The Australian (Interim) Federal Budget of 2022-23 was handed down last night by Treasurer Jim Chalmers, Labor’s first budget of their administration. Against a backdrop of uncontrollable global turmoil – from a Global Pandemic to natural disasters, war, an energy crisis and inflationary pressure – it is clear the Federal Government has put the focus on everyday Australians in this budget. Chambers outlined his five-point plan to ease the cost of living, some of which includes paid parental leave, housing affordability and wage growth. 

The Treasurer outlined the Government’s expectation for inflation to remain elevated through to the end of this year, with the expectation of reaching 7.75% in December 2022.  Economic activity is forecast to slow from 3.25% in the 2022-23 financial year to 1.5% in 2023-24.  The Government also expects unemployment to rise from its current record lows to be 4.5% by June 2024.   

Here are a few key points from last night’s Budget that may impact you and your family:

Downsizer superannuation contribution eligibility

The Government have confirmed that the eligibility age to make a downsizer contribution has been reduced from 60 to 55 years of age. This allows individuals to make a contribution of up to $300,000 to super using house sale proceeds. All other eligibility requirements such as owning your home for more than 10 years and the property needing to be either exempt or partially exempt from Capital Gains Tax (CGT) remain unchanged. 

This is a welcomed strategy that we have seen benefit many of our clients who are thinking of or have retired. Further to this, we have not seen any significant changes to Superannuation this year which in our belief allows Australians to save for their retirement with the confidence that the rules of super do not need to change with every Budget.

Uplift to paid parental leave

Building on the Women’s Economic Security Package announced in previous budgets, the Federal Government have announced its improvements, representing the biggest boost since its inception in 2018. In a bid to increase the flexibility of parental leave, the changes allow either parent to claim the payment concurrently on a ‘use it or lose it’ basis. The specifics of this are yet to be finalised but will be led by the Women’s Economic Equality Task Force to determine the most appropriate proportion of ‘use it or lose it’ weeks. Sole parents will be able to claim the full period of leave. 

These announcements also expand both the definition and quantum of parent leave, allowing both birth and non-birth parents to receive the payment. The scheme starts with 20 weeks leave (paid at minimum wage) in the 2023FY, with an extension of two weeks per financial year until the target of 26 weeks is achieved in the 2027FY.  

Delivering a family-friendly budget that further implements the Women’s Economic Security Package was undoubtedly a top priority for the Federal Government. The ‘use it or lose it’ scheme incentivizes both parents to take more time away from the workplace to give their children the best start in life while also attempting to manage the gender pay gap and the unpaid labour gap carried out by women in Australia.  

Tax cuts are here to stay

The stage three tax cuts that are set to come into effect in 2024 (and have been legislated since 2018) have been given the green light by the Government after they committed to see them through. This Budget makes no mention of the cuts, meaning they are to go ahead unless anything changes by 2024. Despite costs blowing out, the economic climate changing and politicians on all sides calling for its removal, the Government have been steadfast in its commitment from the election.  

Housing Affordability

The Government announced a Housing Accord with a target to build one million homes in five years, commencing from 2024/25, in a bid to provide more affordable housing. The key three measures to achieve this are: 

The Government have committed $350 million over the next five years to support the funding of an additional 10,000 houses. Further funding has also been allocated to the Help to Buy scheme, which will be established to assist people on low to moderate incomes to purchase new or existing homes, with an equity contribution from the Government. In addition to this, the government will invest $10 billion in the Housing Australia Future Fund which aims to generate returns that could fund 30,000 social and affordable homes over five years.  

Whilst the previous budget measures introduced by the former Government aimed to help buyers to get into the market, this Budget has shifted the focus to addressing the supply issue we have seen in the Australian property market. It is an ambiguous target that has been set but it would be interesting to see if it is achievable in the current market with material supply constraints.

Electric Vehicle (EV) Subsidies

We are having a lot more conversations with clients about purchasing new electric vehicles. The Government has ruled out a return of the tax cut on fuel prices that was introduced as a temporary measure under the Coalition. Instead, they’ve focused on electric vehicles. 

The new policy will cut Fringe Benefits tax (FBT) on EV’s, meaning employers buying them for their workforce could save $9,000 a year while individuals could save $4,700 per year. This measure is not new and due to be debated by the Senate this week. While this measure aims to encourage and promote the purchase of fuel-efficient vehicles, there are some disadvantages such as the vehicle price being capped to the luxury cap tax threshold, the exempt vehicle will still be subject to reportable fringe benefits tax which can impact the individual employee’s entitlement to tax concessions and only employees benefiting from this exemption leaving private individuals and sole traders ineligible. 

Should you have any questions about the Budget and how it may impact your financial future, please contact our Advisers.