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The Doctor’s Budget 2022-23 in a nutshell

Peter Switzer
26 October 2022

Another Budget, another Treasurer — and after 37 years of covering these fiscal free-for-alls for the Tele, Triple M, The Australian, Sky News, Sky Business and now 2GB, I’ve seen it all and heard it all.

It really is a big night for Treasurer Jim Chalmers and it can be for PM Anthony Albanese, especially if there’s a screw up with the calculations, the economics and/or the politics.

Poor old Liz Truss discovered the fallout of a fiscal F-up when she cut taxes with rising inflation and saw the pound trashed and bond yields spike.

That said, a lot of the Budget talk is speculative because the forecasted numbers are based on best guesses that could be wrong. Also, they’re often based on four year projections that mean nothing if economic circumstances change, pandemics show up or governments change!

As a consequence, I like to assess the Budget on the more immediate effects on individuals, businesses and investors. I always wack a name on budgets and this one gets the tag The Doctor’s Budget — the medicine Dr Chalmers is making us swallow that will be good for us.

Here are the main points:

1. Expect a 56% increase in energy prices, with an average 20% rise nationally in late 2022 and a further 30% in 2023-24.

2. A two-year freeze in real wages.

3. The NDIS costs will balloon and peak in mid-2026 at $1.16 trillion.

4. Government debt repayments will surge.

5. Spending cuts will headline future budgets.

6. A pact between the country’s governments, investors and industry means an initial $350 million pledge has been made to build “one million new, well-located homes over five years from 2024”. This will be bankrolled by super funds.

7. $6.5 billion in infrastructure projects have been canned for savings to use for a slew of climate change projects.

8. There are $5.4 billion worth of changes to childcare subsidies, which start from July next year, cheaper medicines from January and the fully implemented paid parental leave scheme from 2026.

THE BUDGET BIG NUMBERS

1. The deficit projections are lower for this year and next than they were in March this year.

2, Thank higher commodity prices, lower unemployment for now and higher inflation – which boosts revenue relative to spending.

3. 2021-22 Budget Deficit was $32 billion versus $80 billion forecast only in March this year.

4. This financial year, the deficit is tipped to be $36.9 billion and for next year to be $44 billion, compared to $78 billion and $56.5 billion guessed back in March.

However, from 2024-25 onwards, the projections for the budget deficit have worsened relative to March, reflecting a combination of an assumption that commodity prices revert to more “realistic” levels, a lower long run productivity growth assumption of 1.2% pa (down from 1.5% pa), which lowers growth in the tax base and greater allowance for structural spending pressures  on aged care, health, defence and interest costs, but mainly the NDIS.

How will investors be affected?

1. No change to super but because of inflation the total balance cap could be $1.9 million by July 2023.

2. The pandemic setting for deeming rates, which predetermine investment income assessments for pension access, don’t change for another year.

3. The pandemic era drawdown rate “discount” is not to be extended so anyone in pension mode with their super will have to draw out more pension each year.

4. There’ll be a clampdown on company buybacks made more attractive using franking credits.

5. Home downsizing to build up your super from the age of 55 is a welcome Budget change.

6. Inflation will be 3.5% in 2023-24, dropping to 2.5% in 2024-25.

7. ESG-friendly companies and funds should benefit from this Budget’s pro-green policies.

The Economic Guesses/Forecasts

The economic story, thanks to The Australian

1.  A surplus isn’t forecast for the next four years, despite rising revenue. While the 2022-23 deficit is less than half the $78 billion forecast in the May budget, deficits will rise in subsequent years as interest rate rises slow the economy.

2. The economy slows from 3.25% growth this financial year to growth of just 1.5% next year. It recovers in 2024 as inflation is projected to ease from remains at only 2.5% in 2025-26.

3. Inflation will average 5.75% this financial year and will still be above the Reserve Bank’s 2.-3% band in 2023-24. It is expected to fall within the band in 2024-25.

4. After declining to 40-year lows, unemployment is predicted to trend upwards to 4.5% next financial year and stay there in 2024-25. Treasury predicts it will decline to 4.25% the following year.

5. Revenue is tipped to rise about 10% over the course of the forward estimates. But expenses are expected to rise more quickly over the period leading to higher deficits.

WINNERS & LOSERS

I always like the winners and losers coverage of the Budget and here it is in a nutshell from The Australian:

THE BUDGET WINNERS

1.Young families

Cheaper childcare for 1.3 million families, including childcare subsidy rises for eligible families on annual incomes less than $530,000; An additional six weeks of Paid Parental Leave, to total six months by 2026.

2. Home buyers

A Housing Accord, which aims to build one million new homes over five years from 2024. In addition, 20,000 ‘affordable dwellings’ will be built under a federal-state government agreement.

3. First-home buyers

From this month, 10,000 places will be available each year for regional first-home buyers to buy a new or existing home with a 5% deposit.

4. Downsizers

An extension of the exemption of home sale proceeds from pension asset testing from 12 months to 24 months. It’s designed to give pensioners more time to buy, build or renovate a new home before their pension is affected. Access to downsizer superannuation contributions will be expanded to include those aged 55 to 59.

5. Upskillers

480,000 fee-free TAFE and community-based vocational education places; From 1 January, 180,000 fee-free TAFE and community-based vocational education places and 20,000 additional university places across 2023 and 2024.

6. NDIS 

The National Disability Insurance Scheme will be fully funded, with payments expected to reach $50.3 billion by 2026/26, compared to $44.5 billion set aside in the March budget.

7. Young entrepreneurs

Up to 2000 individual loans for students to participate in a university-based accelerator program.

8. Older Australians wanting to work

The amount pensioners can earn this financial year will increase from $7,800 to $11,800 before their pension is reduced.

9. Women

$1.7 billion for a plan to end violence against women and children; 500 new community workers to support women in crisis; $65 million for consent and respectful relationship education; a move to legislate 10 days of paid family and domestic violence leave.

10. The NBN

$2.4 billion to extend fibre access to 1.5 million more premises, including over 660,000 regionally; $1.2 billion for regional and rural connection. Up to 30,000 families will get 12 months free broadband, to help unconnected students.

11. Renewable energy

$20 billion will be made available to upgrade Australia’s electricity grid by building interconnectors and linking renewable energy zones to the existing grid. $224 million for 400 community batteries across Australia.

12. Climate change

$1.9 billion on powering the regions fund to support regional industries in their transition to net zero. The public service will be net zero by 2030; $302 million will go to climate-smart sustainable farming and land management.

13. Electric vehicles

Charging stations at 117 highway sites, hydrogen highways for key freight routes, and further investment in charging infrastructure; An Electric Car Discount will exempt eligible electric cars from fringe benefits tax and the 5% import tariff. Government fleet cars will be 75% electric by 2025.

14. Aged care

Labor’s election promises will be funded to the tune of $2.5 billion over four years. All aged-care facilities will need to have a registered nurse on duty 24/7 from July 1. Every aged-care resident is mandated 215 minutes of care every day from next October.

15. The ABC

The ABC gets a $83.7 million funding boost, re-installing annual indexation to the public broadcaster after it was scrapped under the Coalition government; but there are no new budget measures for SBS.

16. Indigenous heritage sites

$66.5 million for new Indigenous Protected Areas; 1000 landcare rangers at a cost of $90 million; $14.7 million to identify priorities for the protection of First Nations heritage.

17. The Voice to Parliament

$75 million to prepare for the delivery of a referendum to enshrine a First Nations Voice to Parliament in the Constitution. $5.8 million to help set up an independent Makarrata Commission, which is intended to “supervise a process of agreement-making and truth-telling about (First Nations) history”, according to the Uluru Statement From the Heart.

18. Flood-affected in Victoria, NSW and Tasmania

Disaster allowance for up to 13 weeks; A one-off payment for those worst affected of $1000 per adult and $400 per child.

19. The Great Barrier Reef

Oceans get $204 million, and the Reef gets $1.2 billion by 2030.

20. Regional airports

Hobart ($60 million), Launceston ($35 million) and Newcastle ($55 million) will get upgrades for freight and passengers.

THE BUDGET LOSERS

1. Future generations

While the budget bottom line has improved, the budget deficit is still forecast to be $36.9 billion by the end of the financial year, peaking at $51billion in 2024/25. Government debt is forecast to hit $572 billion by the end of this financial year, with interest payments alone at $13.6 billion.

2. Wage earners

Inflation is expected to hit 7.75% by the end of 2022, wiping out any real wage growth. Inflation is expected to fall to 3.5% next year.

3. Energy users

Households face soaring electricity and gas bills, forecast to rise by 30% in 2023-24. Expect the Albanese government to face more questions on the election promise to cut bills by $275.

4. Regional projects

Cuts and ‘re-profiling’ of projects in the Infrastructure Investment Program will slash $6.5 billion of works; the Hells Gates Dam project will not go ahead, while other decisions in the National Water Grid Fund have been deferred.

5. Private schools

A $271 million schools upgrade fund will be dominated by public schools to the tune of $215 million. All schools will get $20,000 each in a program to support student mental health.

6. Tourism promotion

Funding for marketing of Australia internationally has been cut by $36 million. Tourism Australia’s budget will shrink from $214 million to $178 million in 2023, and then to $176 million by 2025.

7. Multinationals

The government has moved to close tax loopholes, including limiting their debt-related deductions, in a move it hopes will reap $970 million over the next four years.

In a nutshell, this is the fiscal plan for the Albanese Government! All we can hope is that the economy does better than has been predicted by Treasury and many of these promises will be affordable and the fears that have been in-built into it might prove over-the-top.

And there’s a good chance that might happen because Treasurers often select the worst-case scenarios when guessing our economic and budget future. So when better economic outcomes happen, they look like money-managing geniuses. Funny that.

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