Not Yet Legislated
The federal budget is essentially a plan for the next few years. All announcements need to be approved by Parliament before they become Law – so any proposed tax cuts or other changes are not set in stone.
BUDGET POSITION
The budget immediately before an election is unfortunately always more about votes than it is about helping the country, and this budget contains pretty much all of the Government’s election policies (noting that the budget contains a small provision for policies not yet announced). The “headline” is that the Government expects to deliver a $27.6bn deficit in 2025 and scarily, a $42.1bn deficit in 2026 – a significant change from the $15bn of surpluses delivered in the prior 2 years.
Deficits are projected for at least a decade (yes, 10 years). Net debt is projected to dramatically increase. Interest on Government debt will be around $25bn per year (and growing fast), and it seems like the Government isn’t overly concerned with this. Is it smart to spend more on interest than we do on housing, transport, and agriculture combined?
Labor has increased Government spending from $616bn to $734bn per year since taking the reigns – a 19.1% increase, and 2026 is budgeted to be $777bn (bringing that total to 26.1%). In his budget speech the Treasurer asserted a few times that it’s a responsible budget and Labor was leaving it in better shape than when they took over – it’s hard to agree with figures like that. While there are absolute present day benefits being funded with the spending increase (cheaper medications, cheaper doctor’s visits, tax cuts, etc), it feels like the old adage “live within your means” has gone out the window.
Real wages (wage rises vs inflation) have risen by 0.5% in the past 12 months, but this follows a drop of over 3% in the 2 years before that. Wages rises typically follow productivity growth and overall economic growth – but growth is budgeted to be below inflation for 2025 and 2026, and only just outpacing it in the years beyond.
It’s one thing to borrow money to invest in something that will better your future (e.g. buying a home), but it’s difficult to see how the projected deficits are going to actually improve the day-to-day lives of Australians. There is no massive investment in life-changing infrastructure, no tax reform, and really, nothing else except spending more and more on the Government credit card to cover “normal” expenses.
It’s clear that we need significant change if we want to prevent our children and grandchildren being saddled with a massive debt, and it’s clear that change won’t come from this Government. The question on everyone’s mind as we come to an election is: would it come from the Opposition? Both parties will lay out their vision of the future in the coming months and it will be interesting to see the outcome.
THE NITTY-GRITTY
Click on the below headings to expand each one and read more detail.
The lowest tax bracket is planned to drop from 16% to 15% in 2027, and then to 14% in 2028. It will save workers earning over $45,000 around $268 in 2027 and a further $268 in 2028 (and a smaller amount for those earning above around $22,500). We note that the Opposition have not agreed to support these cuts, instead leaving the door open for larger tax cuts in their plan.
The Medicare Levy threshold will be increased slightly so less low income earners are paying the Levy. Realistically it’s just increasing with inflation, but its being billed at a tax cut
Households and businesses will continue to get an automatic rebate of $75 per quarter from their electricity bill until the end of 2025.
Power bills have increased by around 30% over the past 3 years (around $300 for a household), a far cry from the $275 reduction promised last election. The Government has been forced to resort to handouts in order to try and meet this promise, and people will have their own interpretation as to whether a handout is an acceptable replacement for cheaper power.
Payments to doctors for the cost of your appointment will increase by $16 per visit (theoretically reducing the amount doctors charge patients), and PBS medication will be capped at $25.
The Government is giving the ATO extra money for the “Personal Income Tax Compliance Program” and we are expecting further crackdowns on individual tax returns in the coming years. The ATO will also receive extra funding for multi-national tax compliance, the shadow economy, and medium to large business compliance.
Good news for students, Labor will remove 20% of your student debt balance. Bad news for those of you who recently had to repay the full amount of your loan…
The threshold at which you have to start repaying your student debt will rise from $54,435 to $67,000 in 2026.
The “help-to-buy” scheme announced by the Government at the last election (that has not been implemented yet) is set to be expanded – it will be available to higher priced homes than previously announced.
As a reminder, this scheme sees the Government buys between 30% and 40% of your home, reducing your loan and deposit requirements.
A 3-day guarantee will replace the previous “activity test”, ensuring that all parents – whether they are working or not – will have access to subsidised childcare for 3 days per week.
Only a couple of months ago we were told by the Government that the increase in the “beer tax” was only a couple of cents per pint and it would be silly to be upset at the increase – now it’s important enough to freeze increases for 2 years. Any help is welcomed, even if it is just a few cents per pint.
We are still gathering details on this one, but there are incentives for apprentices in the construction industry.
A ban will be instituted on “non-compete” clauses in employment contracts for certain industries.
Generally a non-complete clause will prevent you from working for a competitor within a set distance for a period of time, but it will be interesting to see how far the Government intends on going with this.
- Small Business: There is nothing in the budget for small business. More small businesses have closed (360,000) than started (300,000), and its not getting any easier
- Asset Write-Offs: The days of the instant asset write-off are gone and we are back to the old rules where anything over $300 is depreciated
- Budget Repair: As covered earlier, the budget is in deficit for at least a decade – are we happy with our kids and grandkids paying back our debt?
- Tax Reform: Australia has an unhealthy reliance on personal tax, behind only Denmark when compared to all OECD nations
Not a budget item but just a timely reminder – the compulsory superannuation rate increases to 12% on 1 July 2025.
PENDING LEGISLATION
When an election is called, all Legislation before Parliament lapses and is resigned to the recycling bin. While the Government can reintroduce it should they win the election, there is a degree of uncertainty. The following pieces of Legislation are before Parliament, and we are unsure of what will happen:
Labor’s “Div 296 tax”, (better known as the additional tax on people with over $3mil in superannuation) is sitting in limbo. There is no guidance from the Government as to whether it would seek to reintroduce it should they win the next election (we presume they will). Given the start date of the Legislation is 1 July 2025, we’re not sure how the Government expects people to plan for this given the uncertainty. One thing is for sure, if the Opposition win the next election, this measure is dead and buried.
The Government was looking to deny taxpayers the ability to claim a tax deduction for ATO interest, effective 1 July 2025. Again, we have no idea if Labor would reintroduce this if re-elected, but we are pretty sure the Opposition will scrap it should they win power.
Legislation to extend the FBT exemption for plug-in hybrid vehicles is also in limbo. The exemption ceases on 31 March 2025, and given there has been little to no fanfare about this over the past 3 years, it wouldn’t surprise us if this proposal just went away regardless of who wins the election.
THE LOOMING ELECTION
The above encapsulates many of Labor’s key election promises made so far (or at least those that most concern tax and financial aspects of our lives). It’s unlikely there will be any significant announcements between now and the election because, theoretically, they need to be included in the budget.
The Opposition seems content on matching Labor on health and trying to differentiate themselves on electricity (nuclear power), small business (FBT free lunches), and beginning to get the budget back to surplus through spending cuts. Labor on the other hand believes increasing taxes is the solution to our budget problem (but we note Labor have just projected deficits for the next 10 years, so it’s hard to see how their version of higher taxes works). There is a clear ideological difference when it comes to managing the budget, each person will decide what’s right for them.
We’ve seen the proposed “free lunches” policy from the Opposition hugely misrepresented in the media. The actual proposal is to make the tax outcome of a work lunch or staff function for a small business the same as any other business cost. Currently, if a business decides to have a meeting with a client at a cafe, the cost of that meeting attracts Fringe Benefits Tax (for the employee’s share), and is not tax deductible (for the client’s share). There is a bucket-load of red-tape to go along with this that is wildly disproportionate to the $$’s being spent.
The Opposition is simply proposing that the cost of the meeting should be tax deductible with no FBT and no red-tape (up to a reasonable threshold). Importantly, they have stated that alcohol is not included, so any suggestion that the plan is designed to fund boozy lunches for the big-wigs is misleading at best.
The Opposition is also promising to free up gas for local use to combat rising energy prices (around 80% of our gas is exported). The question is whether that’s a better solution than the current handouts.
With an election coming within the next 2 months (the latest an election can be held is 17 May), now is a decent time to reflect on how the Government has performed.
As mentioned earlier, the promise for power to be $275 cheaper is a failure. The Government also promised to lift “real wages” (which is whether your pay packet is increasing by more or less than CPI / inflation), which while broken, is tracking in the right direction.
There was a promise to build 30,000 houses for those in need, and a larger target of 1.2 million homes to help with the cost of housing. The Government is on track to fail these targets by a significant margin and has committed a large amount of money in the budget to save these goals.
One of the country’s biggest annual cost is the NDIS scheme at around $50bn per year. Labor promised to fix it at the last election (and what “fixed” means is highly subjective), but it’s hard to argue that a program that was costing around $35bn just 3 years ago is “fixed” when there is no obvious increase in services provided, but the scheme costs an extra $15bn per year.
The Labor Government has delivered on a number of their 2022 policies: They’ve indexed various social security payments (i.e. they’ve increased in line with inflation), HECS-HELP debts will increase year on year by the lower of CPI (inflation) and the wage price index (wage growth), delivered on pay rises for childcare and aged care workers, introduced laws assisting workers (“right to disconnect” and allowing easier unionisation), increased bulk billing incentives and PBS medicines, added superannuation to paid parental leave, and is trying to levy tax increases on those with higher superannuation balances.
Whether that list is enough to offset the general feeling that not enough has been done to help the cost of living is yet to be seen.
