2022 Federal Budget Summary: What’s in it for you?

2022 budget

This blog summarises the initiative contained in the 2022 Federal Budget announced on 29 March 2022.

Budget initiatives that might affect you

Extended the home loan guarantee scheme

The First Home Loan Deposit Scheme (FHLDS) allows borrowers to borrow more than 80% of a property’s value whilst avoiding the cost of lenders mortgage insurance (LMI), because the government guarantees part of the loan. The government has announced it will increase the number of places from 20,000 to 50,000 per year. 10,000 of these places are reserved for regional home buyers and 5,000 for single parents.

Cut the cost of petrol and diesel by 24 cents per litre

Effective immediately, the fuel excise (which is currently 44.2 cents per litre) will be cut by half for 6 months i.e. until the end of September. As excise also attracts GST, the saving per litre will be a little over 24 cents. This is estimated to save drivers between $10 and $20 per tank.

Excise is charged when fuel is deposited into petrol retailers’ tanks (at the service station). Therefore, this saving will not flow through to consumers until fuel stocks are replenished, which should occur over the next couple of weeks.

A tax refund of up to $420 when you lodge your tax return after 1 July 2022

If you earn less than $126,000, you would have been entitled to the Low and middle income tax offset (LMITO) since the 2018/19 financial year. The maximum tax offset used to be $1,080 if you earned $90,000. For this financial year ending 30 June 2022, the maximum LMITO will be increase by $420 to $1,500. If you earn close to $90,000, your tax return will be $420 more when you lodge your 2021/22 tax return.

One-off payment to pensioners

Next month, the government will make a one-off, tax-exempt payment of $250 to eligible pensioners, welfare recipients, veterans, and eligible concession card holders.

The cost to purchase Rapid Antigen Tests for work-related purposes are tax-deductible (and exempt from Fridge Benefits Tax if provided by employers).

Minimum super pension halved for another year

If you are retired and have a super pension account, you must draw a minimum annual pension that is based on your age; e.g. if you are under 65 you must draw 4% of your balance at the beginning of the financial year. The government will halve this minimum amount for the last two financial years to help people preserve their super balance given recent share market volatility i.e. so they didn’t have to sell down investments. This initiative will extend for one further year (i.e. 2022/23).

Small business tax instalments to be based on actual profitability

Small businesses must pay quarterly income tax instalments. The amount of the instalments is based on the business’ previous financial year. The government will change the system from the start of 2024 such that instalments are based on actual quarterly profit. This should help small business improve their cash flow management.

Additional 20% tax deduction for small business

Small business’ will be entitled to an additional 20% deduction for the cost of employees attending external training (provided by Registered Training Organisations) until 30 June 2024.

Small business will also be entitled to an additional 20% deduction for any costs incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. An annual cap of $100,000 will apply and this initiative expires on 30 June 2023.

The ATO is beefing up data matching and its compliance activities

The Budget included several initiatives that will give government departments access to more real-time data including reporting of family trust distributions, sharing payroll data with states and territories and so on.

In addition, the government announced it will spend an additional $650 million on anti-tax-avoidance activities which is expected to yield $2.1 billion in tax revenue.

Economic outlook

The government expects Australia will run a budget deficit for at least another 10 years.

Inflation is forecasted to cool over the coming years from 4.25% in 2021/22 down to 2.75% by 2023/24 as supply chain disruptions abate.  

The unemployment rate is predicted to reach an almost 50-year low of 3.75% in the September 2022 quarter. However, wage growth is not expected to exceed 3% until 2022/23, which is what the RBA has previously said it wanted to see before it raised interest rates.

Australia’s government debt is forecasted to peak at almost $1.2 trillion by 2025/26 which equates to circa 45% of GDP – less than half the amount of other developed economies including Canada, UK and the USA.

Overall assessment

There’s not that much in the budget to get excited about, and that’s a good thing. My concern was that the Morrison Government would go to greater lengths to buy votes and as a result, contribute towards inflationary pressures. Whilst it has splashed a bit of cash around, I don’t think it will be inflationary. It’s a relatively responsible budget which is a good thing, especially after all the stimulus provided during the Covid period.