With seven months before the 2023-24 Budget is due to be released in May 2023, the 2022 - 2023 Budget is a shuffling of the deck not a new set of cards.

There is nothing in the 2022-23 Federal Budget 2.0 that will create a UK style crisis. The stage 3 tax cuts legislated to commence on 1 July 2024 are not mentioned, and most funding initiatives appear to be a reallocation of previous Government initiatives. 

Cost of living pressures will continue. While some initiatives such as the increase to child care subsidies will help, the Budget flags some fairly bracing economic expectations:

• Inflation expected to peak at 7.75% in the December quarter and will persist at higher rates for longer than expected before easing to 3.5% by June 2024.
• Real GDP is forecast to grow to 3.25% in 2022-23 then retract to 1.5% in 2023-24.
• Electricity prices are expected to increase nationally by an average of 20% in late 2022, with retail electricity prices expected to rise by a further 30% in 2023-24.
• The deficit sits at $36.9bn, while this is better than originally estimated, the deficit expands to $49.5bn by 2025-26.

Tight labour market conditions are expected to see annual wage growth pick up to 3.75% by June 2023. Even so, high inflation is expected to see real wages fall over 2022-23 before rising slightly over 2023-24. That is, your wages might increase but the gains will be eaten away by the increasing cost of living.

 The ATO gets an extra $80m to extend its personal income tax compliance program, with $674m anticipated in increased receipts and over $80m in increased payments as a result. Tax deductions will be looked at closely.

 As expected, multi-nationals are a target. New measures will limit opportunities to shift taxable profits offshore. And, the ATO’s Tax Avoidance Taskforce is expected to deliver a whopping $2.8bn in additional tax receipts and $1.1bn in payments over the 4 year period.

The key measures announced in the budget include:

• Child care subsidy increase
• Added flexibility and an expansion of Paid Parental Leave
• Aged care reforms
• Change to the taxation of off-market share buy-back by listed companies
• The scrapping of the initiative to self-assess the effective life of intangible assets
• Scrapping of the announced but not legislated 3 year audit cycle for SMSFs
• Energy grants for SMEs (but no detail yet)
• Tightening of the thin cap rules and the denial of deductions for intangible assets between related parties in certain circumstances
• More cash to the ATO to pursue personal income tax non-compliance and multi-nationals
• More funding for the Tax Practitioners board to pursue dodgy tax agents

The Government appear keenly aware of the economic balancing act taking place, keeping the budget predominantly to election promises and redirecting existing initiatives to avoid exacerbating inflationary pressures.

The Government warn that with the highly uncertain global economic outlook, there are significant risks that could cause a sharper slowdown in domestic activity. Globally, key risks include a ‘hard landing’ or recession across major advanced economies, a sharper-than-expected downturn in China due to COVID-19 outbreaks and the property market downturn, a sudden tightening in financial market conditions and further energy price shocks stemming from the Russian invasion of Ukraine, which could drive inflation even higher.

Inflation is forecast to peak at 7¾ per cent in the December quarter of 2022. Supply disruptions have resulted in large price increases in home building, fuel and energy. Food prices remain elevated and have been further exacerbated by recent floods. Some of these pressures are expected to persist into 2023.

The unemployment rate is forecast to rise to 4½ per cent by the June quarter of 2024. Tight labour market conditions are expected to see annual wage growth pick up to 3¾ per cent by June 2023. However, high inflation is expected to see real wages fall over 2022-23 before rising slightly over 2023-24.

Contact us now to help you understand how you, or your business, can prepare itself for any upcoming changes and to take advantage of any of the Budget measures recently announced.