The Australian Government's 2023/24 Budget, featured a wide range of measures aimed at addressing cost-of-living pressures, healthcare, clean energy initiatives, and housing.
While the budget attempts to target cost-of-living pressures without worsening the problem, spending is likely to have a stimulus effect on the economy, albeit relatively restrained. The bond market reaction suggests investors are relatively unconcerned that the announced measures will shift the outlook for monetary policy, with bond yields only modestly higher after the announcement and little change in rate expectations for the RBA at coming meetings, which is seen as leaving rates unchanged through the remainder of the year.
Economic Outlook and Fiscal Position
The budget forecasts a surplus of $4.2 billion in 2022/23, followed by deficits of $13.9 billion in 2023/24, $35.1 billion in 2024/25, $36.6 billion in 2025/26, and $28.5 billion in 2026/27. Net interest payments are expected to rise from 2023/24, reaching 0.8% of GDP by 2025/26, down from 1% in the October Budget. The government has been able to issue new debt at a slightly lower rate since October, with the assumed yield on 10-year government bonds revised down from 3.8% to 3.4% over the forward estimates.
Personal Taxation
In the 2023/24 Budget, the government has not announced any changes to personal tax rates. The Stage 3 tax changes are set to commence from July 1, 2024, as previously legislated.
Winners in the 2023/24 Budget
Economically disadvantaged women, small businesses, and the aged care sector emerged as winners in this year’s budget. Small businesses also stand to benefit from several measures that will make it easier and cheaper to run their businesses, starting with a tax incentive that encourages the use or upgrade of energy-efficient machines.
Small Businesses
Small businesses are one of the many beneficiaries of this budget, with some 3.8 million companies with turnover up to $10m able to write off the value of new equipment worth up to $20,000. Business investing in energy efficient equipment will also be eligible for a further tax deduction up to $20,000. Larger businesses with turnover up to $50m will receive a one off $650 payment to lower energy billions and a 20% deduction incentive to electrify cooling and heating systems, the costs of which will be immediately deductible in the first year which those assets are installed or used.
Cost-of-Living Relief and Housing Initiatives
To address cost-of-living concerns, the Albanese government is implementing a range of measures, including bill relief, increased welfare payments, and investments in affordable housing. These measures include $1.5 billion for the Energy Bill Relief Fund that will deliver $500 rebates to 5 million low-income households and $650 to 1 million small businesses. First home buyers benefit from the expansion of the Home Guarantee Scheme that allows any two people including siblings or friends to purchase a home with just a 5% deposit, with the scheme also expanded to non-first home buyers that have not owned a property for 10 years. For renters, $2.7 billion will be used to increase the maximum rates of rent assistance by 15% up to $31.36 helping to somewhat offset record-breaking increases to rents which rose 11% over the year to May. A further $2 billion will be allocated to the National Housing Finance and Investment Corporation to deliver a minimum of 1,200 social and affordable homes in each state and territory over the next five years.
The Labor Government leverages the significant surge in tax revenue from strong employment, high commodity export prices, and stable corporate profits to fund these initiatives, producing a short-term surplus with minimal new tax measures and a focus on spending restraint and reprioritisation.
Healthcare and Clean Energy Measures
The budget highlights the government’s commitment to healthcare and clean energy initiatives. Among the measures announced are increased funding for hospitals, mental health services, and the National Disability Insurance Scheme (NDIS) and a 15% pay rise for low-paid aged care workers. Additionally, GP’s will be incentivised to bulk bill concession card holders, families with young children and pensioners worth $3.5 billion that will see GPs paid three times as much for those appointments. The budget also includes investments in medical research and infrastructure to improve healthcare access and outcomes for Australians.
In the clean energy sector, the government is investing in renewable energy projects, research and development, and supporting the transition to a low-carbon economy. This includes funding for the development of green hydrogen and other alternative energy sources, as well as the expansion of electric vehicle charging infrastructure.
Education and Skills Development
The budget also focuses on education and skills development, with an emphasis on providing Australians with the necessary tools and opportunities to succeed in the workforce. Funding has been allocated for initiatives that improve access to quality education, including increased support for schools, higher education institutions, and vocational training programs. This investment aims to address skill shortages and improve the overall competitiveness of the Australian workforce in the global market.
Infrastructure and Regional Development
The 2023/24 budget includes substantial investments in infrastructure and regional development projects aimed at boosting economic growth, creating jobs, and improving the quality of life for Australians living in regional and remote areas. This includes funding for transport infrastructure, such as roads, rail, and ports, as well as investments in water infrastructure, telecommunications, and other essential services for regional communities.
Losers in the 2023/24 Budget
Not all areas benefited from the budget, in particular a crack down on bosses paying superannuation and tax dodgers is a focus. From July 2026, employers will be required to pay super at the same time as salary to offer employees more oversight of whether their entitlements are being paid. The ATO will also receive $40.2m to invest in improved data matching to catch underpayment of super. Meanwhile, the Treasury will aim to claw back what it estimates as $9.1 in unpaid tax over the next five years ramping up compliance programs to crack down on those avoiding GST and personal income tax, with multinationals set to face a minimum 15% tax rate from January 2024.
So-called “Super millionaires” who have balances greater than $3m will also be taxed at 30% from July 2025, a doubling of the current 15% rate which has been telegraphed for some time. This measure is expected to impact around 80,000 Australians or 0.5% of superannuation members, estimated to bring is $2.3 billion in the first year.
Finally, gas producers will have their tax deductions capped and face tougher compliance measures that the Treasury estimates will generate $2.4 billion over four year.
Conclusion
The Australian Government’s 2023/24 budget is a comprehensive plan that addresses a range of key issues, including cost-of-living pressures, housing, healthcare, clean energy, support for women, education, and regional development. By focusing on these areas, the government aims to create a more equitable, sustainable, and prosperous future for all Australians. Overall, measures have been relatively restrained given the focus on preventing a worsening cost-of-living crisis that has so far been well received by financial markets.
While some critics argue that the budget does not go far enough in addressing some issues, the overall reception has been positive, with many stakeholders praising the government’s commitment to tackling these critical challenges. As the implementation of the budget measures unfolds, it will be crucial to monitor their effectiveness and adapt as needed to ensure that the goals set out in the budget are achieved, and Australia continues to move towards a more inclusive and sustainable future.
