Federal Budget May 2024

Report contents

Overview

The Federal Treasurer, the Hon. Dr Jim Chalmers MP, has delivered his third Federal Budget.

For the second year in a row, the Federal Government is on track to deliver a budget surplus. This is a positive development given the Reserve Bank of Australia (RBA) is trying to slow demand in its fight against inflation. However, the outyears show increasing budget deficits, reflecting structural spending pressures such as the NDIS, defence, aged care and health.

The key aim of the front end of the Budget is to assist with cost-of-living pressures, without adding to inflationary pressures. But the longer-term tail of the budget is more focused on growth and spending.

Impact on Financial Markets

This budget has very limited implications for the financial markets. Most of the new spending initiatives and the tax cuts were flagged in the lead up to budget night and even the future deficits are relatively small relative to gross domestic product (GDP).

• Cost-of-living pressures are being addressed by providing personal income tax cuts and rebates on household essentials such as rent and electricity and extending the instant asset write-off for small business.
• In FY24 the budget position is expected to be a surplus of $9.3bn, up from a deficit of $1.1bn at the Mid-Year Economic and Fiscal Outlook (MYEFO). However, the late surge in revenue is about as good as it gets, with a deficit of $28.3bn expected in FY25 and a deficit of $42.8bn in FY26.
• The budget forecasts inflation to slow to 3.5% at the end of FY24 and 2.75% by the end of FY25. This is well below the RBA’s forecast of 3.8% in FY24 and 3.2% in FY25. The difference can be mostly explained by the extension of the electricity rebate, which is expected to reduce inflation by 0.5%pts. However, this is only a temporary measure and issues such as capacity utilisation are much more important for underlying inflation.
• GDP growth is downgraded from 2.25% to 2.0% in FY25 vs the RBA’s forecast of 2.1%. In the past few budgets, the forecast of the terms of trade have been too low and the better than-expected actual outcomes helped prop up the budget position. In FY25 the terms of trade is expected to fall by 7.75%.
• There is doubt the shorter-term initiatives such as the tax cuts, the energy rebate and the increase in rental assistance will support a sustained turnaround in consumer spending. Spending will probably gravitate towards non-discretionary items such as food and essential services. It is also likely that at least a portion of the tax cuts will be saved.
• Even though the Stage 3 tax cuts have been broadened they may not be large enough to have a meaningful impact on inflation. The RBA’s main aim is to bring the labour market back into balance. Progress has been made, but more needs to be done and at this stage that means immediate interest rate cuts may not be on the agenda.

Major Budget Initiatives

We review the major initiatives below:

Highlights include:

• re-stating the Stage 3 tax cuts
• help with energy bills
• rent assistance increase
• deeming rates freeze extended
• further housing assistance
• small business support
• strengthening tax compliance and counter-fraud activities
• establishing a single front door for major investors in Australia
• further aged care funding and increased flexibility for Carer Payments.

Note: These changes are proposals only and may or may not be made law. You should speak
to your financial adviser to understand more about how these proposals could apply to you.

Personal income tax

Stage 3 tax cuts

The Government reiterated its earlier reforms to the Stage 3 tax cuts, but there were no
new developments announced.

Extending the Personal Income Tax Compliance Program

The Government will extend the Australian Taxation Office (ATO) Personal Income Tax
Compliance Program for one year from 1 July 2027.
This extension will enable the ATO to continue to deliver a combination of proactive,
preventative and corrective activities in key areas of non-compliance, including overclaiming
of deductions, incorrect reporting of income and inappropriate tax agent influence. This will
enable the ATO to continue its focus on emerging risks to the tax system, such as deductions
relating to short-term rental properties.

Increasing the Medicare levy low-income thresholds

The Government has increased the Medicare levy low-income thresholds for singles,
families, and seniors and pensioners from 1 July 2023 to provide cost-of-living relief. The
increase to the thresholds ensures that low income individuals continue to be exempt from
paying the Medicare levy or pay a reduced levy rate.
The increase to the thresholds accounts for recent annual Consumer Price Index (CPI)
outcomes and is estimated to decrease receipts by $640 million over the four years to
2026–27.

The threshold for singles has been increased from $24,276 to $26,000. The family threshold
has been increased from $40,939 to $43,846. For single seniors and pensioners, the
threshold has been increased from $38,365 to $41,089. The family threshold for seniors and
pensioners has been increased from $53,406 to $57,198. The family income thresholds will
now increase by $4,027 for each dependent child, up from $3,760.

Business owners

Small business $20,000 instant asset write-off

The Government will continue to improve cash flow and reduce compliance costs for small
businesses by extending the $20,000 instant asset write-off by 12 months until 30 June
2025.

Small businesses, with an aggregated annual turnover of less than $10 million, will continue
to be able to immediately deduct the full cost of eligible assets costing less than $20,000
that are first used or installed ready for use by 30 June 2025. The asset threshold applies on
a per asset basis so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to
be placed into the small business simplified depreciation pool and depreciated at 15 per
cent in the first income year and 30 per cent each income year thereafter.
The provisions that prevent small businesses from re-entering the simplified depreciation
regime for five years if they opt-out will continue to be suspended until 30 June 2025.

Supporting small businesses

The Government will provide $41.7 million over four years from 2024–25 to support small
businesses. Funding includes:

• $25.3 million over four years from 2024–25 to support the Payment Times Reporting
Regulator to implement reforms recommended by the statutory review of the
Payment Times Reporting Act 2020, including increased resourcing for the Regulator
and upgrading the Regulator’s ICT infrastructure

• $10.8 million over two years from 2024–25 to extend the Small Business Debt
Helpline and the New Access for Small Business Owners program to continue to
provide financial counselling and mental health support for small business owners

• $3.0 million over two years from 2024–25 to implement the Government’s response
to the Review of the Franchising Code of Conduct, including by investigating the
feasibility of a licensing model and remaking and updating the Franchising Code of
Conduct prior to its expiration in April 2025

• $2.6 million over four years from 2024–25 (and $0.7 million per year ongoing) for the
Australian Small Business and Family Enterprise Ombudsman to support
unrepresented small businesses to navigate business-to-business disputes through
alternative dispute resolution.

Strengthening Tax Compliance – ATO Counter Fraud Strategy

The Government will provide $187.0 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. Funding includes:

• $78.7 million for upgrades to information and communications technologies to
enable the ATO to identify and block suspicious activity in real time

• $83.5 million for a new compliance taskforce to recover lost revenue and intervene
when attempts to obtain fraudulent refunds are made

• $24.8 million to improve the ATO’s management and governance of its counter-
fraud activities, including improving how the ATO assists individuals harmed by
fraud.

The Government will also provide $0.4 million over four years from 1 July 2024 to the
Department of Finance to undertake a Gateway Review process over the life of the proposal
to ensure independent assurance, oversight and delivery of the measure.

Further, the Government will strengthen the ATO’s ability to combat fraud by extending the
time the ATO has to notify a taxpayer if it intends to retain a business activity statement
(BAS) refund for further investigation. The ATO’s mandatory notification period for BAS
refund retention will be increased from 14 days to 30 days to align with time limits for non-
BAS refunds.

The extended period will strengthen the ATO’s ability to combat fraud during peak fraud
events like the one that triggered Operation Protego. Legitimate refunds will be largely
unaffected. Any legitimate refunds retained for over 14 days would result in the ATO paying
interest to the taxpayer (as is currently the case). The ATO will publish BAS processing times
online.

This will have effect from the start of the first financial year after Royal Assent of the
enabling legislation.

Workplace relations

The Government will provide $111.8 million over four years from 2024–25 (and $12.4
million per year ongoing) to support the progression of the Government’s workplace
relations agenda. Funding includes:

• $20.5 million over four years from 2024–25 (and $5.1 million per year ongoing) to
boost funding for the Office of the Fair Work Ombudsman to support small business
employers to comply with recent changes to workplace laws.

Establishing a Single Front Door for Major Investors

The Future Made in Australia package seeks to maximise the economic and industrial
benefits of the move to net zero and secure Australia’s place in a changing global economic
and strategic landscape.

The front door will improve our investment environment by streamlining how investors and
business interact with the Government, helping them navigate approvals processes and
fast-track major projects where possible.

The front door will:
• Provide a single point of contact for investors and companies with major investment
proposals

• Deliver a joined-up approach to investment attraction and facilitation

• Identify priority projects related to the Government’s Future Made in Australia
agenda

• Support accelerated and coordinated approvals decisions, and

• Connect investors with the Government’s specialist investment vehicles.

Fighting scams

The Government will provide $67.5 million over four years from 2024–25 (and $8.6 million
per year ongoing) to continue to combat scams and online fraud through the introduction of
mandatory industry codes to be established under a Scams Code Framework and increased
use of the secure eInvoicing network. Funding will support:

• Australian Competition and Consumer Commission (ACCC), the Australian Securities
and Investments Commission (ASIC) and the Australian Communications and Media
Authority (ACMA) to administer and enforce mandatory industry codes for regulated
businesses to address scams on their platforms and services, initially targeting
telecommunications, banks and digital platforms services relating to social media,
paid search engine advertising and direct messaging

• ATO to continue to oversee and operate the secure eInvoicing network

• ACCC to improve public awareness of scams and help the public to identify, avoid
and report scams

• Treasury to develop and legislate the overarching Scams Code Framework.

Partial funding for this measure will be held in the Contingency Reserve pending
development of the preferred legislative approach for the Scams Code Framework.

Superannuation

Commonwealth Government-Funded Paid Parental Leave – enhancement

The Government will provide $1.1 billion over five years from 2023–24 (and $0.6 billion per
year ongoing) to strengthen Australia’s government-funded Paid Parental Leave (PPL)
scheme and improve women’s retirement outcomes. Funding includes:

• $1.1 billion over four years from 2024–25 (and $0.6 billion per year ongoing) to pay
superannuation on Commonwealth Government-funded PPL for births and
adoptions on or after 1 July 2025. Eligible parents will receive an additional payment
based on the Superannuation Guarantee (12 per cent of their PPL payments), as a
contribution to their superannuation fund

• $10.0 million over two years from 2024–25 to provide additional support for small
business employers in administering PPL

• $1.4 million over two years from 2023–24 to update communication products and
documents for potential PPL recipients.

Social security

Freeze Social Security Deeming Rates

The Government will freeze social security deeming rates at their current levels for a further
12 months until 30 June 2025, to support Age Pensioners and other income support
recipients who rely on income from deemed financial investments, as well as their payment,
to manage cost of living pressures.

Impact of the Douglas Decision on Social Security Means Testing

The Government will provide $11.9 million over five years from 2023–24 (and $0.9 million
per year ongoing) to implement a social security means test treatment for the military
invalidity payments affected by the Federal Court’s decision in Commissioner of Taxation v
Douglas [2020] FCAFC 220.

This approach ensures the Douglas decision does not affect income support payment rates
for veterans who receive an invalidity payment from the Military Superannuation and
Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme, compared
to the pre-Douglas arrangements.

A Higher Rate of JobSeeker Payment for Participants with a Partial Capacity to Work (0-14
hours)

The Government will provide $41.2 million over five years from 2023–24 (and $7.0 million
per year ongoing from 2028–29) to extend eligibility for the existing higher rate of
JobSeeker payment to single recipients with a partial capacity to work of zero to 14 hours
per week from 20 September 2024.

The higher JobSeeker payment rate is currently provided to single recipients with
dependent children and those aged 55 and over who have been on payment for nine
continuous months or more.

This measure builds on the 2023–24 Budget measure titled Increase to Working Age
Payments.

Commonwealth Rent Assistance – increase the maximum rates

The Government will provide $1.9 billion over five years from 2023–24 (and $0.5 billion per
year ongoing from 2028–29) to increase all Commonwealth Rent Assistance maximum rates
by 10 per cent from 20 September 2024 to help address rental affordability challenges for
recipients.

Aged care

Improving Aged Care Support

The Government will provide $2.2 billion over five years from 2023–24 to deliver key aged
care reforms and to continue to implement recommendations from the Royal Commission
into Aged Care Quality and Safety. Funding will support:

• sustainment of, and essential enhancements to, critical aged care digital systems so
they remain legislatively compliant and contemporary and can support the
introduction of the new Aged Care Act from 1 July 2025

• release of 24,100 additional home care packages in 2024–25

• funding the ICT infrastructure needed to implement the new Support at Home
Program and Single Assessment System from 1 July 2025

• increasing the regulatory capability of the Aged Care Quality and Safety Commission
as part of the Government’s response to the Final Report of the Capability Review of
the Aged Care Quality and Safety Commission, and to implement a new aged care
regulatory framework from 1 July 2025

• attracting and retaining aged care workers, collecting more reliable data, and
improving the outcomes for people receiving aged care services through existing
aged care workforce programs

• reducing wait times for the My Aged Care Contact Centre

• continuation of delivering the Specialist Dementia Care Program

• extending the Home Care Workforce Support Program for an additional three years
to facilitate the growth of the care and support workforce in thin markets

• implementing the new Aged Care Act, including governance activities, program
management and extension of the Aged Care Approvals Round

• extending the Palliative Aged Care Outcomes Program and the Program of
Experience in the Palliative Approach program to continue to upskill the aged care
and primary care workforce to further embed palliative care capacity in the aged
care workforce

• extending funding to aged care service providers in thin markets as they transition
their business operations to accommodate the new Australian National Aged Care
Classification (AN-ACC) funding model

• undertaking ICT preparation work to configure the new Basic Care Tariffs in the AN-
ACC funding model

• the Australian Dementia Network, continuing to prepare the health system for
developments in biomarkers and disease-modifying therapies.

The Government will also reprioritise unspent funds from the Commonwealth Home
Support Programme to other sub-programs within aged care services.

The Government has also agreed to defer the commencement date of the new Aged Care
Act to 1 July 2025.

Carer Payment – increased flexibility

The Government will provide $18.6 million over five years from 2023–24 (and $3.1 million
per year ongoing) to support Carer Payment recipients through increased flexibility to
undertake work, study and volunteering activities.

From 20 March 2025, the existing 25 hour per week participation limit for Carer Payment
recipients will be amended to 100 hours over four weeks. The participation limit will no
longer capture study, volunteering activities and travel time and will only apply to
employment.

Carer Payment recipients exceeding the participation limit or their allowable temporary
cessation of care days will have their payments suspended for up to six months, rather than
cancelled. Recipients will also be able to use single temporary cessation of care days where
they exceed the participation limit, rather than the current seven day minimum.

Housing crisis and Cost of living measures

Housing Support

The Government will provide additional funding to build more homes for Australians
sooner, invest in more housing enabling infrastructure, train more construction workers and
support social and affordable housing and homelessness services. Funding includes:

• subject to states and territories signing the new National Agreement on Social
Housing and Homelessness:

  o $423.1 million over five years from 2024–25 in additional funding to support
the provision of social housing and homelessness services by states and
territories under a new National Agreement on Social Housing and
Homelessness. The additional funding will increase the annual funding under
the new agreement to $1.8 billion per year from 2024–25, with over $9.28
billion provided to states and territories over the life of the agreement

  o $1.0 billion in 2023–24 for states and territories to support enabling
infrastructure for new housing through a new Housing Support Program –
Priority Works Stream

• supporting more community housing providers to access finance through the
Affordable Housing Bond Aggregator by increasing the cap on the Government’s
guarantee of Housing Australia’s liabilities by $2.5 billion to $10.0 billion, with an
associated increase in the line of credit that supports the Affordable Housing Bond
Aggregator of $3.0 billion to $4.0 billion

• $88.8 million over three years from 2024–25 to support 20,000 new fee-free training
places, including increased access to pre-apprenticeship programs, in courses
relevant to the construction sector and delivered through TAFEs and industry
registered training organisations

• $19.7 million over six years from 2024–25 to support housing research, fast-track
feasibility studies on the release of Commonwealth land to support social and
affordable housing and maintain Treasury’s capability to develop, advise on and
implement housing policy and programs

• $7.0 million over three years from 2023–24 to provide targeted assistance to
residential builders seeking to obtain accreditation under the Work Health and
Safety Accreditation Scheme

• $6.2 million over two years from 2024–25 to support building industry peak
employer associations to assist residential builders in obtaining accreditation under
the Work Health and Safety Accreditation Scheme

• $2.0 million over three years from 2024–25 to build the financial capability of
community housing providers and Aboriginal and Torres Strait Islander community
controlled housing organisations

• $1.8 million over two years from 2024–25 for the Department of Employment and
Workplace Relations to deliver streamlined skills assessments for migrants from
comparable countries who wish to work in Australia’s housing construction industry

• support to increase available rental housing by allowing foreign investors to
purchase established Build to Rent properties with a lower foreign investment fee,
conditional on the property continuing to be operated as a build to rent
development.

In addition, the Government will:

• target the $1.0 billion for social housing under the National Housing Infrastructure
Facility in the 2023–24 Mid-Year Economic and Fiscal Outlook towards crisis and
transitional accommodation for women and children fleeing domestic violence, and
youth, including redistributing the mix of concessional loans and grants to increase
the proportion of grants to $700.0 million

• provide $1.9 billion in concessional finance to support community housing providers
to deliver social and affordable.

Energy Bill Relief Fund – extension and expansion

The Government will provide $3.5 billion over three years from 2023–24 to extend and
expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and
a $325 rebate to eligible small businesses on 2024–25 bills to provide cost of living relief.

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