Federal Budget 2024–25 — promise of cost of living relief

On 14 May 2024, the Treasurer, Jim Chalmers, will deliver his third Federal Budget for the Albanese Government. The first two Federal Budgets focused primarily on relief and repair to manage inflation. The Treasurer has promised that the upcoming Budget:

… will take a responsible, sensible and a balanced approach. The primary focus in the Budget is on inflation in the near term and then growth in the medium term. It will be an inflation‑fighting and future‑making budget. It will be a budget suited to the cross currents and the conditions that we confront.

There will be cost‑of‑living help for people doing it tough. For businesses, there will be key investments in a Future Made in Australia.

Economic landscape

The past few years have seen the devastation of floods and bushfires, once-in-a-century global pandemic, followed by the most significant international energy crisis in 50 years. The combined impact of these events resulted in economic consequences on supply chains, energy prices, inflation and interest rates. On a global front, Australia is continuing to face ongoing uncertainty from persistent inflation in North America, growth slowing in China and other major economies, the UK and Japan both finishing the year in recession and the persistent tensions in the Middle East and Eastern Europe.

Inflation is moderating but still high compared to the target range of 2 to 3 per cent required by monetary policy. The CPI rose 3.6 per cent to the March 2024 quarter. Annual CPI inflation was down from 4.1 per cent in the previous quarter and has fallen from the peak of 7.8 per cent in December 2022.

According to the ABS, the Governments cost of living policies directly took pressure off inflation. The Energy Bill Relief Fund offset the electricity prices rises, Commonwealth Rent Assistance reduced the impact of rent rises and Childcare subsidy reduced the cost of childcare. The surplus in the 2023-24 Federal Budget, the first in 15 years, took some pressure off inflation. The Treasurer has stated that the Budget will focus on easing cost of living pressures, not add to them.

To help Australians with the cost of living, the Government has already legislated tax cuts for all 13.6 million Australian taxpayers from 1 July 2024.

Challenges for businesses

Australian retail turnover fell in March 2024, indicating consumers are spending less as cost of living pressures remain high. High interest rates are placing cashflow strains on businesses who are servicing debt. Supply chains disruptions are leading to lost sales or higher expenses. The shift from information technology to artificial intelligence is necessitating business to embrace technology. Labour and skills shortage is resulting in employers incurring greater costs to hold onto employees or to upskill them.

Government is supporting businesses in the form of the National Skills Agreement to ensure businesses have access to a skilled workforce, the Australian Cyber Security Strategy to assist businesses to work smarter and safer online, Industry Grow Program to support innovation and growth and small business energy incentive to assist with the energy transition.

The Prime Minister’s vision for a Future Made in Australia involves rebuilding the manufacturing sector with investment in clean energy.

Pre-Budget announcements … what we already know

On the tax front, there have not been any pre-Budget announcements or ‘leaks’ other than the Treasurer noting that there will be tax measures to incentivise investment that is in line with the Government’s Future Made in Australia economic objectives. He also flagged other tax changes but there is no detail about what those might be.

Currently before Parliament are temporary changes to the instant asset write-off currently before Parliament — that is, an increase to the threshold from $1,000 to $30,000 and the extension of the measure to businesses with annual aggregated turnover of less than $50 million. These changes, if passed, will only be in place for 2023–24. The industry is waiting for Tuesday night to see if the Government will make these changes permanent.

Apart from the Future Made in Australia plan, other economic measures which have already been announced include:

• reforms to strengthen Australia foreign investment framework — introducing a risk-based approach to review foreign investment proposals, to ensure they are not contrary to the national interest
• reducing compliance costs for businesses — abolish hundreds of nuisance tariffs; clarify and improve the regulatory approvals process; provide some direction and certainty in the financial sector; and work towards a better way of assessing mergers and acquisitions
• cap HELP indexation rate at the lower of either the Consumer Price Index or the Wage Price Index with effect from 1 June 2023
• Commonwealth Prac Payment — to support students undertaking mandatory workplace placements required for university and vocational education and training qualifications
• incentivise Australians to train in areas the economy needs them most, with $88.8 million for 20,000 additional Fee‑Free TAFE training places to increase the pipeline of workers for construction and housing.

Recent tax and superannuation changes and announcements … state of play

This is a good time to take stock of the status of measures which were announced at or since last year’s Federal Budget.

For a more comprehensive summary of legislative developments during 2023 refer to this Banter Blog article.

Tax measures recently implemented or announced

Significant tax policy decisions which have been made since the 2023–24 Federal Budget include the following:

• individual tax cuts to help with the cost of living (legislated)
• changes to fees for foreign investors (legislated)
• denying deductions for ATO interest charges (proposed)
• modernising the luxury car tax for fuel-efficient vehicles (proposed).

Key tax policy decisions that were previously announced and are now law include:

• the digital games tax offset
• skills and training boost
• technology investment boost
• cash flow relief for small and medium businesses by reducing the GDP adjustment factor for working out PAYG and GST instalments
• improving integrity in relation to off-market share buy-backs and franked distributions funded by capital raisings
• tax transparency for multinationals — disclosure of information of subsidiaries and amendments to the thin capitalisation rules.

Previously announced tax policy decisions that are still before Parliament include proposals to:

• increase the instant asset write-off threshold from $1,000 to $30,000 for small and medium businesses entities and to extend the measure to medium entities with turnover of less than $50 million
• provide small and medium businesses with access to a bonus deduction equal to 20 per cent of the cost of eligible assets or improvements to existing assets that support electrification or more efficient energy use
• implement a petroleum resource rent tax deductions cap
• abolish the Administrative Appeals Tribunal and establish the Administrative Review Tribunal
• strengthen the integrity of the tax system, increasing the power of regulators and strengthening regulatory arrangements.

The Government has announced it would not proceed with the Modernising the Business Register Program.

Tax policies that are in the consultation phase include:

• international tax — country-by-country reporting and global and domestic minimum tax
• investment in housing — build-to-rent tax concessions
• exempting lump sums payments in arrears from the Medicare levy
• strengthening the integrity of the tax system — tax regulator information gathering powers review and regulation of accounting, auditing and consulting firms in Australia.

Superannuation measures recently announced

Key superannuation policy decisions which have been taken since the 2023–24 Budget include the following proposals:

• deduction of adviser fees from superannuation — increase accessibility and affordability of personal financial advice
• victims’ and survivors’ access to offenders’ superannuation
• superannuation payments on government Paid Parental Leave from 1 July 2025.

Previously announced superannuation policy decisions which are not yet law include proposals to:

• reduce the tax concessions available to individuals with total superannuation balances exceeding $3 million
• restrict the operation of the non-arm’s length expense rules for complying superannuation entities
• legislate the objective of superannuation.

Consultation has been undertaken for payday superannuation and amendments to the transfer balance credit provisions for successor fund transfers.

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