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October 2022 Newsletter
25th October 2022 ~ Federal Government Budget Update
Hello everyone
A quick update following the budget last night. On 25th October, the newly elected Australian Labor Party Federal government brought down their first budget.
The biggest losers are the regions which had $9 billion in planned infrastructure investments slashed, including most funding for new dams. When we have droughts again that could be a problem as our population still grows.
There are a lot of helpful items in the budget as well. These proposed measures have been announced but are not yet law, although most will likely be at some stage.
One measure is that you can put an extra $300,000 into super (each if you are a couple) with no restrictions if you sell a property that you owned for ten years and which was your home at some, even very short, stage. The minimum age is currently 60 to do that but the budget says it will be reduced to age 55.
Childcare subsidies for anybody earning less than $530,000 a year will increase. That is useful for many people. Similarly, paid parental leave is improving.
If you are on social security like the aged pension (any amount) and you are selling a home, your pension will only be reduced a small amount for two years rather than one year, giving you more time to find a new home. Similarly, a ‘work bonus’ measure allows age pensioners and veterans to earn more money (up from $7,800 per year to $11,800 in the current financial year) before their pension is reduced and the income threshold for the Commonwealth Seniors Health Card will be $90,000 for individuals and $144,000 combined for couples. That is a big increase and only the very wealthy won’t be eligible. If you cannot get the age pension, most likely you will be able to get the Commonwealth Seniors Health Card which reduces your health care costs.
Another measure is reducing the general patient co-payment for medicines from $42.50 to $30 and a number of measures will be introduced to improve aspects of age care.
The government is going to spend a lot more money on housing to make sure more affordable housing is built, which is a good idea and, specifically, will allow first home buyers to buy 10,000 regional homes with a deposit as little as 5% without paying mortgage insurance. That is a big deal for a lot of people and will lead to more demand for new and existing regional homes.
The big problem is that, as has been the case for the last two years, far too much money is being spent by the government. Which means the government needs to borrow a lot of money, pushing up interest rates for everyone, which is good for investors but bad for other borrowers such as home mortgages.
A big surprise was that the new government is keeping the plans of the previous government to reduce income taxes substantially over the next few years. These are changes mostly benefiting those earning $120,000 or more with those earning $45,000 to $120,000 having their tax reduced from 34.5% (including Medicare) to 32%, while those earning $120,000 – $180,000 will see their tax reduced from 39% also to 32%. For those earning $180,000 to $200,000 it will reduce from 47% to 32%. These are big numbers. Funnily enough, with the abolishing of the low-middle income tax offset means that only those earning $97,000 or more are overall paying less income tax. Quite surprising.
Because wages are rising more slowly than inflation, which is at 6.8%, overall Australians are expected to earn 5% less in real income than they did three years ago. That is quite common when inflation suddenly accelerates as it did this year.
I found a very interesting article that explains quite well why inflation is not reducing despite there being a recession now or there possibly being one very soon.
The answer was that real wages may be reducing but the vast amount of Covid-related government spending hugely increased the wealth of the poorest half of the population. This half tends to spend a big proportion of their income and wealth and therefore they keep spending despite reduced earnings and recession fears. This allows companies to keep raising their prices. In addition we have the Ukraine war raising energy prices worldwide and the companies in the US that invest in fracking, a way to drill for oil and gas, preferring to take the higher prices than to drill for more, and central banks printing money (called “Quantitative Easing”) for years and you have a lot more money in circulation, a lot more people ready to spend, then add a few external shocks (the war) and you suddenly have ongoing high inflation.
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The article is here: https://awealthofcommonsense.com/2022/10/why-isnt-inflation-falling/
As always do feel free to contact us at any time.
Warm Regards
Christoph, Nicola, Marian, Clare, Deryk, Alvin and Jade
Christoph Schnelle
Financial Adviser and Life Insurance Specialist
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