In this special report, our Head of Professional Standards & Technical Services, Craig Meldrum, looks at the key takeout’s from the 2022 Federal Budget and what it means for individuals and businesses, for tax, superannuation and social security that may impact wealth creation and retirement funding strategies.

While the global pandemic forced the 2021 Federal budget to be handed down 21 weeks later than it would normally have been delivered, this year’s impending Federal election has meant the 2022 Budget has been handed down 6 weeks earlier than normal (the election is expected to be announced on the 14th or 21st of May 2022). And while the 2021 budget was all about the monumental task of managing the health impacts of the pandemic and delivering a budget to provide a road to recovery out of the catastrophic economic black hole caused by the Covid-19 turmoil, that was all largely forgotten about as the Treasurer considered the war in Ukraine, the global supply chain shocks, rising inflation and cost of living pressures (especially in the price at the petrol bowser), stagnant wage growth and the recent flood events in Northern NSW and South Eastern Queensland.

This was Treasurer Josh Frydenberg’s fourth and (given the state of the LNP Coalition’s standing in the polls) potentially last Federal budget, so it was expected there would be lots of giveaways and prizes to woo the electorate. There was also some criticism that if it did promise too much, was it going to be an economically responsible budget or might it actually exasperate the cost of living pressures given the perception that we are entering a period of higher inflation? In other words, did it achieve enough to help ease the cost-of-living pressures for Australians and secure another term for the Coalition while remaining fiscally responsible?

The Treasurer led with a great statistic – a 4% unemployment rate – the equal lowest in 48 years (which is expected to drop further to 3.75% in the September 2022 quarter). Economic theory would suggest that full employment translates to greater demand from employers and a higher cost of labour. Or does commodity-driven inflation, a high rate of immigration, no effective union ownership of the labour market and a technology-driven structural disruption to deployment of human capital lead to sustained wage stagnation to the point that only Government intervention will bridge the gap? The Government has been very proud that there are more women in work, that there are more jobs paying higher wages and that the Jobkeeper program saved 700,000 jobs during the height of the pandemic. But stagnation in wages growth is not so easily solved, so, yes, this budget had to be about spending to address (in some sense) the rising cost of living pressures.

In terms of the high-level numbers, the Treasurer was very proud that we are $100 billion better off than last year, largely off the revenue generated from trade in iron ore, gas and coal. Can we then afford a “cash splash” of a budget? A budget deficit of $78 billion for 2022-23 (3.4 per cent of GDP) is down from the $79.8 billion of a year ago and is projected to more than halve to 1.6% with net debt of $714.9 billion for 2022-23 peaking at $864.7 billion (33.1%) in 2025-26, so maybe?

This budget contained a range of individual measures impacting taxation, superannuation, housing, business, health, family, infrastructure, employment, cost of living and national security. The following summary is not complete and focusses only on those areas particular to financial advice and strategy, namely superannuation, taxation, social security, small business and measures designed to ease cost of living pressures. Some of the following announcements are described in more detail further on in this report;

The LMITO will be increased by $420 for the 2021-22 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021-22 (up from the current maximum of $1,080). This one-off $420 cost of living tax offset will only apply to the 2021-22 income year. It remains legislated to only apply until the end of the 2021-22 income year (up to $1,500 instead of $1,080).

The $420 is not subject to tapering so other than where an individual’s tax liability is less than that, all LMITO recipients will benefit from the full $420 increase. The full benefit will be available to those individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000).

There were no changes to personal tax rates announced in this budget. The Government’s legislated three-stage tax plan that was announced in 2018 and enhanced in 2019 is as follows;

The low income tax offset (LITO) will continue to apply for the 2021-22 and 2022-23 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.

Superannuation did not really get any mention in this year’s budget. The only announcement of note concerned the extension by one year of the temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities to 30 June 2023. It is worth noting that there is no requirement for a pension recipient to take the minimum, however people did find it valuable during the period of market turmoil during the pandemic to take less than the standard pension amount to help preserve their pension capital.

The Government had previously announced that the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) would be amended to allow commutations to be made from certain non-commutable pensions to resolve excess transfer balance amounts. It appears that the Government will be proceeding with these amendments to the SIS Regulations.

Social Security and Aged Care also missed out on any big reforms in this budget. The Government has announced that it will make a $250 one-off cost of living payment in April 2022 to eligible pensioners, welfare recipients, veterans and eligible concession card holders.

The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. The payment will only be available to Australian residents who are eligible recipients of the following payments and to concession card holders; Age Pension, Disability Support Pension, Parenting Payment, Carer Payment, Carer Allowance (if not in receipt of a primary income support payment), 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 and eligible Veterans’ Affairs payment recipients and Veteran Gold card holders. Note that a person can only receive one economic support payment, even if they are eligible under more than one category.

Apart from the deduction boosts for small businesses with skills and training and digital adoption and some measures regarding PAYG instalments and tweaks to the PAYG and GST instalment uplift factor, further assistance for businesses employing apprentices and the announcement regarding changes to reduce red tape and accessibility of employee share schemes, there was not a lot to mention with regard to business measures.

While this budget has all the trimmings of a pre-election cash splash with a few goodies, it was pretty light on in terms of any reform. There was mention of some of the big ticket east-coast infrastructure projects including nearly $10 billion in enhancing Australia’s national cyber security efforts, recommitment on spending on women’s health and more on stopping violence against women, recommitment and more funding towards the housing guarantee scheme and the full funding of the NDIS and some efficiency measure, but not a lot more.

With the election so close, voters will be closely watching Labor’s budget reply to see what goodies are on offer, with cost of living relief high on everyone’s agenda. We’ll see.

As with all budget announcements, the measures are proposals only and need to be enacted by Parliament.

I urge readers to contact your financial adviser with any specific questions you may have.