The biggest talking points in this year’s pre-election budget

The Treasurer revealed a $78 billion deficit (3.4 per cent of GDP), down from a $79.8 billion deficit the year before.

"Over the next three years, this will more than halve to 1.6 per cent," he said. He confirmed that net debt as a share of the economy will peak at 33.1 per cent at 30 June 2026, significantly lower than the forecast last year.

Halving of super drawdowns extended

The federal government is extending the 50 per cent reduction to minimum superannuation drawdown requirements for retirees into the next financial year.

Originally announced in March 2020 as part of the government’s response to the pandemic, Treasurer Josh Frydenberg said the reduction would now remain in place until 30 June 2023.

Around 1.8 million super accounts are currently subject to the minimum drawdown requirements that apply to account-based pensions and similar products.

Under the reduced minimum drawdown rates, self-funded retirees aged between 65 and 74 must withdraw 2.5 per cent of their account balance each year to be eligible for tax-free status on their earnings.

The minimum drawdown rate is currently 3 per cent for ages 75 to 79; 3.5 per cent for ages 80 to 84; 4.5 per cent for ages 85 to 89; 5.5 per cent for ages 90 to 94; and 7 per cent for ages 95 and above, while a rate of 2 per cent applies to those under 65.

Making good on NALI

Meanwhile, the government has made good on its promise to change the non-arm’s length income and expenditure rules.

NALI is designed to prevent superannuation funds from circumventing contributions caps, and artificially inflating fund earnings through non-commercial dealings.

Previously, industry stakeholders have raised concerns with the rules particularly on potential consequences for super funds and its interpretation by the Australian Tax Office (ATO).

The government is expected to ensure the legislative changes apply from 1 July 2022.

$800m small business and sole trader package

Lowering tax instalments

Mr Frydenberg announced several new initiatives for small to medium businesses, one of the most prominent being changes to the GDP ‘uplift rate’, which is used to calculate quarterly Pay-As-You-Go (PAYG) tax and GST instalment. The rate will sit at 2 per cent for the 2022-23 financial year, significantly lower than the 10 per cent rate that would have applied under the statutory formula.

According to the Treasurer, a lower uplift rate will mean lower instalments, delivering $1.85 billion in cash flow support for 2.3 million small to medium businesses, sole traders and individuals with passive income (including some self-funded retirees) that are eligible to use the instalment amount method.

Tech boost

Under the Technology Investment Boost, small businesses with aggregated annual turnover less than $50 million will be able to deduct a bonus 20 per cent of the cost of business expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year. The government estimated the boost would provide $1 billion in tax relief.

Aligning instalment payment with financial performance

The 2022-23 budget includes new measures to leverage technology to automate tax reporting requirements and align instalment payment obligations with financial performance. These measures will reduce compliance costs, improve processing times and support cash flow management for SMEs.

Improving cash flow

The government is also allowing companies to calculate PAYG instalments based on financial performance.

The measure will initially support over 500,000 companies with PAYG instalment obligations.

New systems to implement this measure are expected to be in place by 31 December 2023 for implementation by 1 January 2024.

Reducing paperwork

The government has pledged to facilitate sharing of single touch payroll data with state and territory governments on an ongoing basis to cater for pre-fill payroll tax returns.

This is said to reduce compliance costs and save time for the approximately 170,000 businesses that have payroll tax reporting obligations.

Moreover, the government will allow eligible businesses the option to report taxable payments reporting system data via software at the same time as activity statements. Businesses that opt into automatic reporting will no longer need to invest time and money filling out the yearly Taxable Payments Annual Report.

New systems are expected to be in place by 31 December 2023, for implementation by 1 January 2024.

Additionally, by developing systems to ensure all trusts have the option to lodge income tax returns electronically, the government pledged to reduce errors and processing times and create capacity to pre-fill beneficiaries’ tax returns.

New systems are expected to be in place by 1 July 2024.

Employee share schemes

Employee shares scheme (ESS) provide employees with benefits such as shares in the company they work for at a discounted price and government will introduce changes that remove regulatory barriers.

The government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:

• $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70 per cent of dividends and cash bonuses; or

• any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit. The government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests. This measure is estimated to result in an unquantifiable impact on receipts over the forward estimates period.

Cost of living pressures

In a bid to relieve cost of living pressures for millions of Aussies and potentially secure their vote ahead of the May election, the government pledged to temporarily reduce the 44.2 cents a litre fuel excise by cutting it in half.

The tax cut is set to remain in place for six months.

Petrol stations are now supposed to pass the tax cut on to motorists.

"For the next 6 months, Australians will save 22 cents a litre every time they fill up their car."

The budget also contains a one-off cash payment for millions of Australians to further alleviate the rising cost of living, which, coupled with the current low and middle-income offset (LMITO) means Aussies are set to benefit from a tax cut of up to $1,500. 

The one-off ‘Cost of Living Tax Offset’ is worth $420 and is set to benefit 10 million working Australians in the form of a more generous LMITO. 

LMITO will, however, end in the 2022 financial year. 

The LMITO was a one-off tax offset worth up to $1,080 available to those earning from $48,000 to $126,000 a year. 

The government decided to scrap the costly measure ahead of the election. 

"Mr Speaker, tonight I also announce a new one‑off $420 cost of living tax offset for more than 10 million low‑and‑middle income earners," Treasurer Frydenberg said.

"Individuals already receiving the low and middle income tax offset will now receive up to $1,500 and couples up to $3,000 from 1 July this year."

LMITO has been extended twice, first in 2020 and again in 2021 at a cost of $7.8 billion.

The one-off $1500 tax cut will be available from 1 July when individuals lodge their taxes for the 2021-22 financial year. 

Mr Frydenberg also announced a new one‑off $250 Cost of Living Payment, delivered within weeks to 6 million Australians, aimed at pensioners, carers, veterans, job seekers, eligible self‑funded retirees and concession card holders.

Jobs

The government has forecasted a 3.75 per cent unemployment rate before the end of September – a “historically” low rate set to remain over the four-year forward estimates period.

This is predicted to see wages growth pick up to their strongest in a decade.

Treasurer Frydenberg on Tuesday, unveiled a series of measures to further encourage jobs growth and ensure the government’s target is met.

The government is set to provide $153.5 million over five years from 2021-22 to address workforce shortages, support job seekers to find employment, and make it easier for vulnerable Australians to participate in the workforce. 

Funding includes:

• $52.8 million over five years from 2021-22 to deliver the new ReBoot initiative and support Workforce Australia to support up to 5,000 disadvantaged young Australians to develop employability skills, providing a pathway to employment services and training opportunities
• $49.5 million over two years from 2022-23 to provide an additional 15,000 low and fee-free training places in aged care courses under the JobTrainer Fund
• $44.6 million over two years from 2022-23 to continue support for businesses who employ mature-aged Disability Employment Services program participants through the Restart Wage Subsidy
• $1.5 million in 2022-23 to extend the trial of career coaching for job seekers of all ages participating in Digital Services under Workforce Australia. The trial will provide career coaching to digitally serviced job seekers, to help them secure employment

The government is also backing Australia’s future tradies, plumbers, tilers and chefs with a $365.3 million investment that will support an extra 35,000 apprentices and trainees get into a job.

The Boosting Apprenticeship Commencements (BAC) wage subsidy offers employers up to 50 per cent of gross wages paid to an eligible and registered Australian apprentice to a maximum of $7,000 per quarter, for a maximum period of 12 months from commencement or recommencement.

Applications for the scheme were set to close on 31 March, but will now run until the end of the current financial year.

Moreover, the government is reconfiguring the employee share scheme rules making it easier for Aussie tech firms to attract talent.

Digital economy

Government will provide $130.1 million over four years to continue the implementation of the Digital Economy Strategy and drive digital transformation. Funding includes:

•      $38.4 million over three years from 2022‑23, and $12.6 million per year ongoing from 2025‑26 to implement the Government’s response to the Inquiry into the Future Directions for the Consumer Data Right

•      $30.2 million to extend the whole of government cyber hubs pilot, including the establishment of a fourth Cyber Hub Pilot in the Australian Taxation Office

•      $18.6 million over four years from 2022‑23 (and $3.2 million per year ongoing) to shape global critical and emerging technology standards

•      $13.6 million over four years from 2022‑23 to continue the Office of Future Transport Technology and support the digitalisation of the transport sector

•      $6.2 million over two years from 2022‑23 to position Australia as a world leader in regulating the Digital Economy and new technologies and the development of a Digital Age Policy

•      $4.8 million to continue the Digital Technology Taskforce for a further two years

•      $3.9 million over two years from 2022‑23 to support women to pursue career opportunities in Australia’s growing tech workforce

•      $1.8 million in 2022‑23 to the Digital Transformation Agency to further support the development of the Digital Identity system, including the governance, regulatory frameworks and funding arrangements associated with the Digital Identity legislation.

This measure will also provide funding to the Department of Industry, Science, Energy and Resources to further invest in the Australian quantum computing industry to support growth and fast‑track technology development. The financial implications are not for publication (nfp) due to commercial sensitivities.

Funding for mental health 

$547 million in funding will be directed towards mental health and suicide prevention activities and initiatives over the next five years on top of the $2.3 billion announced in last year’s budget.

“Mental illness can be completely debilitating for patients and their families. Too many people are living lives of quiet desperation.” Mr Frydenberg said.

Women’s safety 

The government has earmarked $1.3 billion towards ending violence against women in children which will include the provision of “more frontline services, emergency accommodation, and support to access legal and health services” according to the Treasurer.

This funding will be directed towards strengthening initiatives to prevent gendered violence and to extend and establish programs aimed at the early intervention and prevention of family, domestic and sexual violence (FDSV).

Programs for women and children who are experiencing or who have experienced FDSV will also receive additional funding.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.