Broadly, the Budget is pre-empting a bad economy in the lead up to the next proper budget. GDP has shrunk by a 1/4% to 3.25% this FY, and will fall to 1.5% in 2023/24. On top of this, wage growth is estimated at 2.6%, while inflation is expected to rise to 7.75% in the December quarter, and a cost of living will increase to 6.1%. Real growth in wages isn’t expected until 2024, and the forecast increases in energy prices were staggering.
With this backdrop in mind, the Government handed down a sensible Budget for not-so-ordinary times, and the first one in decades framed against inflation rather than jobs. The Government will fund much of its spending decisions with cuts/reprofiling of existing programs, which means their policy decisions are unlikely to contribute to further inflationary pressure.
There were no material new policy announcements or surprises, but there are several important measures that will affect retirees, downsizers and SMSFs. Some of these include:
- reducing the eligibility age for downsizer super contributions (a one-off $300,000 per person) from 60 to 55
- increasing Commonwealth Seniors Health Card income thresholds from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples
- allowing pension age social security recipients to earn more from employment before their payment is impacted with a one-off credit of $4000 to their Centrelink Work Bonus “income bank”
- assets test exemption on the sale proceeds of a principal home will be extended from 12 months to 24 months for those receiving the full or part age pension
- cheaper medicines as the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme will decrease from $42.50 to $30
However, it looks like the end of lucrative share buybacks as the Government closed a loophole enjoyed by many SMSFs that were able to generate franking credit refunds for the sale of their shares. There also some very large elephants still in the room:
- The stage three tax cuts are legislated to start 1 July 2024 were not mentioned, but they are still on everyone’s mind, and the Government leaning toward pairing them back
- Despite intense pre-Budget discussions, superannuation tax concessions were left alone. However, talk of a proposed cap of $5m on superannuation investments is not likely to go away.
With seven months before the 2023-24 Budget released in May 2023, this Budget is more a shuffling of the deck not a new set of cards. As we continue to be buffeted by externalities such as war, floods, and global uncertainty, tougher tests lie ahead.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.