2023 Budget Update
On Tuesday, 9 May 2023, Treasurer Jim Chalmers handed down the 2023-24 Federal Budget, his second Budget to date.
According to Chalmers, this Budget was intended to deliver “a stronger economy and a fairer society” with the overall highlight being the projected $4.2m surplus – the first in the last 15 years.
Chalmers pointed to higher employment and an increase in commodity prices as the key reasons for the Budget surplus, however spent little time discussing the revenue side of the ledger.
The Budget predominantly focussed on tackling increases in the cost of living, affordability and availability of housing and the increased demand for and quality of aged care services.
As per prior Budgets, there were alterations to the Superannuation and Taxation systems, however there was a lot less focus on these areas compared to past Budgets.
We have provided a summary of the key proposed measures as well as our overall perspective of the changes below:
Superannuation
Change of Frequency of Employer Superannuation Payments
Effective Date: 1 July 2026
Employers will be required to align the payment of employees’ superannuation at the same time as their salary/wages. This is expected to reduce employer non-payments from superannuation liabilities which the ATO estimated to be $3.4 billion in 2019/20. The ATO will have access to enhanced unpaid superannuation targets as well as $40 million in funding to improve data matching capabilities.
Pension Drawdown Rates
Effective Date: 1 July 2023
The temporary 50% reduction in minimum pension drawdown rates, introduced during the COVID pandemic, will cease. The standard minimum drawdown rates will apply, which will see an approximate doubling of required drawdown for those who are currently on the reduced minimum rate.
Increase to Super Guarantee Charge (SGC)
Effective Date: 1 July 2023
The contributions your employer is required to make into your superfund will increase from 10.5% to 11%.
Indexation to General Transfer Balance Cap
Effective Date: 1 July 2023
The general transfer Balance Cap will increase from $1.7m to $1.9m. This cap is the maximum amount of superannuation which can be transferred from accumulation to pension phase. Please note, each individual will have their own personal transfer balance cap between $1.6m to $1.9m, depending on personal circumstances.
Increased Eligibility to Government Super Co-Contribution Entitlement
Effective Date: 1 July 2023
The government has increased the lower ($43,445) and higher ($58,445) income thresholds to receive the government co-contribution, which remains capped at $500.
Targeted Superannuation Concessions
Effective Date: 1 July 2025
The government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million. This will effectively increase the headline rate to 30% (from 15%), for earnings corresponding to the proportion of an individual’s total superannuation balance greater than $3 million.
Taxation
Stage 3 Tax Cuts
Effective Date (legislated): 1 July 2024
There was no further information regarding changes to the Stage 3 personal marginal income tax cuts, legislated to come into effect 1 July 2024 and will effectively see the removal of the 37% tax bracket.
Cease of LMITO
Effective Date: 1 July 2023
The temporary non-refundable tax offset (up to $1,500) for those earning between $48,000 to $90,000 p.a. has not been extended.
Increase to Medicare Levy Low-income Thresholds
Effective Date: 1 July 2023
The government will increase the Medicare levy low-income thresholds for singles, families, seniors and pensioners.
- Singles threshold will increase to $24,276
- Family threshold will increase to $40,939
- Single seniors and pensioners threshold will increase to $38,365
- Family threshold for seniors and pensioners will increase to $53,406
Cost of Living
Pharmaceutical Benefits Scheme (PBS) Changes
Effective Date: 1 July 2023
Individuals will be able to purchase twice as many common medicines for the price of one prescription i.e. 60 days’ worth of medicine per script. This change could save patients up to $180 per year per subsidised prescription.
Increased Bulk Billing
Effective Date: 1 July 2023
Tripling of bulk billing incentives resulting in increased access to free healthcare for children under the age of 16, pensioners and other Commonwealth concession card holders.
Social Security and Aged Care
Additional Aged Care Funding
Effective Date: 1 July 2023
Additional funding provided to in-home aged care services resulting in the release of 9,500 additional Home Care Packages in 2023/24. The impact of this will be a reduced waiting time, which is currently over 12 months for Level 3 and Level 4 packages.
Aged Care Workers
Effective Date: 1 July 2023
There will be an increase to the award wages for aged care workers, including registered nurses, assistance in nursing and home care workers by 15%.
Overall, the 2023 Budget was relatively tame and unlikely to significantly impact the majority of our clients. We wait with bated breath to see whether the proposed Budget surplus is in fact delivered or, as per prior Budget estimates, if the expected surplus is an overly optimistic prediction.
Some of the key measures we would like to comment on are:
Superannuation
Broadly, we are in favour of introducing the alignment of employer super payments to pay cycles and the additional taxation on earnings for those with a superannuation balance higher than $3 million.
The use of single touch payroll and the small business clearing house has greatly increased the efficiency for employers to make these contributions at the same time as their pay cycles. The change will allow for greater consistency of superannuation contributions and the ability of individuals to track their contributions on an annualised basis, reducing the instances of breaching the contribution cap.
In most cases, there remains a significant tax benefit using superannuation as a retirement saving mechanism for those with a superannuation balance over $3 million. The additional 15% taxation on earnings will likely still be less than the tax paid on earnings if the funds were held outside of superannuation. However, we believe it is important the government is conscious they are not disincentivising the use of superannuation for retirement saving in the future.
The ceasing of the 50% pension drawdown relief will likely mean a portion of our clients will require a solution to house now surplus cashflow. We will continue to explore the recontribution of these funds back to superannuation (when appropriate) or contribution to a personal portfolio to maintain an investment consistency in the future.
Aged Care
A focus on additional Home Care packages and an increase to the wages of aged care workers’ is a welcomed spend. With previous issues around aged care practices and overall care provided, the increase in wages will hopefully go some way to improving the quality of care. With an ageing population in Australia, investment in this space is expected to be an ongoing focus point in years to come.
Housing
We believe the measures to tackle housing issues across Australia are completely inadequate. They barely assist in improving the main issue at hand which is housing availability. Whilst there is an increase to rent assistance payments of 15%, this increase is less than the average in market rent increase in most areas across the country. We would have liked to see more done to assist the next generation of homeowners to enter the housing market.
Taxation
Whilst there were no proposed changes to the Stage 3 Tax Cuts in the current Budget announcement, we will be very interested to see whether this is still the case come May next year. No doubt this will be heavily dependent on the state of our economy and the delivery of the proposed surplus over the course of the next 12 months.
If you have any questions, queries or concerns about the recent Budget announcement, please don’t hesitate to get in contact with us. Otherwise, we will discuss how these changes individually impact you during your review process.
We are here to help, if you think any of your friends, family or work colleagues could benefit from our service please feel free to make an introduction and we will do our best to assist.