Budget October 2022: A Sign Of The Times
In his first Budget, Treasurer Jim Chalmers emphasised the three Rs – responsible budget repair, restrained spending and right for the times.
For good measure, resilience also got a mention with spending targeted at building a more modern economy to deal with the challenges ahead.
This is the first budget from a federal Labor government in almost a decade, barely five months since Labor was elected and seven months since the Coalition’s pre election budget in March, so it was bound to be a little different. The Treasurer used the opportunity to update the shifting economic sands and reset spending priorities to align with the new government’s policy agenda.
For Australians wondering what the Albanese Labor government will mean for them and their family, this is the first piece of a puzzle that will be completed over the next three years.
The big picture
The Labor government has inherited an improving bottom line, with the deficit for 2022-23 expected to come in at $36.9 billion, an improvement of more than $40 billion on the pre-election forecast. This was due to high commodity prices for our exports and higher tax receipts from a strong labour market and robust corporate profits.
The deficits of $224.7 billion previously forecast for the next four years have shrunk to $182 billion. The difference of around $40 billion will go towards funding the government’s election promises and budget repair.
Labor has also found $22 billion in savings by cancelling or redirecting programs planned by the previous Coalition government, and a further $3.6 billion in cuts to external consultants, marketing, travel and legal expenses. Savings will also come from clamping down on tax avoidance by individuals and foreign corporations.
But as the Treasurer is fond of saying, storm clouds are looming, and he singled out inflation as the biggest challenge.
Economic challenges ahead
Inflation is forecast to peak at 7.75% by year’s end, before returning to 3.5% in 2023-24. Despite low unemployment currently at 3.75% it is tipped to rise to 4.5% by 2023-24, the surge in inflation means wages are unlikely to grow in real terms until 2024 at the earliest. Wages growth is forecast to be 3.75% in 2023-24, overtaking inflation of 3.5%.
With more interest rate hikes expected to tame inflation, debt is also set to climb from $895.3 billion last financial year to a forecast $927 billion in 2022-23 and upwards over the forward estimates. With global economic headwinds building to gale force, Australia’s economic growth is expected to slow as cost-of-living pressures bite into household budgets.
While Dr Chalmers does not expect Australia to slide into recession like many of our trading partners, economic growth is already slowing. Real gross domestic product (GDP) is forecast to be 3.25% in 2022-23, down from 3.9% last financial year, and 1.5% in 2023-24, 1 percentage point lower than predicted in the March Budget.
Superannuation, pensioners and tax
While there were no drastic changes to the super rules, there are a few measures that will create opportunities for certain retirees to save more personally and in super.
The eligibility age for making a downsizer contribution is proposed to reduce from 60 to 55, allowing eligible Australians to boost their super by up to $300,000 per person when they sell their home.
Age Pensioners and recipients of other social security pensions will benefit from indexation of their payments to help with cost of living pressures. As previously announced, the amount Age Pensioners can earn before they begin to lose pension entitlements will temporarily increase from $7,800 to $11,800 this financial year.
Together with the deeming rates freezing for two years, these measures will allow more pensioners to continue accessing payments despite interest rates rising. Self-funded retirees were not forgotten completely and will benefit from access to cheaper healthcare and medication when the cut off point for the Commonwealth Seniors Health Card increases from $58,000 to $90,000 for singles and from $92,000 to $144,000 for couples.
Health and aged care
Pressures on the federal health and aged care budget are mounting in the wake of COVID and an $8.8 billion blowout in the NDIS budget which will reach $166.4 billion over four years. An extra 380 staff will be hired at a cost of $158.2 million to speed up claims and make the system more efficient.
$750 million will be spent strengthening Medicare and $235 million over four years to roll out Urgent Care Clinics to reduce pressure on public hospitals.
Following revelations from the Aged Care Royal Commission and lessons learned during the pandemic, the government has pledged to fund an increase in aged care workers’ wages.
And the cost of subsidised prescription medications will be cut from $42.50 to $30 from January 1, at a cost of $756 million over four years.
Nation building and future-proofing
As part of its budget review, the government will “realign” $6.5 billion of existing infrastructure spending. It will spend $8.1 billion on key infrastructure projects including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other important freight highways.
The government has also committed to at least $40 billion in new borrowing to set up funds and companies to invest in policy promises. These include the $20 billion Rewiring the Nation Corporation to invest in the electricity grid, $15 billion National Reconstruction Fund for local manufacturing and the $10 billion Housing Australia Future Fund to invest in social housing.
In an acknowledgement of the increased frequency and severity of natural disaster, up to $200 million per year will be set aside for disaster prevention and resilience.
A more comprehensive approach to climate change is also back on the agenda, with total climate related spending of $24.9 billion over 2022-23.
As many of the nation’s largest emitters are in regional areas, the government will establish a $1.9 billion Powering the Regions Fund to help transition regional industries to net zero. And $345 million will be made available to increase uptake of electric vehicles.
Support for families
Childcare and improved parental leave are a priority area for the new government, in an effort to support families, reduce cost-of-living pressures and improve women’s workforce participation.
Already, $4.7 billion has been earmarked for childcare over the next four years, with families earning less than $530,000 to receive extra childcare subsidies from 1 July 2023. An extension of paid parental leave from the current 18 weeks to 26 weeks is also set to be phased in from next July, so neither initiative will add to the current Budget.
Jobs, skills and education
Federal, state and territory governments have committed to a $1 billion one-year agreement to deliver 180,000 fee-free TAFE and community-based vocational education places from January 2023. Support will be targeted to priority groups, including First Nations people, and priority areas such as care sectors.
The government will also create 20,000 more subsidised university places over 2023 and 2024. The initiative will be targeted at disadvantaged groups to study courses where there are skills shortages.
More affordable housing
A centrepiece of the Budget to improve housing affordability and chronic shortages is a new Housing Accord to build 1 million new houses in five years beginning in 2024.
The new $10 billion Housing Australia Future Fund will provide a sustainable funding source to increase housing supply, including 20,000 new social housing dwellings, 4,000 of which will be allocated to women and children impacted by family and domestic violence and older women at risk of homelessness.
The plan paves the way for significant public and private investment in new housing across the country, following an historic agreement between the federal government, the states and private investors including superannuation funds.
The Treasurer pledged a record investment of $1.7 billion to support implementation of the new National Plan to End Violence Against Women and Children. This will include funding for 500 new frontline service and community workers to support women in crisis.
The Government is also legislating 10 days of paid family and domestic violence leave for all types of employees.
The next 12 months are likely to be challenging for the economy and for households trying to budget for rising prices. For retirees and savers, the higher interest rates may be a welcome boost to their income but it may also be a good time to consider how this impacts their broader finances and whether adjustments to their strategy or investments are required to better position them for the challenges ahead.
If you have any questions about any of the Budget measures, please contact your adviser.
Information in this article as been sourced from:
- The Budget Speech 2022-23 (https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/speeches/budget-speech-2022-23)
- Federal Budget support documents (https://budget.gov.au/2022-23-october/content/bp1/download/bp1_2022-23.pdf)
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