The Price is Right: Budget 2024-25

Budget 2024-25 is a pre-election budget with everyone getting a little something to ease cost of living pressures

The Treasurer is promising that inflation will decline by 0.75% as a direct result of the 2024-25 Federal Budget initiatives including energy relief for all households, a boost to Commonwealth Rent Assistance, and the freezing of the maximum co-payment on the Pharmaceutical Benefits Scheme.

This is a pre-election budget for the people with everyone getting a little something to ease cost of living pressures. Like the Price is Right gameshow, it will all come down to the price paid at the checkout. If the consumer price index (CPI) returns to target by the end of 2024 off the back of the Budget initiatives as the Government anticipates, the Reserve Bank of Australia (RBA) may be inclined to reduce interest rates. However, at this stage, the RBA is not expecting inflation to return to the target range of 2-3% until the second half of 2025, and to the midpoint in 2026.

The 2023-24 surplus has increased to $9.3 billion but is expected to decline to a deficit of $28.3 billion in 2024-25, driven primarily by the Stage 3 tax cuts.

For business, the Government is picking winners through targeted public investment with its Future Made in Australia Framework that they are betting will pave the way for private investment in net zero transformation and the strengthening of Australia's domestic economic resilience.

For small and medium business, there is a little but not a lot - an extension of the $20k instant asset write-off until 30 June 2025 and a $325 rebate to eligible businesses towards 2024-25 energy bills.

For foreign residents, the capital gains tax (CGT) regime will be amended to broaden the type of assets subject to CGT and introduce a modified 365-day principal asset testing period.

Those with large superannuation balances will be disappointed that the 30% tax on super earnings on balances above $3 million‚ remains in place, this is set to commence from 1 July 2025.

Key measures

Individuals

• Previously announced Stage 3 tax cuts
• $300 energy bill relief for all Australian households and $325 for eligible small businesses - applied as an automatic quarterly credit.
• Student HELP debts will be cut by changing the way indexation is calculated. From 1 June 2023, it will be the lower of the CPI or the Wage Price Index (WPI), reducing the debt accumulated by more than 3 million Australians when the CPI spiked to 7.1%.
• Increase to the Commonwealth rent assistance maximum rates by 10% from 20 September 2024.
• The Medicare levy low-income thresholds will be increased for singles, families, and seniors and pensioners from 1 July 2023.
• One year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for Medicare card holders and a five-year freeze for pensioners and other concession cardholders.
• CGT regime for foreign residents to be expanded

Business

• $20k Small business instant asset write-off extended until 30 June 2025
• Government goes 'all in' to attract and encourage commercial investment into priority industries with a $22.7 billion budget and a goal of making Australia a "renewable energy superpower."
• Film producer tax offset changes to remove the minimum length requirements for content and the above-the-line-cap of 20% of total QAPE (from 2025-26)

Administration

There is a lot in the Budget to support various agencies and departments including funding for the ATO on some specific compliance targets and programs:

• Personal income tax
• The shadow economy
• Anti-avoidance taskforce
• Child care providers
• Identify checking
• Migrant workers
• E-invoicing
• Military invalidity payments
  

Some previous measures have been delayed or cancelled. These include:

• Widening of Part IVA - The 2023-24 Budget measure to extend Part IVA, scheduled to commence on 1 July 2024, has been delayed so that this applies to income years starting on or after the date the amending legislation receives Royal Assent.
• Streamlining fuel and alcohol excise administration have been pushed back.

Also of interest was the measure to provide the Tax Commissioner the discretion not to use refunds to offset old debts. But, this discretion only applies to debts put 'on hold' prior to 1 January 2017.

The Government is also seeking to put controls in place to wrangle emerging green industries. This includes cash for ASIC for greenwashing enforcement and for APRA and Treasury to deliver the sustainable finance framework, including issuing green bonds, improving data and engaging in the development of international regulatory regimes related to sustainable finance.

Also of interest is the $39.9 million over five years for the development of policies and capability to support the adoption and use of artificial intelligence, and $466.4 million for financing package of to support the construction and operation of quantum computing capabilities and associated investment in industry equity and loans (in conjunction with the Queensland Government).

The Economy

Key statistics:

• GDP – Real GDP growth of 1.75% in 2023–24. Growth is expected to remain subdued at 2% in 2024-25 and 2.25% in 2025-26.
• Inflation – The Government expects inflation to be within target by the end of 2024. The RBA's most recent view is that inflation is not expected to return to the target range of 2-3% until the second half of 2025, and to the midpoint in 2026. Global inflation remains elevated and is not expected to return to central bank targets until 2025.
• Unemployment – The unemployment rate remaining near its 50 year low at 3.8% - the participation rate is near its record high at 66.6%. Unemployment is expected to rise but remain below pre-pandemic levels.
• Wages – Nominal wages over 2023–24 have grown at their fastest rate in nearly 15 years. It is expected to soften to 3.25% in 2024-5 and 2025-6. Real wages are expected to continue to pick up and grow by 0.5% the year to the June quarter 2024.
• Business investment – growth of 8.3% last year.