Money
All the giveaways you might get in Tuesday’s budget
From tax offsets for your hip pocket to a major crackdown on investment perks, here’s what you need to know about the upcoming Federal Budget.
By Nicole Pedersen-McKinnon
With interest rates up three times this year, the last hike thanks to the petrol price spike, this is probably one of the most eagerly anticipated Federal Budgets in years.
So, what might be in it for you?
Here are all the giveaways – and the clawbacks – you can expect.
$300 tax offset
Speculation just won’t go away that earners are going to get a one-off $300 tax offset this year, not least because no Member of Parliament will deny it.
The thinking is apparently to boost the bottom lines of people with employment income, not investment income, so the money will flow mostly to mortgage holders and renters.
A potential tax offset means an instant tax discount, lopped off the top of your bill.
It would also be in addition to the $1000 in standard tax deductions that all of us will (optionally) enjoy from next tax year (2026-27).
And both are on top of scheduled tweaks to income tax rates that will see the 16 percent rate of the lowest marginal tax bracket reduced to 15 per cent, from July 1. So, for every dollar earned between $18,201 and $45,000, you will pay one cent less tax.
Taxpayers on incomes of $45,000 or more will receive the full total $268 per year decrease, roughly $5.15 per week.
The 15 percent rate will drop again the following financial year, to 14 per cent.
That’s already legislated and a bid – at least a little bit – to stop so-called bracket creep.
But there are also big expected tax clawbacks in the way, with probably the most publicised coming for investors…
Negative gearing and capital gains tax changes
Bill Shorten lost the 2019 election for Labor on this very policy, but now-Treasurer Jim Chalmers has repeatedly said the government will make policy decisions appropriate for changed circumstances.
The anticipated upshot is the end of the automatic 50 percent capital gains tax (CGT) discount that applies after you have held an asset for 12 months; it’s thought it will revert to one equal to inflation, like there was prior to 1999.
We do not know whether the change will be just for housing, or for all investments. It seems that newly built properties will be exempt though.
On the negative gearing side, the likely approach is less clear but it could well be curbed, say by simply banning the ability to claim investment property losses against your other income. The Australian Financial Review says that more than 1.1 million investors reported a net rental loss in the 2022-23 tax year, about half the 2.26 million people who had an interest in at least one rental property.
In recognition that many Australian families use the strategy, the negative gearing change might only apply where multiple properties are held. New homes might also be carved out.
Both negative gearing and the CGT discount have been blamed (along with government purchasing incentives) for pushing property prices to astronomical levels. And with this budget, there is an oft-mentioned intention to restore ‘intergenerational fairness’.
Although the negative gearing changes could well apply from budget night, they should be grandfathered in some way so that arrangements to date are unaffected (not doing that would be considered political suicide).
As a further part of not just revenue raising but fairness, a significant crackdown on trusts is forecast.
The numbers of discretionary or family trusts have doubled to more than 800,000 in the past two decades, in a concerted effort by the ‘advised’ to reduce overall tax paid.
Distributions from these trusts could soon attract a minimum 30 percent tax rate. This is to save family members (like children) paying marginal tax rates as low as zero if their income is below the tax-free threshold of $18,200 (but note that the low-income tax offset means the effective tax-free threshold is about $22,500).
Again, measures are likely to apply from budget night – they are less likely than CGT and negative gearing changes to be grandfathered.
Fuel relief and EV treatment
It’s already been announced – by Prime Minister Anthony Albanese – that the budget will include a $10billion fuel security and ‘resilience’ package.
In that is $3.2billion for a government-owned Australian fuel security reserve and $7.5billion in financial support and loans for a fuel and fertiliser security scheme.
The aim is to ensure Australia has at least 50 days of fuel supply and storage of diesel and aviation fuel at all times.
But speaking about the personal, hip-pocket impact, we also believe that the halving of the fuel excise on March 30 – to 26.3 cent per litre – will end as planned on June 30.
Jim Chalmers has poured cold water multiple times on the idea of an extension.
And on cars, the fringe benefits tax (FBT) break for electric vehicles (EVs) is also being curbed.
From March 1, 2027, the discount on EVs worth more than $75,000 will be lowered to 25 percent. At the moment, you don’t pay it if you buy a vehicle worth less than $91,387 using a novated lease.
There will be partial grandfathering with EVs costing less than $75,000 still receiving the full FBT exemption until April 1, 2029. All vehicles will then fall into line on the 25 percent discount.
NDIS overhaul
One of the biggest budget pre-announcements, in a recent speech by Minister Mark Butler to the National Press Club, is a dramatic tightening of the national disability insurance scheme eligibility and costs.
Under it, at least 160,000 people will be removed from the scheme by 2030, which will form the foundation of budget repair, providing more than $35 billion in forecast savings.
Eligibility will be determined by new standardised, evidence-based tools, probably from January 2028.
The overhaul is set to return the government program to its "original purpose" and prevent the system from costs becoming unsustainable.
And that all feeds into the $64,000 question: will the budget overall add to inflationary pressure… and push up interest rates even further?
Inflation or stabilisation?
Jim Chalmers has been almost religiously repeating the word “responsible” in every interview about relief and stimulus measures.
The government has already come in for significant criticism for its spending and the feed into inflation.
The Treasurer said in the press conference after the May interest rate decision: “It will be a really responsible budget – we will save more than we spend, we will bank all of the upward revisions to revenue.
“And that’s because we recognise that even though the budget is not the primary driver of prices in our economy or these interest rates decisions, we intent to play a helpful role, not a harmful role, in the fight against inflation.”
Feature image: iStock/davidf
This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
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