What the Federal Budget means for investors and savers

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It's hard to believe now that the Budget was only a month ago. Since then, an election has been called and much of the content of the Budget has seemingly been forgotten. Nevertheless, there were significant measures included in the statement which will have implications for investors and savers over the next year and its worthwhile focusing on those measures.

The Treasurer's statement outlined measures to reduce the pressures on families due to the constantly rising cost of living, amid international conflict and the lingering effects of the pandemic.

The Treasurer clearly hopes to ensure continued economic growth and stability (and in the process a further election win in May this year) through these measures.

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It includes promising an expanded guarantee scheme for home buyers (which has been further expanded by an announcement in the election campaign), an increased tax offset for low and middle-income earners for the current financial year, several one-off payments to the vulnerable, a 50% cut in fuel excise, incentives to support businesses, and billions of dollars in funding for major infrastructure projects.

However, the biggest windfalls for investors and savers across the country is the fact that taxes relating to investments, savings and superannuation remain essentially unchanged, in particular negative gearing and capital gains, which are often used by those investing in shares and property. There are also no changes to the tax deductibility of expenses relating to investment property.

Expansion of the Home Guarantee Scheme (HGS)  

The Treasurer outlined plans to expand this scheme, which, since 2020, has been helping eligible buyers purchase a home by guaranteeing a portion of their loan. This allows them to buy or build a home with a smaller-than-usual deposit (between 2% and 5%, depending on the scheme) and effectively removes the need for lender mortgage insurance.

In addition, as part of the election campaign, the government has committed to raising the price caps for houses eligible under the scheme, which the opposition has agreed to match.

Measures to support individuals

For individuals (which of course includes property owners as well as renters), the centrepiece was the increase in the low and middle-income tax offset, which is welcome. People earning up to $126,000 will get a rebate of $420 in excess of what they would have got anyway through the existing tax offset. All you have to do to get it is lodge a tax return for 2021-22 - so funds should start to flow to taxpayers from July 1 this year.

If your taxable income is up to $126,000, you will get some or all of the expanded low and middle income tax offset. Basically, if your income is less than $37,000, you will pay $675 less tax.

If your income is between $37,001 and $48,000, the tax offset will increase steadily to $1,500. Between $48,000 and $90,000, you will pay $1500 less tax (the maximum).

Earn more than $90,000, and the offset gradually phases out, disappearing after $126,000. So, if you earn $126,000, you will pay $420 less tax but if you earn $126,001, you won't benefit from the offset at all.

Unfortunately, this is just a short term measure. Next year, the low and middle-income tax offset disappears completely - meaning that people earning up to $126,000 will see a tax rise of up to $1,080. It's hard to see how that will do anything to help cost of living pressures over the medium and long term.

Worse, just as most Australians will experience this tax rise, the wealthiest Australians will be anticipating a tax cut of up to $9,075 in 2024/25 (remember, the government's Third Stage tax cuts which predominantly benefit the wealthy were passed several years ago and finally kick-in on July 1, 2024).

Other than the changes to the low and middle income tax offset, the Government did not announce any personal tax rates changes in the Budget.

Finally, the Government announced a reduction in the excise duty rate that applies to petrol and diesel by 50%, for 6 months. This cut will apply to all fuel and petroleum-based products, except aviation fuels, and has seen the price of a litre of fuel coming down by 22.1 cents in the weeks following the Budget.

This will be welcome news to investors with property in the outer suburbs who might have been experiencing a decline in renter demand because of high fuel costs and the associated costs to commute to the CBD. Let's hope that no further oil price shocks occur to eat away at that cut!

Superannuation measures

There were few significant measures relating to superannuation. About the only notable announcement was the extension of the temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities by a further year to June 30, 2023.

The 50% reduction in the minimum pension drawdowns, which has applied for the 2019-20, 2020-21 and 2021-22 income years, was due to end on June 30, 2022. However, the Government announced that the SIS Regulations will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022-23 income year.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.

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