Federal Budget Summary 2024

Summary

In this special report, we look at the key takeouts from the 2024 Federal Budget and what it means for individuals and businesses, for tax, superannuation and social security that may impact wealth creation and retirement funding strategies.

Content

In this special report, we look at the key takeouts from the 2024 Federal Budget and what it means for individuals and businesses, for tax, superannuation and social security that may impact wealth creation and retirement funding strategies.

Overview

In reality, there is very little change in this year’s budget that has any significant impact on clients from a financial planning perspective.  The changes to the Stage 3 Tax cuts had been previously announced and are confirmed.  Apart from introducing superannuation on paid parental leave, reconfirming pay-day superannuation changes from 1 July 2026 there is no significant change to the superannuation rules.

The freeze on the Social Security Deeming rate and Pharmaceutical Benefit co-payments will benefit retired clients who do receive a pension or part pension.

Although the budget was delivered with statements that suggested that somehow spending, (in particular through rebates on electricity) would reduce inflation it is a bit hard to see how putting money back into peoples’ pockets reduces inflationary pressures.  All in all, it is a budget that does provide a fair bit of cost-of-living relief, which is not surprising in the lead up to an election year.

At a high level

Treasurer Jim Chalmers has unveiled his second consecutive Budget surplus of $9.3 billion this year.

This is the first back-to-back surplus in nearly two decades. However, Chalmers warned pressures on the Budget would "intensify".

"We are expecting a deficit of $28.3 billion in 2024-25 - Gross debt is now expected to peak at 35.2% of GDP in 2026-27 before declining to 30.2% by 2034-35.

"A stronger Budget means we save around $80 billion in interest costs over the decade.”

The Budget had a strong focus on cost-of-living support with the centrepiece being the Stage 3 tax cuts going ahead subject to the amendments made by the Albanese government.

Key Budget Initiatives

Easing cost-of-living pressures

• All 13.6 million Australian taxpayers will get a tax cut, averaging $36 a week through the introduction of the amended Stage 3 Tax Cuts.

• $3.5 billion for $300 in energy bill relief to all Australian households; plus, relief for one million small businesses.

• Waiving $3 billion in student debt for more than 3 million Australians.

• $1.9 billion to increase Commonwealth Rent Assistance by a further 10 per cent, benefiting nearly 1 million households.

• Cheaper medicines as part of the up to $3 billion agreement with community pharmacies.

Building more homes for Australians

• New housing investment of $6.2 billion, for a total of $32 billion under this Government.

• An additional $1 billion to help states and territories build more homes.

• More student accommodation.

• $16.5 billion additional funding for infrastructure projects to connect our cities and towns.

Investing in a Future Made in Australia

• $22.7 billion to become a renewable energy superpower and strengthen our economic resilience.

• $1.1 billion to reform higher education and support future productivity.

• $466.4 million to advance Australia's quantum computing capabilities.

Strengthening Medicare and the care economy

• $2.8 billion to strengthen Medicare, including a further 29 Medicare Urgent Care Clinics.

• $3.4 billion for new and amended listings on the Pharmaceutical Benefits Scheme.

• $2.2 billion to improve the aged care system.

• $888.1 million to help people get the mental health care they need.

• Funding set aside towards increased aged care and childcare wages.

Broadening opportunity and advancing equality

• $925.2 million for victim-survivors leaving violent intimate partner relationships.

• $1.1 billion to pay superannuation on Government-funded Paid Parental Leave.

A bit more detail

Treasurer Jim Chalmers announced a raft of cost-of-living relief measures in the Federal Budget, including the already announced tax cuts, increasing the Medicare levy low-income thresholds and power bill relief.

"New help with energy bills for every household and for small business. Stronger Medicare in every community. More homes in every state and territory. More opportunities in every TAFE and University. A dignified retirement for older Australians."

Social security deeming rates for financial investments will remain at current levels until 30 June 2025. This will benefit approximately 876,000 income support recipients, including 450,000 age pensioners.

The government has also increased the Medicare levy low-income thresholds for 2023-24, ensuring more than one million low-income taxpayers continue to be exempt from the Medicare levy or pay a reduced levy rate.

The government is also providing $3.5 billion in energy bill relief for all Australian households and around one million small businesses.

From 1 July 2024, more than 10 million households will receive a total rebate of $300 and eligible small businesses will receive $325 on their electricity bills throughout the year.

Renters will also receive some reprieve with the government providing $1.9 billion over five years to increase maximum rates of Commonwealth Rent Assistance by a further 10%.

This builds on the 15% increase in September 2023 and will take maximum rates over 40% higher than in May 2022.

Australians will also benefit from cheaper medicines under the Budget. The government is working to finalise the new Eighth Community Pharmacy Agreement, supported by up to an additional $3 billion in funding, which will deliver cheaper medicines.

As part of the agreement, instead of rising with inflation, there will be a one-year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for everyone with a Medicare card and a five-year freeze for pensioners and other concession cardholders.

This change means that no pensioner or concession card holder will pay more than $7.70 (plus any applicable manufacturer premiums) for up to five years.

Personal taxation

Marginal Tax Rates

Coming into effect July 1, every taxpayer will benefit from a tax cut. However, those earning over $180,000 will see their tax cut reduced while lower income earners will receive more relief than previously promised.

Treasurer Jim Chalmers said the average benefit would be around $1,888 a year, or $36 a week.

The Government’s legislated three-stage tax plan that was announced in 2018 and enhanced in 2019 was as follows:

• Stage 1 amended the 32.5% and 37% marginal tax brackets over 2018-19 to 2021-22 and introduced the Low- and Middle-Income Tax Offset (LMITO);

• Stage 2 was designed to further reduce bracket creep over 2022-23 & 2023-24 by amending the 19%, 32.5% and 37% marginal tax brackets; and

• Stage 3 was aimed at simplifying and flattening the progressive tax rates for 2024–25 and increasing the Low-Income Tax Offset (LITO). From 1 July 2024, there will only be 3 personal income tax rates - 19%, 30% and 45%. The Government estimated that around 94 per cent of taxpayers would be on a marginal tax rate of 30% or less.

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From 1 July this year, the Government has amended the Stage 3 tax changes to now reflect the following changes, which are set out in the table below:

• reduce the 19 per cent tax rate to 16 per cent

• reduce the 32.5 per cent tax rate to 30 per cent

• increase the income threshold above which the 37 per cent tax rate applies from $120,000 to $135,000

• increase the income threshold above which the 45 per cent tax rate applies from $180,000 to $190,000.

Business taxation

 The Government is supporting small business cash flow by providing:

 • $290 million to extend the $20,000 instant asset write-off for 12 months;

• $25.3 million to improve payment times to small businesses; and

• $23.3 million to increase e-Invoicing adoption, which will also disrupt payment redirection scams and boost productivity. 

Superannuation

 Only two elements of this year's budget related to superannuation, the first being the introduction of superannuation paid on parental leave.

 Parents who utilise the government-funded paid parental leave will be able to receive superannuation from July 2025, paid at 12 per cent of the parental leave rate. The government will provide $1.1 billion over five years from 2023-24 and $0.6 billion per year ongoing on this.

 There was also a focus on enforcement activity and reclaiming unpaid superannuation with the Government providing $187 million over four years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems.

 The most significant Superannuation change that is still in the wings was actually not part of the Budget.  That is the proposed reduction of tax concessions on superannuation balances over $3million, this is still in draft legislation and if passed is proposed to commence on 1 July 2025.

Conclusion and where to from here?

This budget has very little impact on the financial planning strategies for clients and it was pretty light on in terms of any significant reforms.  One of the biggest bugs with our clients and business generally is the lack of appropriate tax reform. The Government still relies substantially on personal income tax and even the heavily spruiked tax cuts are fundamentally only adjusting for the “bracket creep” that occurs from not adjusting tax thresholds in line with inflation.

However, the budget does provide plenty of cost-of-living relief, which a cynic might suggest is part of a pre-election year cash splash. Especially when you include some of the big-ticket Australia-wide infrastructure projects, which we did not touch on in this Summary.

The real risk in this approach is that the additional cash will fuel inflation, further delaying the potential for interest rate relief.

As with all budget announcements, the measures are proposals only and need to be enacted by Parliament. We urge readers to contact our team with any specific questions you may have.

General Advice Warning

The information in this presentation contains general advice only, that is, advice which does not take into account your needs, objectives or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial advice that addresses your specific needs and situation before making investment decisions. While every care has been taken in the preparation of this information, Infocus Securities Australia Pty Ltd (Infocus) does not guarantee the accuracy or completeness of the information. Infocus does not guarantee any particular outcome or future performance. Infocus is a registered tax (financial) adviser. Any tax advice in this presentation is incidental to the financial advice in it.  Taxation information is based on our interpretation of the relevant laws as at 1 July 2020. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Any case studies included are hypothetical, for illustration purposes only and are not based on actual returns. 

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