October 2022 Federal Budget Breakdown for Individuals and Businesses
For the second time in 2022, the government of the day has delivered a Federal Budget. Last week’s Budget was the first delivered by the new Labor government that was elected in May 2022.
Given the present state of the economy post-COVID, a worsening economic position due to inflation and increased global instability, rising interest rates and cost of living pressures, the Budget was conservative by nature.
While some initiatives such as the increase to child care subsidies will help, the Budget flags some fairly bracing economic expectations:
- Inflation is expected to hit 7.75% by the end of 2022 before starting to ease over the following two years.
- Unemployment is at a historic low level and is expected to remain low through until June 2024.
- The economy is expected to grow by 3.25% in 2022-23 before slowing to 1.5% in 2023-24.
- Electricity prices are expected to increase nationally by an average of 20% in late 2022, with retail electricity prices expected to rise by a further 30% in 2023-24.
- The deficit sits at $36.9bn, while this is better than originally estimated, the deficit is expected to climb to over $51bn by 2024-25.
- Tight labour market conditions are expected to see annual wage growth pick up to 3.75% by June 2023. Even so, high inflation is expected to see real wages fall over 2022-23 before rising slightly over 2023-24. That is, your wages might increase but the gains will be eaten away by the increasing cost of living.
While the Budget did not contain any single “hero” initiatives, it was wide ranging and introduced a variety of measures.
To help you understand the changes put in place, we have provided a breakdown on what you need to know as an individual and/or business owner.
Individuals and Families
The government is supporting families by providing “responsible” cost-of-living relief to families.
The budget provides for targeted cost-of-living relief by delivering cheaper child care, cheaper medicines, expanding paid parental leave, and measures to support affordable housing.
More affordable childcare
The Government is investing $4.7 billion over 4 years to make early childhood education and care more affordable for Australian families. It is estimated that 96 per cent of families with children in care will be better off and no family is worse off.
From July 2023, Child Care Subsidy rates will increase up to 90 per cent for eligible families earning less than $530,000. The significant cost of early childhood education and care can prevent parents, particularly women, from working as much as they want. It is hoped that these measures will increase the hours worked by women with young children by up to 1.4 million hours per week in 2023–24.
Paid Parental leave
The Government is investing over $530 million over a four-year period to expand the Paid Parental Leave Scheme to provide greater support to families. By 2026, families will be able to access up to 26 weeks of Paid Parental Leave.
The Scheme will have increased flexibility as either parent will be able to claim Paid Parental Leave first and both parents can receive the payment at the same time. The reforms also allow parents to take leave in blocks as small as a day at a time, with periods of work in between.
Cost of medication to decrease
From 1 January 2023, the Government will decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme from $42.50 to $30.00 per script. This provides a $12.50 reduction per script for those paying the general rate.
Aged Care
The Government is committing $2.5 billion over the next four years to help fund more care for older Australians and to increase nursing numbers in care facilities. The package includes:
- Mandating that facilities have a registered nurse on site 24 hours per day from 1 July 2023.
- Increasing average care minutes per resident to 215 minutes per day from 1 October 2024.
- Better food options which are fresh, healthy, and safe.
- Strengthening regulation of aged care providers.
- Capping administration and management fees charged by providers in the Home Care Packages Program.
Addressing the housing crisis
- Housing Accord. The government is seeking to bring stakeholders including state and territory governments, local governments, investors, and representatives of the construction sector together to develop a Housing Accord. The purpose of the Accord is to set a target of delivering 1,000,000 new homes by mid-2029. As part of its commitment, the government will contribute $350m over five years to deliver 10,000 affordable dwellings. States and territories will support delivery of up to a further 10,000 affordable homes.
- Institutional housing investment. Coupled with the general low level of institutional housing investment, the government is eyeing the substantial pool of capital held within the superannuation sector as a source of potential funding for housing.
- Investing in social and affordable housing. The government previously announced its plans to establish a $10bn Housing Australia Future Fund. Returns generated by the fund will be used to build 30,000 new and affordable dwellings over the course of the next 5 years.
Extension of asset test exemption for home sale proceeds
This measure aims to reduce the financial impact on pensioners looking to downsize their homes in the hope to minimise the burden on older Australians and free up housing stock for younger families.
From 1 January 2023, it is proposed that a two-year asset test exemption will be available for home sale proceeds that are going to be used to buy, build, rebuild, repair or renovate a new principal home. Currently, the proceeds from a home sale that are earmarked to buy, build, rebuild, repair or renovate a new principal home are only exempt from the asset test for 12 months.
Only the amount of sale proceeds that will be used for the new home are exempt. For example, if your home is sold for $1 million and $800,000 of this will be used for the new home, the amount exempt under the asset test is limited to $800,000.
The impact of home sale proceeds during the exemption period will also reduce under the income test. Sale proceeds are often deemed to earn an income at the higher 2.25% rate. Under this measure, the exempt amount will have the lower deeming rate applied (currently 0.25% frozen until 30 June 2024).
Reduced impact of employment income on pensioners
Currently, the Work Bonus system allows age and veterans pensioners (both employees and the self-employed) to earn $7,800 per year of employment income with no impact on their pension payments under the income test.
The Government has proposed to add a one-off credit of $4,000 to their Work Bonus income bank effectively increasing the amount of exempt employment income that can be generated in this financial year from $7,800 to $11,800.
The additional $4,000 income credit will be available until 30 June 2023.
Other measures supporting working pensioners include a proposal to allow employment income to exceed the income limits for up to two years without a need to re-submit a pension claim and the Pensioner Concession Card will also be retained for a period of two years where the pensioner has a nil rate of pension due to employment income.
Commonwealth Senior Health Card income thresholds increase
The Government will increase the income thresholds for eligibility to the Commonwealth Seniors Health Card to:
- $90,000 per year for singles (up from $61,284) and;
- $144,000 combined per year for couples (up from $98,054).
SUPERANNUATION
The Budget was virtually devoid of any changes to superannuation. Concerns about a potential freeze on contribution caps and limits to the amount a person can have in superannuation did not transpire – at least not in this Budget.
However, there were two superannuation announcements that will affect some people:
- Downsizer contributions. As previously announced, the government has confirmed the minimum age applying to people wishing to make downsizer contributions to superannuation will reduce from 60 years to 55 years. Currently, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. Downsizer contributions can be made from the sale of your principal residence in Australia that you have owned for the past ten or more years. These contributions are excluded from the age test, work test, and your total superannuation balance (but not exempt from your transfer balance cap). Legislation enabling the expanding eligibility for downsizer contributions is currently before Parliament.
- Self-managed superannuation funds. In the 2021-22 Budget, the previous government announced plans to amend residency rules for self-managed superannuation fund including the abolition of the active member test and extending the central management and control safe harbour from 2 years to 5 years. The government announced they plan to introduce legislation to Parliament with the changes applying from the start of the financial year following the legislation receiving Royal Assent. Unfortunately, another announcement from the 2021-22 Budget that would have provided an opportunity for self-managed superannuation funds to exit legacy retirement products including defined benefit pensions and annuities, was not mentioned in last night’s Budget.
Businesses
The Budget included several measures designed to support the small business community.
These included supporting small and medium-sized businesses to improve energy efficiency and reduce their energy use, delivering a simpler and fairer industrial relations system, and supporting small-business well-being.
As part of their support for small business well-being, the government will commit funds to extending the tailored small business mental health and financial counselling programs, NewAccess for Small Business Owners and the Small Business Debt Helpline.
Energy efficiency grants for SMEs
The Government will provide $62.6m over 3 years from 2022-23 to help small and medium business fund energy efficient equipment upgrades. The funding will support studies, planning, equipment and facility upgrade projects that will improve energy efficiency, reduce emissions or improve the management of power demand. No details of the grants are currently available.
Powering Australia – Electric Car Discount (previously announced)
The Government will cut taxes on electric cars so that more Australians are able to afford them.
From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 in 2022‑23). The car must not have been held or used before 1 July 2022.
Employers will need to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
