The Federal Budget
The latest Federal Budget was in some ways quite the surprise basket. It’s a strange old world when you see a conservative government that has built its brand on fiscal responsibility, opening the purse strings to the extent that it has. Then again, given the extraordinary circumstances that the government is faced with, it was difficult to make a case for a balanced budget or spending cuts.
Importantly there are a lot of initiatives that will give impetus to the property market and have impacts upon superannuation planning. There are opportunities to take advantage of the budget initiatives that should put more money in most people’s pockets and help to continue to stimulate the economy.
The key features of the budget were
- An introduction of the family home guarantee where single parents will be able to purchase a house 2% home deposit. Under the plan the government will guarantee the remaining 18%, removing the need for the buyer to pay Lenders Mortgage Insurance.
The scheme is available for new and existing homes, and is not limited to first home buyers. The catch is that the guarantee is limited to only 10,000 places spread across four years. As well as being single, eligibility is limited to income earners of less than $125,000 per year.
- Expansion of the First Home Super Savings Scheme from $30000 to $50000. This scheme allows Australians to make their own contributions to superannuation and withdraw those contributions to go towards their first home purchase. The limit is currently set at $30,000. This is set to increase on July 1 2022.
- Extension of the one off tax offset for income earners earning less than $125000 . Income earners earning between $48K and 90K are eligible for the full offset of $1080. If you are part of a dual income couple you may be eligible for an offset of $2160.
- Superannuation provisions have been strengthened to remove the 450 threshold for superannuation contributions. This means that many low income earners will now receive superannuation contributions that they previously were not entitled to.
- An increase in childcare rebates for those parents who have two children under five in childcare at the same time. It is estimated that this could save parents with two young children in childcare about $125 per week. This is planned to come into effect on July 1 2022.
- A removal of the childcare rebate cap. This cap currently means that parents earning between $193000 and $356000 per annum must meet the full cost of childcare once they’ve received $10960 from the Government. This cap is set to be removed on July 1 2022
- Corporate tax cuts for base rate entities with annual turnover of less than $50 million
- $110 billion of infrastructure investment over the next ten years.
- $1.2 billion investment in the digital economy strategy
- $17.7 billion investment in aged care
- Further investment in the NDIS and mental health
- Extra support for inigenous Australians, women’s health, women’s employment and older Australians.
The budget has obviously been formulated with a view to shore up the economy and to stimulate growth after the severe shock brought upon by the Pandemic.
The budget reaction
Predictably, the reaction to the budget was mixed. However, it is worth noting the following comments from various sectors of the economy.
- The Australian Banking Association hailed the budget as a continuation of the collaboration between government and banks to support Australian households and businesses.
- Dr Andrew Wilson, Chief economist at Archistar saw the budget as not being sufficient to encourage first home buyers, while acknowledging some narrowly targeted initiatives which will help some first home buyers.
- Bruce Bilson, representing Australian small business sector, saw the budget initiatives positively saying that the initiatives would help support small and family businesses.
- Labour leaders like Anthony Albanese (ALP) and Sally McManus (ACTU) focussed on continued low wage growth.
While everyone will respond to the budget in different ways the bottom line is that the government has felt compelled to spend heavily. This will place the budget further in deficit (about 5% of GDP) and while the government is projecting that the deficit will ease in future years, the potential for future governments to be hamstrung by the constraints of debt has grown.