Federal Budget 2023-24

On Tuesday the 9th of May the Treasurer, Dr Jim Chalmers handed down the 2023-24 Federal Budget.  Tune in to this episode to hear Jamie Johns and Ashley Carmichael review the budget and what to keep an eye on moving forwards.

Don’t forget to head over to the Sky Accountants website to download our Federal Budget report. 

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Transcript

Ashley Carmichael 0:13
Hello, welcome to the Sky Accountants Podcast. I'm Ashley Carmichael and I have with me today the CEO of Sky Accountants, Jamie Johns.

Jamie Johns 0:25
Yeah, Good day, Ash. Thanks for having us on another podcast and another episode today.

Ashley Carmichael 0:30
Glad to have you here and big week in politics, budget week. Dr Jim Chalmers, Federal Treasurer, handed down the 23/24 year budget.

Jamie Johns 0:47
Something that us accountants love to wait for over a year. Is that right Ash?

Ashley Carmichael 0:52
Yeah, it's a bit like Santa Claus coming. What's he got in his sack? Well, look, we're not the only ones. I think everyone is keen to know who the winners and losers are.

Jamie Johns 1:08
Yeah, that's right.

Ashley Carmichael 1:10
But look,an interesting budget. We've got a surplus for 22/23.

Jamie Johns 1:19
First time 15 years, is it?

Ashley Carmichael 1:21
Yes. Yeah. So that's a good outcome. It's sort of, and I think Jim Chalmers has been pretty upfront about this. It's a few things have gone their way.

Jamie Johns 1:38
What's the reason behind the surplus Ash, do you think?

Ashley Carmichael 1:42
There's a few different reasons. In that period, there's been a bit of a surge in our company profits and therefore the tax that flows into the government from a commodity price has been high. Inflation has done it. If prices go up, then that results in more tax. High employment levels. There's a number of factors that have all sort of gone the government's way and produced this budget. But it's kind of short lived. So we're expecting a deficit again in 23/24, about $14 billion. And it's going to blow out even further to about 35 bill. the year after. So it's nice to have a surplus, but we probably need to be, as Chalmers said, trying to hold a bit of a back and not getting too carried away with spending.

Jamie Johns 2:51
Well, we don't want to, it's all we're tied around inflation to, isn't it? We don't want to have the government spending copious amounts of money and filling the economy with surplus cash only to put prices up again. That's probably been the balance that difficult balance Ash that they've tried to reach this time.

Ashley Carmichael 3:12
Yeah, that's right. They've had a pretty unenviable task. There's a lot of people screaming about the cost of living and we've had the march of interest rate rises and things out there have become tight for some pockets and they're keen to try and help with that. But they've got to be careful how they do it because the cure might be worse than the disease. Yeah, like you said, if they spend up big, they'll just exacerbate that inflation problem.

Jamie Johns 3:50
Just on that Ash, the word inflation is thrown around a fair bit. But what does actually inflation really mean? I know for us who are exposed to the what they call the CPI or the consumer price index, that's really a basket of goods and services, isn't it? That measures the prices of things across the board.

Ashley Carmichael 4:15
Yeah, look, it's all it is. It's about the buying power of a dollar. What can you buy? And so inflation is essentially a setting where what you can buy for that dollar is reducing.

Jamie Johns 4:35
It's reducing. Yeah!

Ashley Carmichael 4:37
Essentially prices are going up. And so it's problematic because people are earning in very simplistic terms. People are earning the same amount, but what they can buy with their earnings is reducing.

Jamie Johns 4:54
Inflation. And obviously, it's probably most countries biggest enemy, isn't it? Like inflation. So.

Ashley Carmichael 5:03
Yeah, and the Reserve Bank are really anti-inflation. There's a bit of debate about whether or not they're too focused on reigning in inflation. But the rationale there is that to rectify that erosion of buying power, people have to earn more money. So they get pay increases and then they spend more and you get locked into a spiral. The next thing you know, you're Argentine and with a barrel full of wheelbarrow, full of dollars to go and buy milk.

Jamie Johns 5:43
That's right. Yeah.

Ashley Carmichael 5:45
It's a very simplistic explanation, but yeah, people get the drift.

Jamie Johns 5:50
But I mean, look, I was watching the news last night and the economist on there was saying that the government's almost would like unemployment to go back up a little bit because at the moment we've got full employment now, participation rates. So in other words, everyone's got jobs.

Ashley Carmichael 6:07
That's right. And look, that's one of the things that's been sort of noted in the budget is that the unemployment rate is historically very low and it's projected to remain. It will rise a little bit in the 23/24 year to I think they're saying 4.25% and then up a quarter of a percent to 4.5 in 24, 25.

Jamie Johns 6:33
Okay.

Ashley Carmichael 6:34
It's still very low.

Jamie Johns 6:36
It's still low and we're still looking to bring in, isn't it correct me if I'm wrong, 400,000 add to 600,000 immigrants in the next 12 months as well. So, you know, all those people, well, a lot of those people, I guess, will have to have jobs as well and they'll have to have somewhere to live. So, there is a unique set of circumstances that the economy is facing at the moment.

Ashley Carmichael 6:57
Yeah. Look, I certainly wouldn't want the job to try to coordinate and manage all of that at a government level. But look, inflation, they are forecasting that to start to come back. It's going to remain high. But I think they're saying it's about 6% now. They want to get it back to about 3.25% in the next 12 months. We'll see politicians, they like to claim the glory when things turn out as they said they would, but when they don't, they would like to blame it on outside forces.

Jamie Johns 7:40
They always distance themselves from it and it's funny. I think we've had 11 consecutive interest rate rises, haven't we?

Ashley Carmichael 7:50
Yeah. So, and that's a real sort of thorn in the side because we've got really high debt levels at the moment too. So, that level of debt is, you know, both at household level and government level. That's an issue that's got to be managed moving forwards. And, you know, that's another part of the reason why they can't sort of splash the cash around in the budget.

Jamie Johns 8:25
Yeah.

Ashley Carmichael 8:26
And we're just, you know, we're also, you know, I'm sure everyone's starting to see signs of it now. We're expecting growth to slow right down. So, I think real GDP growth is expected to be 1.5% in this coming year. And then it will bounce back up to 2.25% the year after.

Jamie Johns 8:49
Yeah.

Ashley Carmichael 8:50
But those are still pretty, you know, in terms of what we're used to seeing, those are pretty low numbers. That's right.

Jamie Johns 8:56
Yeah. So, it's interesting, like we said earlier, the balance to get this right with the current budget's been fairly tricky. And I think some of the things I read in the budget, there was a lot of, we just say welfare measures if we sort of drill down into a bit further with this current budget, Ash.

Ashley Carmichael 9:17
Yeah, that's right. So, you know, for you and I, Jamie, who are accountants, you know, we're always looking at, oh, what are they doing with super? And what are they doing with tax and all that kind of stuff. And like, that's really not been the focus at all.

Jamie Johns 9:32
In this budget.

Ashley Carmichael 9:33
You know, there's really been a focus around this sort of cost of living issue, which hits home hardest for those on lower incomes. And so, we're seeing a lot of sort of, you know, social security, whatever label you want to put on it. You know, we're seeing things like an increase in the job seeker allowance for unemployed, single parent payments, rent assistance. There's, you know, an extension of the higher earnings that age pensioners can receive before their pension starts to reduce. There's stuff in there about sort of cheapening medical costs through the Medicare bulk billing concessions.

Jamie Johns 10:33
Much in there about aged care in terms of? 

Ashley Carmichael 10:37
Yeah. So, there's quite a bit in that space. Age care is an important industry. And it's sort of been said that it employs some of the lowest paid workers doing some of the most important work. Oh, and they had a payroll in that sector.

Jamie Johns 11:00
Yeah. So, the Fair Work Commission's put through a 15% increase to the minimum award wages, which comes in from July, I believe.

Ashley Carmichael 11:15
Right. And the government's putting up funding to help support that. So, that's hopefully a good thing for that industry. But, you know, we're seeing they're putting some more funding in for home care support packages for people. So, you know, that's trying to support people to continue living in their own homes and keep take the pressure off aged care through that. And we're also seeing, you know, that they're talking about that they're putting some funding towards trying to get more or a bigger childcare workforce.

Jamie Johns 12:06
Right. And how are they doing that? Ashmore and Ct, if we...

Ashley Carmichael 12:10
Look, I won't claim to be an expert on it, but there's a bit of money in there to try and attract people to the profession and make it easier to get the qualifications that are needed.

Jamie Johns 12:23
There was a lot of talk on the budget too about just taking the pressure off the hospital systems. But I think a lot of that came through just funding in general.

Ashley Carmichael 12:32
Yeah. So, and a lot of this is just funding type measures, just allocating more money to do more.

Jamie Johns 12:42
I noticed the bulk billing with doctors, for example, though, we're increasing that so that, you know, the average person wasn't out of pocket with the gap in terms of bulk billing. So, it seems to be a lot of welfare measures that you're mentioning in this budget. On the tax front, Ash, was there much really that that affects, say, our clients, small business people? Do you think?

Ashley Carmichael 13:08
No, no, there wasn't really a whole lot at all. And there's sort of, you know, some more technical things that your average person or your average business owner really not going to be that interested in. They don't really benefit or win from it at all. It's just behind the scenes stuff. But, and look, a lot of things had already been announced. And that's one of the things about these budgets is that made announcements about a number of the items that are included here before they handed down the budget. So, you know, one that people would have heard a bit about is the extra tax for large super balances. So, this is the one where you, if you've got more than $3 million in your super account, you pay some more tax. That's been floating around for some time now, but it's still been made part of the budget.

Jamie Johns 14:10
So, does that get royal assent then? Has that been passed?

Ashley Carmichael 14:14
Oh, no, no, it's a long way from that. It's still, I think, undergoing consultation.

 Jamie Johns 14:21
Yeah.

Ashley Carmichael 14:22
And look, you know, that one in particular doesn't affect that many people, but there's some concerns around aspects of it. And, you know, there's always genuine concerns around tinkering in the super system. It's such a long-term investment. And people want to, you know, if they're going to put their hard earned in there for their future, they want to know that the rules of the game are not going to be changed on them and leave them worse off.

Jamie Johns 14:55
Well, it's certainly.

Ashley Carmichael 14:58
And so, you know, that sort of has rattled some people.

Jamie Johns 15:04
I was just going to say, with talking about super, you know, I heard it work the other day that the government's going to bring in, I think you call it, you know, payday superannuation. Do you want to?

Ashley Carmichael 15:16
Yeah, that's right. And so, this is yet another one of the measures that's in the budget that was announced pre. And so, this is the concept. So, at the moment, employers are required to pay super on behalf of employees. And the super guarantee legislation, it needs to be paid quarterly. And super's a perennial issue because there are some out there that pay late or that don't pay at all. And the employees sort of miss out on what they should be getting. But it's hard for the government to kind of police. And so, what they're talking about, I believe it's from 2026. They're bringing in a requirement that superannuation will be paid on payday along with wages. So, what people will be entitled to won't be changing. That's what the, not what the measure's about, but it's about the timing of when it gets paid.

Jamie Johns 16:35
You actually have to pay the super when you do the payroll.

Ashley Carmichael 16:37
Correct, yeah. Which may have some advantages. But given where we're at and what we're used to doing, there'll be some real and genuine cash flow issues that businesses will need to manage around that. I think so too. But we'll have to sort of see a bit more detail. Look, one thing that at this point we should mention about the budget process is that the government puts forward all of these ideas, but the detail is never there. It's always just a very high-level summary of what they're proposing. The detail comes later and then sometimes much later. And so, it's a bit hard because people are often thinking, well, is there any action I should be taking right now? And it's hard to advise them because the devil is in the detail, and we don't have it.

Jamie Johns 17:42
Just on that, Ash, does the superannuation guarantee rate change again on the 1st of July?

Ashley Carmichael 17:48
It does. And look, that's not part of this budget. That was just happening anyway. So, the super rate this year is at 10.5%. It goes up to 11%.

Jamie Johns 18:00
Goes to 11%. And then what's the plan over the next two years then? Is it going up?

Ashley Carmichael 18:07
I'd have to look it up, but it does continue to increase year on year for a few more years.

Jamie Johns 18:12
I think it does, yeah.

Ashley Carmichael 18:13
One of the other things as well that's been really spoken a lot about in the measure is the stage three tax cuts that the previous government introduced. That's all legislated. That's happening. That's sort of set in stone, but there's been a lot of talk about rolling that back. And to do that, the government would actually have to introduce new legislation to change those tax rates. And there's been a lot of speculation about whether or not they should do that.

Jamie Johns 18:50
Were they individual tax cuts there, Ash?

Ashley Carmichael 18:53
Yeah, personal tax cuts. And the government have said on many occasions that they're not going to be touching those. It was something that they said in the election campaign. And so I think they've been really reticent to touch that one. When were they to come in though? Again, I'm a bit light on the detail here, but it's not part of this budget. It's not this year, I think. I can look it up quickly and tell you, how that sound?

Jamie Johns 19:34
I'll keep you talking in the process. The other thing on that is we've had this instant asset write off, haven't we?

Ashley Carmichael 19:44
Yeah, so just on that, they come in in 24 / 25, so a few years.

Jamie Johns 19:50
Yeah, with those tax cuts.

Ashley Carmichael 19:52
Yeah, so instant asset write off. So, this has moved around so much over the last five years or so.

Jamie Johns 20:03
Well, I was just thinking for any of our clients right now leading up to 30th of June.

Ashley Carmichael 20:07
Yeah, that's right. So a lot of people will be aware that so we've got what they call the temporary full-expensing, which was a COVID measure, which was basically for businesses with less than 50 mil turnover. 

Jamie Johns 20:21
Yeah

Ashley Carmichael 20:23
If they invested in assets for their business, they could claim a full tax deduction in the year they buy that item. Unlimited.

Jamie Johns 20:36
Unlimited.

Ashley Carmichael 20:37
Yeah. And so there are businesses out there that are looking to make use of that. It was extended to the 30th of June 2023.

Jamie Johns 20:50
Right.

Ashley Carmichael 20:51
So in a month or so is time.

Jamie Johns 20:53
Yeah.

Ashley Carmichael 20:54
That runs out. And then we just revert back to what's in the tax act. And that is that you can only write off an asset if it costs you less than $1,000.

Jamie Johns 21:06
That's what it has been. It had been for courts.

Ashley Carmichael 21:09
It had always been in the legislation the whole way through, but there was just, we would get a piece of temporary legislation that said that that limit would increase to 20 and at one point it was 25 and it might have been 30. It would change that many times.

Jamie Johns 21:24
Oh, yeah.

Ashley Carmichael 21:25
And then we had this overlay of the temporary full-expensing, which had the same impact, but it was different piece of legislation. But so that expires and from the 1st of July it's gone. But so what they have done though is they've put in another temporary, yet another temporary write-off increase with a limit of $20,000.

Jamie Johns 21:52
And when does that $20,000 apply?

Ashley Carmichael 21:54
So that's next financial year.

Jamie Johns 21:56
Oh, yeah. 23, 24. Right. Yeah.

Ashley Carmichael 22:01
There's that one. And the other one that they're looking at is what they're calling energy efficiency.

Jamie Johns 22:16
Oh, yeah.

Ashley Carmichael 22:17
So they're going to give eligible businesses an extra 20% tax deduction or investments in assets that improve energy efficiency.

Jamie Johns 22:36
I wonder how they determine that. There must be a list of...

Ashley Carmichael 22:39
Look, there'll be criteria in due course.

Jamie Johns 22:43
Yeah.

Ashley Carmichael 22:44
Very specific, I'd imagine.

Jamie Johns 22:45
That's right.

Ashley Carmichael 22:46
But essentially, so to be capped at investments of up to 100K, if you were to spend the whole 100K, you would get a $20,000 tax benefit.

Jamie Johns 23:00
Okay.

Ashley Carmichael 23:01
An extra 20% deduction of that 100,000.

Jamie Johns 23:04
Oh, yeah!

Ashley Carmichael 23:05
Let's say I've got a supermarket, the sake of argument, and I've got some freezes and refrigerators in my supermarket that are pretty old and not that great. I might go out and invest in some upgrades that are more energy efficient. They're going to qualify for this and get a tax benefit. So what they're trying to do is incentivize smaller businesses in the smaller end of town to invest in more energy efficient.

Jamie Johns 23:42
And is that next year, starting next year, next financial year?

Ashley Carmichael 23:45
Yeah, I believe so. I'll just double check the start date on that one. It's not going to be of use to every business on some businesses that just don't have that sort of equipment. But there are certainly a lot of businesses that could benefit from it. So it'll run from July this year through to June 24.

Jamie Johns 24:13
24, yeah. I think one of the key things here was if from a small business person, particularly that point around that unlimited asset right off, that could, depending on what you're looking to invest in at the moment or what you're going to do pre-30th of June, it's something you'd want to take advantage of or it can, depending on your second.

Ashley Carmichael 24:39
It's definitely worth considering. We always say the same thing. Never do anything just to get a tax deduction.

Jamie Johns 24:47
No, that's right.

Ashley Carmichael 24:49
If you buy something that you don't want or need, you might save 25% on your company tax. But you've just spent 75 cents buying something that you don't need or want.

Jamie Johns 25:05
It's a classic question when your account-advising clients, yeah, you might save 25 cents, but you don't want to spend the other 75 cents for no reason.

Ashley Carmichael 25:15
But if there's a good business case, you need some new equipment for your business, it's a good time to do it. 

Jamie Johns 25:24
Yeah, that's right. I think that's a good point to take away there. Is there any other things that from a practical sense for people to be aware in the budget, it's probably some of the fine detail around compliance?

Ashley Carmichael 25:38
Look, there's stuff in there. There's this new global and domestic minimum tax rate concept that they're looking at for multinationals. But that's a bit above my pay grade. I don't know about you, Jamie, but we don't really deal in that space. But what that's about and it's, comes out of the OECD. And it's just about trying to make sure that multinationals pay their fair share of tax in the jurisdictions they operate. Arguably, this area has not been one where the government or former governments have had a lot of success. It goes towards tax revenues.

Jamie Johns 26:30
It reminds me, it was a few years ago that I was trying to begin the morning tax and I think that was it.

Ashley Carmichael 26:39
But it sort of then segues into some of the other things there. So that part of the budget, they provide funding to the Australian Taxation Office to undertake initiatives. And there are a couple of initiatives that are going at the moment and they're being given funding to extend them. And they're really focused around compliance. So small business compliance is one, there's personal tax compliance and GST compliance is another. So in a reading between the lines, the experience is that they've had some success in collecting tax dollars that otherwise go missing. So they think it's a good investment and they'll keep working in that space. So what I would say there is the message there for people, they love people with investment properties, for example. If that's you, just for the love of God, make sure that you've got your paperwork in order and you're not claiming things that you shouldn't. Because they're continuing to resource the ATO to catch out people who are making mistakes or intentionally doing the wrong thing. Same in small business space, same in GST. And they're really trying to rope it in. There's this part of the Tax Act called Part 4A, which is in technical speak general anti-avoidance provisions. Without boring people too much, what it's about is trying to unwind arrangements that are just purely tax motivated schemes.

Jamie Johns 28:34
So that don't avoid tax, yeah!

Ashley Carmichael 28:36
And so there's some funding and measures there in the budget to expand the scope of that part of the Tax Act as well. So they do want to rein in people who are getting into elaborate tax avoidance schemes.

Jamie Johns 28:57
We're probably a good place to end this podcast. Ash is on tonight. We'll have the opposition's response to the budget. 

Ashley Carmichael 29:06
That's right. Yeah!

Jamie Johns 29:08
So any ideas what he might say?

Ashley Carmichael 29:11
No, not really. In many respects, traditionally we have on the Thursday after the budget, the leader in the opposition gives their reply.

Jamie Johns 29:29
Gives their a reply? Yeah!

Ashley Carmichael 29:30
And that reply, well, you know, they might put up their own ideas and that kind of stuff, but it's really hypothetical because they're not a government. But what we are focused on when we listen to that reply is really what measures they support and what they don't. And what they're on the fence on and might want to negotiate with. Because when the government announces these changes in the budget, that doesn't mean that we're going to see them, that they'll ever see the light of day. We can go back and we see all this in our world, Jamie, of all these what they call announced but unenacted measures. So in previous budgets where they announce things and they're not legislated.

Jamie Johns 30:28
Well, it still doesn't become law, does it?

Ashley Carmichael 30:30
So for example, people will remember there's the skills and training boost and the digital boost where we get those extra tax deductions for undertaking training. That was announced by the Morrison government. Well, you know, that legislation still hasn't passed parliament. We don't really know when or if it will. So that announcement may never become a reality. So the government's task from here is to go along and legislate these announcements. And that's not an easy path. They have to get the legislation written, which takes time. They have to consult on it. And then they have to introduce the legislation and try their luck getting it through parliament.

Jamie Johns 31:29
It's a long process.

Ashley Carmichael 31:30
And so it depends on the level of support. So going back to that comment about Dutton, if the Liberal Party supports, you know, just say hypothetically the $20,000 small business ride off, then we can be fairly confident that that measure will go through parliament. It'll become legislation. Hypothetically, if they oppose that, well, we probably want to be a little bit careful about preemptively acting on that before the legislation's out, because it might just get stuck and never go anywhere.

Jamie Johns 32:12
Yeah, that's right. Now, so again, that's why it's important to call your accountant, you know, and when you do make business decisions, you know, not only if it makes good business case for good business sense, obviously, that's something to need to consider. But you still want to know the tax ramifications of course, Ash, as well. So yeah, that's very good.

Ashley Carmichael 32:37
Yeah, yeah. So there's quite a bit of water to go under the bridge. And we will, as we always do, keep people updated about those measures that are of most interest, so throughout, you know, regular blogs and this sort of thing. So we'll keep people posted.

Jamie Johns 32:56
That's right. Always call, you know, if in doubt, call the office wherever you are. And you know, the team would certainly be able to look after.

Ashley Carmichael 33:07
That's right. Or if there's something in there that you think might affect you or that interests you, but you want to know a little bit more about it, contact us. And, you know, we can get you up to speed with what's out there on that measure at the moment and keep, you know, put you on the list to keep you updated as things progress.

Jamie Johns 33:31
Absolutely. Yeah. Now, thanks for the update on the budget, Ash. We've probably covered a bit of ground both at a really high level, but also just down to the ordinary every day that it'll affect our clients. And if you've, whether you're an individual taxpayer or whether you're a small business person as well. So if you're listening this, thanks for joining us again. And we'll look forward to seeing you in the next session.

Ashley Carmichael 33:57
Yeah, that's right. And look, my final word before we go. If you do want to have a look at the detail of the budget, get on over to our website on ww.skyaccountants.com.au.

Jamie Johns 34:13
That's it.

Ashley Carmichael 34:14
Go to the blog. There is one there where you can go and download a fairly comprehensive guide that talks about all the different measures in the budget that we've been chatting about today. And give us a call if you need to know more.

Jamie Johns 34:33
Yeah. All right. Thanks for that, Ash. And we'll look forward to talking about the next topic in the next Sky Accountants episode.

Ashley Carmichael 34:45
Thank you.

Jamie Johns 34:46
All right. See you, mate. Bye!