Federal Budget 2024 – Key Announcements

Our strategic financial planning team reviews the announcements made by the Federal Government and helps you make sense of the areas most likely to impact you.

The big picture 

Treasurer Jim Chalmers’ summarises his third budget as one of restraint, repair and reform. The objective is clear; keep inflation under control while continuing to ease cost of living pressures.

Forecasts in the budget show inflation could return to RBA’s target rate of 2-3% by December 2024 while wages are forecast to rise just above inflation, meaning a small but steady growth in real wages over the coming years.

The more immediate issue impacting Australians is the rise in cost of living and there are a number of measures designed to address this. Tax cuts are at the forefront of the Budget but there are also new stimulus payments across a range of industries, to ultimately put more money in people’s pockets sooner rather than later.

Superannuation did not get much attention in this budget as some measures were preannounced, but these measures are still worth a mention given their significance.

While this Budget delivers a second consecutive surplus, future financial years can expect significant deficits as the Government intends to spend considerably on reforms to encourage economic growth.

Tax cuts

Marginal tax rates and income thresholds

The centerpiece of the cost-of-living relief is the reformed Stage 3 tax cuts which will come into effect from 1 July 2024. This will see changes to tax rates and income thresholds as follows:

Source: Australian Government

Those earning under $150,000, including retirees with taxable pensions and investment income, will benefit the most, but on average, taxpayers will receive a tax cut of $1,888 or $36 per week, in 2024–25.

The tax scales in Australia are not indexed to wages growth or inflation, which has meant as salaries and incomes have risen, so have people’s tax bills. The change to the income thresholds is therefore a necessity to tackle bracket creep but will need to be revised again in the future otherwise the benefit of these tax cuts will erode over time.

Cost of living relief

The Australian Competition & Consumer Commission (ACCC) has been directed to undertake a 12 month inquiry looking into pricing and competition in the supermarket sector to ensure fair pricing.

Simultaneously, the Government has funded CHOICE for three years, to produce price comparison reports to help consumers make better choices about food and grocery purchases.

Superannuation

Contribution caps

The preannounced new superannuation contribution caps will take effect from 1 July 2024. This will see a CPI-based increase in the concessional and non-concessional contribution caps. Provided the eligibility criteria is met, individuals will benefit from the following changes to the annual caps:

Concessional

• Current: $27,500
• New: $30,000

Non-concessional

• Current: $110,000
• New: $120,000

Source: ATO

For non-concessional contributions, the increase to the annual caps also means the three year ‘bring-forward’ limit changes from $330,000 to $360,000. The amount of the non-concessional contributions cap you can bring forward after 1 July 2024 depends on your total super balance (TSB):

Source: ATO

Importantly, if you have triggered the bring-forward arrangement in 2022-23 or 2023-24, these increases won’t apply to you. You can only contribute up to the current contribution caps. If, however, you triggered the bring-forward arrangement in 2021-22, your three-year period will reset on 1 July 2024 and you will have access to the new caps (subject to age and TSB criteria).

Additional tax on balances over $3 million

The previously proposed Division 296 tax, which would involve an additional 15% tax applied to earnings on superannuation balances exceeding $3 million, were not specifically mentioned by the Treasurer.  However, the Senate committee handed down their report last week recommending no changes to the proposals, meaning taxing of unrealised gains is likely to continue to go ahead and no indexation of the $3 million cap.

The Division 296 bills are still in draft, and the government is still determining how Commonwealth defined benefit pensions will be treated under this legislation. Given the complexities involved in these calculations, the Government has allocated more funding over the next four years to the Commonwealth Superannuation Corporation and Department of Finance to implement this tax for defined benefit members.

With only 12 months to go until this legislation takes effect, individuals and couples should start planning now. We previously provided further detail on this legislation in our article: Proposed Super Tax Changes – What You Need to Know.

Superannuation guarantee

Announced in 2023 but reconfirmed in this budget was the requirement for employers to pay superannuation at the same time as they pay salary or wages to employees, starting 1 July 2026.

Superannuation guarantee (SG) paid by employers will increase from 1 July 2024 according to previously legislated rates, changing from 11% to 11.5%. Some or all of the additional 0.5% SG can be absorbed by the increase in the annual concessional contribution cap, meaning individuals whose annual SG contributions are already using most of the concessional contribution cap may be able to avoid excess contributions.

Those who have room within their cap to salary sacrifice, may need to adjust their contributions to accommodate the changes to SG and concessional contribution cap.

For parents of babies born or adopted on or after 1 July 2025, superannuation guarantee will be paid on Government-funded Paid Parental Leave (PPL). Coinciding with an increase in the number of weeks of PPL to 22 weeks after 1 July 2024, 24 weeks after 1 July 2025 and 26 weeks after 1 July 2026, paying super on Government PPL aims to treat parental leave as a workplace entitlement, like annual and sick leave. Importantly, this means those on parental leave will not miss out on valuable super contributions, reducing the impact of time out of the workforce on their long-term superannuation balances.

Social security deeming rates

Retirees receiving social security benefits such as the Age Pension and Commonwealth Seniors Health Card will benefit from current levels of deeming on financial investments being kept at their current rates until 30 June 2025. Deeming rates are used to estimate how much income individuals and couples earn from financial assets, including non-grandfathered account-based pensions. This means for couples where at least one member gets a social security pension, deeming rates will remain at 0.25% for the first $100,200 of financial assets and 2.25% for anything over this amount. For a single person, the first $60,400 of financial assets will continue to be deemed at 0.25% and anything over will be deemed to earn 2.25%.

Small business

The instant asset write-off scheme for small businesses will be extended for another year, allowing businesses with turnovers capped at $10 million to immediately deduct $20,000 from all eligible assets.

Tax incentives will be offered to attract investment (particularly foreign investment) in green energy and advanced manufacturing and other projects and ventures that come under the remit of the Future Made in Australia Act.

Eligible business will receive $325 off their electricity bills and more support will be provided for small business employers administering the Paid Parental Leave scheme.

Students and HELP debt

Anyone with HELP or student loan debt will receive some relief through the reduction of the indexation rates. This will be backdated to 1 July 2023, which means the indexation rate reduces from 7.1% to 3.2% in 2023 and from 4.7% to 4% in 2024. Someone with a $30,000 HELP debt would receive a credit to their HELP account of about $1,400 across 2023 and 2024. This may ease the pressure off having to use savings that may be earmarked for home purchases or parents wanting to use their superannuation to pay off their children’s HELP debt. While the reduction in indexation rates will not change borrowing capacity, it is designed to allow people to help pay off their HELP loans faster which will help when applying for a mortgage.

There was more funding in the budget for boosting the number of skilled workers in the construction and housing sector, including fee-free TAFE courses and pre-apprenticeship programs.

Student nurses, teachers and social workers will receive $319.50 per week while undertaking mandatory placements.

Health and Aged Care

More funding has been promised to the new Eighth Community Pharmacy Agreement, which aims to deliver cheaper medicines, improve patient health outcomes and secure a strong community pharmacy sector. The Agreement will also provide a freeze on the maximum PBS co-payment for everyone with a Medicare card and a five year freeze for pensioners and other concession card holders. This change means that no pensioner or concession card holder (including Commonwealth Seniors Health Card recipients) will pay more than $7.70 (plus any applicable manufacturer premiums) for up to five years, a potentially significant saving for many retirees.

While continuing to implement changes recommended in the Royal Commission into Aged Care Quality and Safety, more funding will be provided to release an additional 24,100 Home Care Packages in 2024-25, allowing more retirees to age at home and higher wages for Aged Care workers.

Housing

All Australian households will get the benefit of a $300 rebate on their energy bill, regardless of their incomes.

The government is providing extra funding over the next five years to increase Commonwealth Rent Assistance by a further 10%.

The Government has committed more funding to combat lack of housing, especially social and affordable housing. In addition to this is a target of 1.2 million new homes by 2030 and development of crisis and transitional accommodation.

With pressures on the domestic housing market caused by international student migration, the Government wants to bring in regulation that caps universities’ international student intake. To increase international student numbers, universities will be required to increase their supply of student accommodation.

States and territories will be given more funding to improve infrastructure and access to new homes including roads, sewers and energy and water connections.

Looking ahead

The combination of tax cuts and stimulus to consumers has the potential to increase disposable income and drive consumption. However, while it may be tempting to spend these savings, with continued tension around the world potentially putting pressure on economic growth, it may be prudent for retirees and savers to consider strategies that use potential savings .