Federal Budget – October 2022

The new Labor Government delivered its October 2022/23 Federal Budget. To say the least, this is a budget that Labor calls as being sensible and suitable for the difficult times of high cost of living due to increasing inflation.  

For those reasons, as Labor explains, the budget is not your usual cash giveaway but rather a responsible budget that addresses structural issues of the current state of the economy that addresses pressures inflation and the impact it has on the level of interest rates.  

From yours and mine point of view, this Budget is not introducing anything that we haven’t heard before, so this budget is neither revolutionary nor surprising, I would call it “safe and making sure it is not upsetting anyone“.  

So let’s go over details of the latest Federal Budget 2022. 

I will cover the following topics:

1. Superannuation
2. SMSF
3. Tax
4. Social Security 

Let’s start with the most exciting, well… at least for me the most exciting:

1. Superannuation 

In all honesty, there is nothing new in the budget in relation to the superannuation system, but rather just confirmation of previously recommended changes, but at least it is good that the new government embraced recommended changes and implements them further. 

• Downsizer contributions to be expended to age of 55 from the legislation introduced only on 1st July 2022 of age reduction to 60. Now the measure to reduce down to age of 55 is before the Senate. I already wrote the full explanation of the downsizer contribution strategy: “Downsizer Contributions to Super for better retirement – Part 1 – Rules” and “Downsizer contribution to super – Part 2 – Who can benefit“  
• Superannuation Guarantee Contributions (SGC) Currently in 2022/23 financial year SGC is 10.5% and it has already been legislated to be increased by 0.5% annually, as per table. There is no change to this legislated increase of SG: 

• No extension of halving of SIS minimum pension payments beyond 2022/23 – that actually surprised me, considering the big take up of this flexibility of income payments introduced by the Liberal Government during covid an up until current financial year. Therefore, from the new financial year 2023/24 we are to return to the full pension payment levels prescribed by the government with no income reduction available any longer. If you are unsure how this works, please read: “Account based Pensions” and “Retirement income explained“  
• Super for housing – the government has established a new National Housing Accord to build the affordable homes that will assist in resolving a problem of the housing crisis in Australia. this is an agreement between governments the industry and institutional investors which includes super funds. This is a new proposal that will most certainly impact on your superannuation outcomes and how and where your money is invested, so I would like to know your opinion on this topic. How do you feel about your super fund savings to be used by the government for such ventures. 
  

2. SMSF

• SMSF audit requirement to be changed from annual to three-yearly – not proceeding. In 2018-19 the previous Liberal government recommended a new measure to be introduced for SMSFs of clear history for audits to be performed not annually, but rather every 3 years, which would reduce the costs of running SMSF, however current Labor Government decided not to continue with the measure at all, therefore it will not be going ahead.  
• SMSF Residency – In 2021-22 the Liberal government had proposed to relax the residency requirement for SMSFs and Small APRA fund for allowing the central management and control to be extended from two to five years and removing the active member test. Labor government says they are not oppose the measure, but decided to delay the implementation and commencement date.  
• Removal of franking credits for off-market share buybacks undertaken by listed public companies. the explanation is that the government wants to “improve the integrity of the tax system” and align the tax treatment of off-market share buybacks to those on-market. This will increase funds in government pocket by $550mil, while reducing returns of SMSF for thousands of self-funded retirees. This is a terrible news for any holder of a super and especially a pension fund, but the financial industry sees this as government’s attempt to remove franking credits form our tax system, which would be a disaster for our system and especially for retirees. 

3. TAX

• Personal Income Tax cuts - again, nothing new here. From 2024-25 the new Tax Rates of income will be as follows: As you can see in the table, the 32.5% and 37% tax rates have been removed, allowing people to earn up to $200,000 at 30% MTR. After that income, MTR jumps up to 45% plus MC.  

4. Social Security

Freezing deeming rates until 2024 - this is a very good measure for all retirees, considering how much the interest rates have gone up, to have deeming rates at those low levels is very beneficial, especially in this difficult economy and rising cost of living. 

• Home sale proceeds exemption – this is a fabulous news for all retirees planning to change their family home, either downsizing, or upsizing or moving to Retirement village. I will explain this measure in full next week, as it is crucial you fully understand the benefits and consequences. So please read my next week newsletter or watch the video on the About Retirement TV YouTube channel.  
• Temporary increase to pensioner Work Bonus - There is an immediate one-off increase of work Bonus Income Bank of $4,000, which in essence allows pensioners to work longer, earn more and keep more of earned income, before it affects your Age Pension. If you are unsure how it works, here are articles for you explaining Age Pension Work bonus: “Pensioners can earn extra $4,000” and full explanation of the “Age Pension Work bonus – is it worth my bother?” 
• Changes to Commonwealth Senior Health Card – This is also a good news, especially for self-funded retirees, where the income threshold for Card eligibility has been increased from $61,284 to $90,000 for singles and from $98,054 up to $144,000 for couples and from $122,568 up to $180,000 for couples separated by illness, respite care or prison. Here is the full explanation of the benefits of CSHC: “Centrelink Concession Cards for your Retirement“ and “Concession cards benefits per state“ 
• Increase of the Totally and Permanently Incapacity Payment for Veterans. - the government announced that it will increase the Special Rate of Disability Compensation Payment, Temporary Special Rate Payment and the Special Rate Disability Pension by $1,000 per year from 1st January 2023. From 1st January 2023 the Special Rate will be $1,617.16 per fortnight, that includes the energy Supplement.  
• Cheaper medicine – The Government will provide funding to decrease the general patient co-payment for treatments on the Pharmaceutical Benefits Scheme (PBS) from $42.50 to $30.00 from
  1 January 2023. All other existing Medicare Safety Net provisions and all prescriptions are not changed.  

So we have gone over main proposals of the new October 2022 Federal Budget introduced by our new Labor government. So now I would like to here your opinion and your take on those proposals. Do you think this is a responsible budget that will assist you in your preparation for your retirement or your existing retirement? Feel free to reply to this email or directly to hello@aboutretirement.com.au  

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement