Federal budget: Here’s what you need to know

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. 

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.

Missed opportunities 

Starting with missed opportunities, the Labor government did not include much sought-after measures that would have eased business processes for advisers considerably. These include extending the freeze on the Australian Securities and Investments Commission (ASIC) levy for another year and granting financial advice tax-deductible status.

The advice industry has been pleading with Treasurer Chalmers and Financial Services Minister Stephen Jones for some time to freeze the ASIC industry levy for a further 12 months to ensure cost certainty for the sector during FY 2022–23, while Treasury reviews ASIC’s industry funding model. However, this measure was once again missing in the budget.

The budget did, however, contain several wins for small businesses including an unexpected increase to the instant asset write-off threshold and an improvement to small business cash flow, both of which will benefit small advice businesses. 

$20,000 instant asset write-off

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.

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 

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.

Higher taxes

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 and should generate approximately $2 billion in additional revenue in the first full year of operation.

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. 

NALI changes

Also in the budget 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.

More money for ASIC

The government will 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 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.

The budget confirmed that funding for ASIC activities will be cost recovered through levies under ASIC’s industry funding model. 

Cyber security 

The government will provide $101.6 million over five years from 2022–23 (and $11.8 million per year ongoing) to support and uplift cyber security in Australia. This includes $23.4 million over three years from 2023–24 to the Department of the Treasury for a small business cyber wardens program delivered by the Council of Small Business Organisations Australia, to support small businesses to build in-house capability to protect against cyber threats.

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.