Budget 2024-25

OneLedger is here to bring you the highlights from the 2024-25 budget.

Against the backdrop of a slowing world economy and potential geopolitical shocks, Australia has managed to bank a surplus mainly driven by higher than expected tax receipts and commodity prices. Domestically, consumers are dealing with higher interest rate settings and a cost of living crisis that appears to have very little relief in sight.

Inflation has proven to be stickier than expected and will likely keep interest rates higher for longer. Interestingly, this budget anticipates that inflation will moderate and fall within the RBA’s target range by Christmas – an interesting take (which is at odds with the RBA’s own forecasts) given this budget’s spending, tax cuts and cost of living relief which many expect to be expansionary in nature and put upwards pressure on inflation. The inflation battle is far from won and appears to be glossed over with the rhetoric shifting to cost of living relief and protectionist policies attempting to bring manufacturing back to Australia.

The second surplus in two years, a feat not occurring in almost twenty years, hides the substantial spending commitments in future years. The same structural issues of the NDIS, defence force spending and interest costs on increasing debts will be there and have not been addressed in this budget.

The budget assumes GDP growth of 1.75% with household consumption rebounding. It is hard to see this happening given the current cost pressures and restrictive interest rate settings within the economy. Dwelling investment is forecast to stay low, which will not address the housing shortage or rental affordability and potentially keeping inflation higher for longer. Such contradictions cast doubt on the forecasts relied on in this budget, which again fails to make any meaningful or bold decisions to address structural issues in our economy.

Please find some of the key parts of this budget below:

Personal Income Tax Cuts

The government has legislated the permanent stage 3 tax cuts effecting all taxpayers, effective 1 July 2024. The cuts are intending to address bracket creep and provide cost of living relief.

The government cuts include the 19% tax bracket reducing to 16%, the 32.5% bracket reducing to 30%, the threshold for the 37% bracket is increasing to $135,000 from $120,000 and the 45% bracket is increasing from $180,000 + to $195,000 +.

An illustration of the potential tax savings relative to personal income levels is in the below table:

OL Comment – The changes to the personal income tax rates have been long awaited and are extremely welcomed given bracket creep that has occurred over the last few years. The average tax saving across all taxpayers is $1,888 per person.
 

Future Made in Australia (FMA)

The big policy that has been floated the last few weeks has been given some costings but still light on detail. It is intended to improve Australia’s leadership in the global transition to net zero. What we do know:
– It is aimed to attract and facilitate major investment proposals, support projects that are in the national interest and train the workforce to remain competitive in the green energy transition
– $19.7 billion commitment over 10 years to accelerate investment in FMA priority industries which includes renewable hydrogen, green metals, low carbon fuels, refining critical minerals and manufacturing clean energy technologies including solar and battery supply chains. This will mainly be delivered through Tax Incentives

Some specific examples included in the budget papers:
– Mapping Australia’s national groundwater systems and resource endowments to increase discoveries
– Provide equity and loans to PsiQuantum Pty Ltd to support quantum capabilities
– Establish Australia’s satellite earth observation program

Instant Asset Write Off – Changes to Small Business
In an attempt to assist small businesses with cash flow the government is extending the instant asset write off by another 12 months covering to period ending 30 June 2025.

In line with the 2024FY, small businesses with aggregated turnover of less than $10m will be able to continue to fully deduct the cost of eligible assets valued at $20,000 or less. The asset limit is on a per asset basis, so businesses may be able to write of multiple assets.

The assets need to be installed and ready for use before the end of the financial year and should the asset value be greater than $20,000 business can continue to use the small business simplified depreciation pool, claiming 15% in year one and 30% in each subsequent year.

OL Comment – The extension of the instant asset write off will be welcomed by many small businesses, however, there are many industries and businesses that would have liked to see the assets threshold at a greater value and will now have to receive the deduction for the asset over a number of years.

HECS indexation adjustments
The indexation rate applied to HECS loans outstanding on 1 June 2023 was 7.1%. The government has committed to amending this rate and applying the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI) moving forward.

This results in the indexation retrospectively being amended from 7.1% down to 4.0% returning over $3b back to taxpayers with HECS loans at year end 30 June 2023.

We anticipate this will be recognised as a tax credit in the 2024FY tax return.

OL Comment – We feel that this is a welcome change that undoes what was quite an onerous imposition on those with HECS debts.

Medicare low-income threshold increases
The government in increasing the Medicare levy low-income thresholds effective 1 July 2023 in a further attempt to assist Australian’s and provide cost of living relief. The changes to the thresholds are summarised below:

• Singles threshold increases to $26,000 from $24,276
• Family threshold increases to $43,846 from $40,939
• Single seniors and pensioners threshold increases to $41,089 from $38,365
• Family seniors and pensioners threshold increases to $57,198 to $53,406
• Each independent child increases the above thresholds by $4,027 up from $3,760

OL Comment – The increase in the thresholds is very welcomed and hope will provide some additional relief to lower income earners in this high cost of living environment.

Energy Bill Relief Plan

The Energy Bill Relief is aimed at providing bill relief to small businesses and individuals. This is expected to be $300 for individuals and $350 for businesses. These measures are expected to be delivered directly through energy bills.

OL Comment – Any support is welcomed but this will do little for energy intensive small businesses, such as large scale hospitality venues facing serious pressure in their energy consumption costs. We also believe these measures will not support the inflation fight.

Commonwealth Rent Assistance

Rent Assistance will increase by 10% from 20 September 2024 to add to last year’s 15% increase and assist with rental affordability. This equates to approximately $70 per fortnight at the maximum rate.

OL Comment – Rental affordability and the housing shortfall is a real issue we have in front of us. This budget fails to meaningfully address this housing shortage nor show support for builders who have been caught in a perfect storm of cost pressures to their business models.

Superannuation on Paid Parental Leave

From 1 July 2025, the government will pay superannuation guarantee (12% at that time) on Commonwealth government funded paid parental leave.

Other Notable Items

– Funding for Fee-free TAFE courses for priority industries such as building and construction
– Australian Apprenticeships Incentive System – further support for apprentices, trainees and their employers
– Funding to support the adoption and safe and responsible use of AI
– New Vehicle Efficiency Standards implementation funding. Note these standards are set to come in from 1 January 2025