, Treasurer Jim Chalmers, and Minister for Climate Change and Energy Chris Bowen said the new authority would ensure the “workers, industries, and communities that have powered Australia for generations can seize the opportunities of Australia’s net zero transformation”.

The government said that it intends to have an agency established by 1 July that will provide advice to the government on the design and establishment of the Net Zero Authority.