Supporting the recovery
The main themes of Tuesday’s budget was job creation and continued support of economic growth – with an overall goal of reaching an unemployment rate of below 5%.
The Government plans to do this via a raft of infrastructure, business and individual spending packages, along with targeted spending on some specific demographics such as aged care, disability and women.
Funding has been provided for the aged care industry to start the management of matters arising from the Royal Commission. Of the almost $18 billion earmarked for aged care, a large proportion is expected to be spent on the workforce, including the number of aged care workers and increased training and support.
The NDIS has been additionally funded to the tune of approximately $13 billion. There was also a Women’s Budget Statement allocating $3.4 billion to improve the economic security and status of women in Australia. There will also be significant funds directed to mental health.
The level of spending announced is expected to result in Australia staying in deficit for at least the next 5 years, with net debt approaching $1 trillion.
Importantly, it is expected that the international borders will remain closed until mid-2022, an assumption which underpins the estimates. Other assumptions made in the budget estimates are widely thought to be conservative which may result in better than expected numbers in the future.
It is widely anticipated this will be the last budget before the next Federal election which puts some of the announced spending into context. Many of the measures announced will not come into effect until after 1 July 2022 or 1 July 2023 – under the administration of the next government.
Announcements – businesses and individuals
There were more winners than losers in this budget and business and individuals are amongst the winners.
Individuals will benefit from the retention of the low and middle income tax offset which, depending on income levels, may see individuals receive a tax offset of up to $1,080. This isn’t a new measure. It has been around since 2018, but was due to expire this year.
Businesses may benefit from the extension of the temporary full expensing of assets now extended to 30 June 2023. This provides businesses with the incentive to invest now in their business, particularly coupled with the ability for companies to carry back tax losses, and low interest rates on borrowings.
Businesses that employ workers will need to be aware the Government has announced superannuation contributions will need to be paid for all employees. The current exemption relating to employees who earn less than $450 per month will be removed. The start date for this has not yet been determined but is widely expected to be 1 July 2022.
There were only a couple of small changes announced in the budget relating to the ability to contribute funds into superannuation, these were amendments to the “downsizer contribution” rules and the work test. Since 1 July 2018, people aged 65 or over have been able to contribute up to $300,000 into superannuation from the proceeds of the sale of their home which was commonly referred to as the “downsizer contribution” measures. These measures will be amended to allow people ages 60 and over to use the concession. Also the work test for people aged 67 to 74 is to be removed which means they will be able to make concessional and salary sacrificed superannuation contributions without having to worry about meeting this test. It’s important to note that it is our understanding that the work test will still need to be met for non-concessional superannuation contributions. Both of these changes will apply from 1 July 2022.
Housing affordability is an ongoing issue in Australia. Along with the changes announced to the downsizer contribution rules, they have announced changes to the First Home Super Saver Scheme which will see first home owners potentially access up to $50,000 of voluntary contributions from their superfund for the purchase of their first home. Other measures announced with a housing affordability focus include establishing the “Family Home Guarantee” program which will support single parents with dependents to purchase a home with a deposit of 2% and they have also extended the First Home Loan Deposit Scheme to assist first home buyers purchase a property with a deposit of as little as 5%.
The Government has provided targeted support to some niche industries such as digital game developers (a 30% tax rebate), distilleries and micro-breweries (excise relief) and medical and biotech development (changes to the taxation of patent income from Australian patents). It is hoped these changes will be the first step to providing more support in the technology and innovation space encouraging Australian developed technology to be commercialized in Australia rather than having to look overseas.
COVID-19 has resulted in an unprecedented movement of human capital around the world, so some technical changes have been made to the Australian tax residency rules and employee share scheme rules to try and attract global talent and businesses to Australia.
If you would like any further information in relation to any of the above, please contact your Holman Hodge adviser.