The 2022/23 Budget is a classic pre-election document, seeking to settle Australian’s nerves around the current cost of living. There are also a raft of new announcements that directly benefit small businesses and encourage investment in employee skills and business digitalisation.
Looking at the Budget from a macroeconomic perspective, it is expected to be as expansionary in 2022/23 as it was in 2021/22. The projected deficit of $78.0 billion in 2022/23 is almost identical to the $79.8 billion deficit expected in 2021/22. In short, there is little difference in the Government’s impact on the economy between the year immediately after the 2020 global recession (2021/22) and the coming fiscal year.
There is a risk that maintaining such an expansionary budget position, in an environment of rising inflation pressures, could result in the Reserve Bank of Australia raising the official cash rate sooner than it had anticipated.
Cost of living payments dominate key announcements
The recent rising price of fuel, which is resulting in higher prices of everything from groceries to building supplies, is a hot topic across Australia. The latest Westpac Consumer Confidence Index highlights how damaging concerns about cost of living, potentially higher interest rates and the general prevalence of bad news in the world is for household confidence levels currently. The Index fell to 96.6 points in March from 100.8 in February – this is the lowest confidence reading since September 2020.
The Budget seeks to ease some of these concerns and boost consumer confidence with several temporary measures, most notably:
- An additional one-off payment of $420 for the 10 million taxpayers eligible for the Low and Middle Income Tax Offset (LMITO). Taxpayers earning up to $126,000 were previously eligible for payments between $255 and $1,080 when they file their tax returns at the end of this financial year. Under the changes, they will now receive between $675 and $1,500.
- A temporary reduction in fuel excise duty. The 22.1 cent/litre cut will provide some immediate relief and be in place for the next six months. In reality the Government can’t sustainably address the underlying reasons why petrol prices have risen about 27 cents/litre1 since the start of March.
- A one-off $250 payment to pensioners and welfare recipients to offset some of the rising cost of living pressures.
These three announcements alone will cost $8.6 billion in the next six months.
The economic forecast that will attract the most attention is the wages data, which is forecast to rise 3.25% in 2022/23 and 3.25% in 2023/24. This is a slightly faster forecast than the Reserve Bank of Australia, which is expecting wages growth to not reach 3.25% until mid-2024.
New tax incentives for small businesses
New policies that will directly benefit small businesses include:
- New tax incentives to help small businesses, with turnover of less than $50 million/year, adopt digital technology and train and upskill employees.
- Until June 2024 for every $100 a small business invests in external training courses for their employees they will get a $120 tax deduction (Skills and Training Boost).
- Until June 2023 for every $100 a small business spends on new digitalising their business (for items such as cloud accounting, online security and eInvoicing software) they will get a $120 tax deduction up to $100,000/year (Technology Investment Boost).
- An extension of the current wage subsidy programs around apprenticeships, a new streamlined Australian Apprenticeships Incentive System and a new program to help lift youth employment (ReBoot).
- Measures around the PAYG system designed to improve short-term cashflow for small businesses and enhance the prefill of some income tax returns and activity statements.
- Changes to procurement rules to make it easier for small businesses to win contracts and have government-invoices paid more quickly.
- Additional funding for the Fair Work Commission to establish a dedicated unit to support small businesses, including with unfair dismissal and general protections disputes.
- An additional $480 million to improve wireless NBN access for households and businesses in regional and remote areas.
One long standing policy that has been repeatedly extended is the instant asset depreciation program. This was not extended in the Budget and could end on 30 June 2023.
Overall, this Budget is designed to provide relief from cost of living pressures and minimise ‘losers’ from any policy decisions. Attention will now turn to next week’s Reserve Bank Board meeting to understand how this Budget may impact the Bank’s thinking around interest rates. Then the focus will be firmly on the timing of the federal election, when we will next hear from Treasury in its Pre-Election Fiscal Outlook.
1 Calculated using national average price of unleaded 95 petrol published on drive.com.au.