The Big Important Numbers

Here is a summary of each of the big economic numbers for the last financial year (actual), the current financial year (semi-estimate) and next financial year (estimate): 

Total cash receipts for 2020-21 - $519.9 billion or 25.1% of GDP

Total cash receipts for 2021-22 - $556.6 billion or 24.3% of GDP

Total cash receipts for 2022-23 - $547.6 billion or 23.8% of GDP

Total cash payments for 2020-21 - $654.1 billion or 31.6% of GDP

Total cash payments for 2021-22 - $636.4 billion or 27.8% of GDP

Total cash payments for 2022-23 - $625.6 billion or 27.2% of GDP

Budget Deficit 2020-21 - $134.2 billion or (6.48%) of GDP

Budget Deficit 2021-22 - $79.8 billion or (3.48%) of GDP

Budget Deficit 2022-23 - $78.0 billion or (3.39%) of GDP

Total Net Government Debt 2020-21 - $592.2 billion or 28.6% of GDP

Total Net Government Debt 2021-22 - $631.5 billion or 27.6% of GDP

Total Net Government Debt 2022-23 - $714.9 billion or 31.1% of GDP

Economic growth (real GDP) 2020-21 – 1.5%

Economic growth (real GDP) 2021-22 – 4.25%

Economic growth (real GDP) 2022-23 – 3.5%

Unemployment – 5.1% in 2020-21

Unemployment – 4.0% in 2021-22

Unemployment – 3.75% in 2022-23 (a 50 year low!)

Inflation (CPI) – 3.8 in 2020-21 

Inflation (CPI) – 4.25 in 2021-22

Inflation (CPI) – 3.0 in 2022-23

Ins and Outs

Here is a quick summary of where all the government’s revenue comes from, and where is it all spent: 

Extra Tax Deductions – Training and IT

In an interesting measure, which will make the tax return slightly more complicated for business owners, the government has announced a special tax boost to businesses with turnover of $50million or less. Under this measure, businesses will be able to claim $1.20 as a tax deduction for every $1 spent on external training courses for their staff. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia. The boost will apply to all eligible expenditure from 29 March 2022 to 30 June 2024. 

A very similar boost will apply to spending on technology with the same $1.20 for every $1 tax deduction benefit. I will be interested to see the exact definition of ‘technology’ from the ATO as the budget papers use a sufficiently vague description of ‘expenditure on cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.’ This technology boost also has a $100,000 annual cap. 

As a business owner who spends a lot on training and IT, I welcome this move, though thought it was worth sharing some sums on just how to calculate the actual benefit being provided. 

Let’s say I spend $1,000(excluding GST) on a training course for one of my staff. I currently get to claim a tax deduction for this course and, using the company tax rate of 25%, I get a tax saving of $250. The actual after-tax cost of the course therefore is only $750. 

By applying this boost, I now get to claim a tax deduction of $1,200, resulting in a tax saving of $300. Take this away from the original cost of $1,000, and the after-tax cost of the course is now only $700. Under this measure, I am $50 better off. 

If we stick to the company tax rate of 25%, it is fair to say that business owners will be 5c in the dollar better off (25% x the extra 20% deduction) on all technology and training costs for the next couple of years. 

A little confusing, I know, though it’s these sorts of changes that keep people like me in a job!!

Fuel Excise Cut

In a temporary (and arguably knee-jerk) move, the government will cut fuel excise from 30 March 2022 until 28 September 2022 by half from its current 44.2 cents per litre to 22.1 cents per litre. Given that GST goes on top of this levy, petrol should end up being around 24 cents per litre cheaper for the next six months. 

This measure is estimated to cost the government around $5.6 billion. 

Interestingly, there were no benefits provided within the budget at all for electric cars. 

You get some money, they get some money, everyone gets some money!

There are a couple of major one-off handouts within this budget: 

• The Low & Middle Income Tax Offset (LMITO or ‘lamington’ as some media outlets are calling it) is a one off tax offset available to all taxpayers with taxable incomes of $126,000 per year or less. This offset has been around for a couple of years, though has just been increased with the maximum benefit now $1,500 for individuals and $3,000 for couples. This benefit is not a direct payment and is delivered via your tax return by way of a bigger refund (or smaller payable). Come 30 June 2022, make sure you get your return in early to capture the benefit. 

• Around 6 million people will receive a one-off payment of $250 during April 2022 to provide economic support to assist with cost of living pressures. Eligible persons will be current recipients of one of the following benefits: Age Pension, Disability Support Pension, Parenting Payment, Carer Payment, Carer Allowance, Jobseeker Payment, Youth Allowance, Austudy and Abstudy Living Allowance, Double Orphan Pension, Special Benefit, Farm Household Allowance, Pensioner Concession Card (PCC) holders, Commonwealth Seniors Health Card holders, eligible Veterans’ Affairs payment recipients and Veteran Gold card holders. Note: given that Australia’s population is currently, 25.7 million, the numbers involved confirm that 23% (nearly one in four) of our population is currently on some form of welfare. 

Depreciation is back

Traditionally, when a business purchased a piece of equipment of more than $1,000, that item was depreciated over the ‘useful life’ of that item. This limit has been increased quite significantly over a number of years with different thresholds for different sized businesses. In October 2020, the treasurer introduced ‘temporary full expensing’ for all businesses with annual turnover of $5billion or less (which was practically every Australian Business) and calculating depreciation for tax purposes effectivity became redundant. Though as I’ve mentioned in previous budget’s, the amount you could claim never changed you just received the whole deduction at once instead of stretching it out over a number of years. The scheme was subsequently extended in last year’s budget until 30 June 2023. 

The treasurer was completely silent on any further extension in this year’s budget papers, which effectively signals that this scheme will die a natural death on 30 June 2023… it was good while it lasted. 

COVID Tests Deductible

The government has confirmed that the costs of taking a COVID test to attend a place of work are tax deductible from 1 July 2021 (i.e. able to be included within your 2022 tax return). This presumably covers the cost of Rapid Antigen Tests (RATS), so you had better have been keeping receipts. 

The government has also (very sensibly) confirmed that the cost of buying RATS to be provided to staff will not be subject to Fringe Benefits Tax (FBT) for employers. 
 

More Apprentices

The quite popular Apprentice scheme announced during the height of the pandemic has already been extended twice. It is now about to be revamped and extended again. 

From 1 July 2022 employers in “priority occupations” (the list will be updated annually based on national demand) will receive 10 per cent wage subsidy for first and second-year apprentices and 5 per cent for third years. The subsidy caps out at $15,000. In a significant change, the apprentices themselves will be eligible for $1,250 every six months for two years, up to a total of $5,000. I assume that the six monthly payments will all be made to apprentices at the same time, and I predict that segments of the hospitality industry will notice a nice bounce twice a year, for the next couple of years. 

Lending & Finance Update

Australian property prices grew more than 22% in 2021 with Sydney increasing over 28%. Naturally housing affordability was on the table for the 2022 budget.

The government has announced an additional $2 billion for affordable housing with increased spending to the National housing finance and investment corporation that assists community housing providers. 

For first home owners the government has increased the amount of places in the first home guarantee scheme to 35,000 places from 20,000 previously. A further 10,000 places will be available for first home buyers and previous home buyers in regional Australia under the new regional home guarantee. This scheme is for new homes only and will help drive a boost to regional home building.
In both schemes a borrower can purchase or build a property with a 5% deposit and no lenders mortgage insurance as the government guarantee’s the remaining amount to the bank.

Unfortunately, there has been no change to the price caps and given the growth in property prices the options for first home buyers is limited for most areas. However it offers a great opportunity to achieve home ownership sooner rather than later.

Housing affordability is complex and difficult issue and an outcome which pleases everyone is difficult to achieve. No government wants prices to contract too much because it puts the nation’s banks at risk. ‘Just build more houses’ is one option but that’s a whole other complex issue between state and local governments, planning timeframes, etc. Schemes like the first home guarantee make home ownership more accessible and sooner for many Australians seeking home ownership. 

Ultimately, housing affordability is a supply and demand issue, and like most supply and supply issues, the market should naturally correct itself over time. Given the complexities noted above, this natural correction is not quick nor automatic as it might be with lower priced commodities or more simple markets, and many people are adversely impacted in the interim. I expect housing affordability to remain a hot topic in Australia for some time, with lots of noise about the topic though few effective solutions. 

Enhanced Paid Parental Leave 

The Paid Parental Leave (PPL) scheme is to be enhanced by integrating Parental Leave Pay and Dad and Partner Pay into a single scheme of up to 20 weeks leave, which can be shared between eligible parents. The aim of the enhancements is to provide more flexibility for families to decide how to best manage work and care. The enhanced PPL scheme can be taken any time within two years of the birth or adoption of their child. 

The existing PPL scheme comprised two payments: 

• Parental Leave Pay – paid up to 18 weeks at a rate based on the national minimum wage. This payment is currently available to the primary carer who is either the natural mother, the initial primary carer of an adopted child, or another carer under exceptional circumstances. 

• Dad and Partner Pay – paid up to two weeks at a rate based on the national minimum wage to fathers and partners.

The income test will also be broadened to include a household income eligibility test. Currently, mothers who have adjusted taxable income up to $151,350 can access PPL even if their partner earns a high income. However, a mother who earns more than $151,350 has no entitlement to PPL even if their partner has no or low income. The income test will be broadened to include a household income threshold of $350,000 a year. The scheme will be effective no later than 1 March 2013.