Budget receives mixed response from industry bodies

The Financial Services Council (FSC) said it welcomed the “disciplined” federal budget delivered by Treasurer Jim Chalmers on Tuesday night, and the “spending constraint” that led to a $4.2 billion surplus.

FSC chief executive Blake Briggs said: “The FSC congratulates the government on its fiscal discipline that delivers a significant improvement in the 2022–23 budget position and puts Australia in a strong position going into a more challenging economic environment.

“Having focused on supporting low and middle-income households, the FSC encourages the government to continue to focus on policies that will increase the productive capacity of the economy to boost employment.

“Growth orientated policies will offset global economic headwinds and help the government maintain a balanced budget over the medium-term, without resorting to further tax increases.”

The FSC singled out the announcements in relation to the Interfunding Exemption for foreign-owned funds that invest on behalf of Australian consumers.

“The Interfunding Exemption announced in the budget is a modest but important measure that will boost Australia’s standing as an attractive destination for overseas fund managers, ensuring the domestic market will remain competitive, and will benefit consumers with greater choice,” Mr Briggs said.

Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston said the Treasurer “needs to be congratulated on the first budget surplus since 2007–08”.

“As always, there are winners and losers in any budget, but we should be grateful that this is the first time in at least 10 years there has been nothing negative towards our industry hidden in the detail,” Mr Johnston said.

$3 million superannuation tax threshold

Following consultations on the tax rate increase to superannuation balances surpassing $3 million from 2025–26, the measure remained unchanged in the budget announcement.

Responding to this, the SMSF Association urged the government to re-open industry consultation on the increase.

SMSF Association CEO Peter Burgess said: “Further consultation about this new tax is imperative so that the full impact on the small business and farming communities and others can be properly considered.

“The previous consultation phase was only 18 days, including Easter, and that was simply insufficient time for the industry to fully identify all the issues. We understood the need to finalise things for the budget, but that should not come at the expense of rushing important legislation with unintended consequences.”

The new tax aims to ensure generous superannuation concessions are better targeted and sustainable.

“We stand by our position that using a member’s total super balance to calculate earnings is neither simple nor fair,” Mr Burgess said.

“By definition, a member’s total super balance includes unrealised gains and a growing list of items that will need to be excluded to ensure ‘earnings’ for the purposes of this new tax are not overstated. This methodology discriminates against those funds who can identify and report to the ATO actual taxable earnings attributable to each member.”

Mr Burgess also said that the adjustment to fix the non-arm’s length expenditure (NALE) rules for SMSFs was an imperfect improvement.

“Rather than a multiplication factor of five being applied to the expense shortfall amount, two times the general expense will be taxed as non-arm’s length income (NALI),” he said.

“Although this proposal is an improvement, a factor-based approach is neither a practical nor desirable solution for the sector. It will require SMSF trustees to determine if a general expense has been undercharged and by how much.”

Mr Burgess added: “It remains our view that the 2019 amendments to the NALI rules was overreach and the mischief they were intended to address has already been addressed by previous ATO guidance and tax determinations.”