FPA Budget Summary

Last night, the government handed down the October Federal Budget for 2022-23. The announcements focused on easing the cost of living over the coming years, addressing the challenges of a slowing economy, and introducing investments designed to place Australia in a stronger position for the future.

Our Financial planning association (FPA) team has unpacked the Budget proposals and summarised their insights and analysis. Some of the proposals include:

Budget Oct 2022

There were no significant changes to tax, superannuation or specific financial advice issues.
Of particular note however some improvement to access of social security benefits - specifically an increase to the income thresholds for the Commonwealth Seniors Health Card; an increase to the income pensions can earn without losing their aged pension; and incentivising downsized contributions by decreasing the eligibility age.

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 increase to 6.1%. Real growth in wages isn't expected until 2024.

Surprise franking credits move

The government intends to "improve the integrity of the tax system" by aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. This measure will apply from announcement on budget night.

This measure is estimated to increase receipts by $550.0 million over the 4 years from 2022–23.

Superannuation – expanding eligibility for downsizer contributions

The government confirmed it will allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. The measure will have effect from the start of the first quarter after Royal Assent of the enabling legislation.

The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home.

Lifting the Income Threshold for the Commonwealth Seniors Health Card

The income threshold for the Commonwealth Seniors Health Card will increase from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. 

The Government will also freeze social security deeming rates at their current levels for a further two years until 30 June 2024, to support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living. 

Jobs and Skills Summit – incentivise pensioners into the workforce

The Government will provide $61.9 million over two years from 2022–23 to provide age and veterans pensioners a once off credit of $4,000 to their Work Bonus income bank. 

The temporary income bank top up will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800, before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension. 

Incentivising Pensioners to Downsize

The Budget commits funding to:

extend the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients change the income test, to apply only the lower deeming rate (0.25 per cent) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.

Boosting Parental Leave to Enhance Economic Security, Support and Flexibility for Australia’s Families

The Government will introduce reforms to the Paid Parental Leave Scheme from 1 July 2023: 

either parent will be able to claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. parents will be able to claim weeks of the payment concurrently so they can take leave at the same time.

From 1 July 2024:

the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.