The Federal Budget 2024 has been handed down by the Treasurer and, as expected, the focus has been on delivering cost-of-living relief to ordinary Australians and attracting sustainable investment in Australia, with a particular focus on the global push towards net zero.
With the next Federal election likely to take place by May 2025, this federal budget announcement was never likely to be packed with sweeteners for voters, but the Treasurer needed to walk the tightrope between keeping the economy growing whilst controlling inflation. Dr Chalmers has endeavoured to strike a balance between providing meaningful help which ordinary Australians can feel in their back pockets, whilst delivering a fiscally responsible plan for economic growth.
Dr. Chalmers has previously spoken to his belief in ‘values-based capitalism’ and many of the announced measures target the government priority areas of housing, clean energy, health and gender equality.
As had been widely anticipated, this Federal Budget forecasts a second successive surplus, however, this will be short lived, with a deepening deficit predicted to follow.
Inflation is predicted to be reined in over the forward estimates period with the headline inflation coming back within the Reserve Bank’s target of 2 – 3% by the end of 2024. This is in contrast with the Reserve Bank’s forecast and could lead to future conflict, should an independent RBA push ahead with rate rises before the election.
Wage projections also show real wage growth of 0.5% per year over the next three years despite a slowing in the anticipated annual wage growth.
Whilst there has been a growing push, from the 'Teal' Independents in particular, to look at meaningful tax reform, the Federal Government is showing a limited appetite for dramatic changes to the architecture of the tax system.
There is, however, funding to extend the Personal Income Tax Compliance Program, the Tax Avoidance Taskforce, and the Shadow Economy Compliance Program of the Australian Taxation Office (ATO) and to fund a new task force to recover lost revenue from fraudulent tax refund claims. These compliance programs are expected to bring in almost $4.8 billion in increased receipts over a five-year period.
As has been the case in recent years, many of the headline announcements have been released over recent weeks and months.
The stage 3 tax cuts which form the key component of the cost-of-living relief measures were legislated in February with a tax cut being delivered to all Australian taxpayers earning over $18,200 each year from 1 July 2024. This measure is expected to cost $1.3 billion over the five-year period from 2023/24 onwards but is projected to increase labour supply to the tune of 25,000 full time jobs by reducing disincentives to work extra hours, particularly for women and low- to middle-income earners.
For workers in receipt of paid parental leave, funding to the tune of $1.1 billion over four years will be provided to pay superannuation on government funded Paid Parental Leave for any births or adoptions after 1 July 2025
Alongside the much-heralded tax cuts, the Budget includes an energy rebate of $300 for every household on their electricity bills. This measure is slated to come through across the 2024-25 year.
Rental increases have played a significant part in rising costs and the Budget is directing an additional boost of up to 10% to the maximum rates of Commonwealth Rent Assistance. This will cost $1.9 billion over the next five years and takes the combined increase in the maximum rate of Rent Assistance to 40% since May 2022.
This will be combined with supply side measures to provide additional funding to the states to build new housing, including a focus on social and affordable housing. Community Housing Providers will be provided with greater access to concessional financing through the Affordable Housing Bond Aggregator.
Reforms directed at the higher education sector will also require universities to increase their supply of student accommodation, and new regulations are to be introduced to give the government the power to limit enrolments of international students.
In the private rental market, there will be reduced fees for foreign investors acquiring existing Build to Rent properties where those properties remain operating as build to rent developments.
There are big incentives being directed towards young workers with $3 billion being wiped from HECS and HELP debt by capping indexation after record increases of 7.1% last year. This measure is to be backdated to 1 July 2023.
Workers in key industries will also be supported with funding to grow wages for aged care workers, early childhood education and care workers, as well as providing paid placements for nurses, teachers, and social workers.
There is some much needed support for the construction industry in the form of an extension to the support payment to apprentices in priority occupations for a further twelve months and with an increase of 67% to $5,000. There will also be 20,000 new fee-free TAFE places for courses relevant to the construction sector.
In the healthcare sphere, the government is committing to investment in Medicare through modernisation of the digital infrastructure, funding for Urgent Care Clinics and funding for improvements to the Medicare Benefits Schedule amongst other measures.
For one group of taxpayers, there is a measure which may increase the tax position. Whilst there is limited detail, the Budget papers announce amendments aimed at non-resident taxpayers which will “clarify and broaden” the types of assets on which foreign residents will pay CGT. These will also be an amendment to revise the point in time test to a 365-day testing period. These measures, along with enhanced upfront reporting for disposals of greater than $20m of value in membership interests are projected to increase receipts by $600 million over the five-year period.
Outside of specified industries, Federal Budget 2024 does not appear to offer significant changes for businesses.
For small business, we will see the instant asset write-off be extended for another year. This will continue to apply to small business entities with an aggregated turnover of less than $10 million who will continue to be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2025. The asset threshold applies on a per asset basis so small businesses can instantly write-off multiple assets. It is important to note, that the Instant Asset Write-off announced in the Federal Budget for 2023-24 (on 9 May 2023) is still not legislated. The Federal Government has introduced the bill which included this measure and whilst it passed the Senate on 27 Match 2024, it still has to return to the House of Representatives for acceptance of the Coalition’s amendments which included extending the asset cost of $30,000 and made the initiative available to medium sized businesses.
There will also be a $325 rebate for eligible small businesses as a rebate against energy prices across the next year.
Various measures are targeted at assisting business including funding to implement reforms to Payment Times Reporting, extending the Small Business Debt Helpline, providing financial counselling and mental health support for small business owners and funding for the Australian Small Business and Family Enterprise Ombudsman to assist with dispute resolution between businesses.
There are also proposals to scrap 457 ‘nuisance tariffs’ on a variety of imports with effect from 1 July 2024 to boost productivity, enable trade and reduce the compliance burden.
For multinational organisations, the measures previously announced to deny deductions relating to intangibles held in low- or no- tax jurisdictions will be discontinued, as the policy intent will now be addressed through the Global Minimum Tax and Domestic Minimum Tax measures being implemented, and effective from 1 January 2024.
A new royalty-related measure, with effect from 1 July 2026 has been announced and will impose a penalty on Significant Global Entities (SGE’s) who have mischaracterised or undervalued royalty payments to which royalty withholding tax would otherwise apply”.
Amongst the previously enacted measures there were also changes to the thin capitalisation regime, which seeks to restrict tax deductions for debt. Under the new rules the relevant tests have moved from an assets-based test, to an earnings test where the level of deductible debt is now based in Tax EBITDA, with some ability to carry forward denied debt related deductions to future years subject to meeting the tests in those years.
This initiative which seeks to attract international development and investment in key industries, was launched by the Prime Minister in April 2024 and the Budget Papers now give us some more detail on the package of measures costing $22.7 billion however, there remains little in the way of specifics as to how the package will deliver on its aims.
The key initiatives look at:
Attracting investment in key industries
Investing in innovation, science, and digital capabilities
Making Australia a Renewable Energy Superpower
Promoting sustainable finance markets
Strengthening approvals processes and establishing workforce and trade partnerships for renewable energy superpower industries.
Amongst the initiatives will be a Critical Minerals Production Tax Incentive 2027/28 to 2040-41. This will be targeted at improving supply chain resilience and supporting refining and processing. A Hydrogen Production Tax Incentive will also be introduced from the same year to 2040-41 for producers of renewable hydrogen to support the growth of the industry as part of a decarbonisation program.
The package aims at better deploying capital and streamlining approval processes to enable projects (which receive final investment decisions by 2030) to achieve a quicker pathway to implementation.
A Net Zero Economy Authority is to be established at a cost of $399 million to achieve the target of net zero greenhouse gas emissions by 2050. Funding is also being set aside to assist with integrating renewable energy sources such as wind and solar into the grid.
Across the budget papers there is also significant funding being invested in Defence, Digital Technologies. This includes funding to build the world’s first commercial-scale quantum computer in Brisbane, and funding to support victim-survivors leaving a violent partner. Funding will also be available to improve outcomes from the National Disability Insurance Scheme.
The Treasurer has hung his hat on the Australian Federal Budget delivering on his twin targets of providing cost-of-living relief and controlling inflation. There remains a risk that the extra cash flow coming through from individual tax cuts will cause inflationary pressures, but the Treasurer is backing the ‘clear advice’ from Treasury that the energy rebate in particular, along with rental measures will help “take the edge off inflation”.
We’ll be publishing more Federal Budget 2024 insights throughout the week. Should you have any questions regarding the Budget announcements and how they may impact you, please contact the Tax Advisory team or reach out to your local Crowe advisor.