2024-25 Federal Budget Analysis and Insights | talkBIG podcast | Season 3 Episode 1

Andrew Sykes:

Good morning and welcome to those who are joining us. We’re just going to give it a minute or so to allow everybody to join the webinar. We’ll be starting soon.

Good morning, everyone, and welcome to the RSM Federal Budget Webinar. Before we begin, I would like to take a moment to recognise the traditional owners of all the different lands we are meeting on today. I myself am presenting from Ngunnawal Country and I pay my respects to all elders past and present and celebrate the diversity of Aboriginal and Torres Strait Islander people and their cultures and connections to the land and waters of Australia. 

Today, we are reviewing the federal budget for 24 and 25. I’m your host, Andrew Sykes, and I’m being joined on the panel by a number of RSM experts who will each be sharing their insights on the implications of the federal budget to you as it relates to their area of expertise. 

Joining us today we have Tony Fulton, a director in our tax services division with over 25 years of experience in corporate and international tax. How are you today, Tony? 

Tony Fulton:

I’m well, thanks, Andrew. Looking forward to it. Thanks. 

Andrew Sykes:

Excited by the budget, I hope. And next up, we have Grace Bacon, a director in our financial services team. Not only does Grace have over 20 years of experience in financial services, but she’s also a regular media commentator with a recurring column in the Sydney Morning Herald and The Age. Welcome Grace. 

Grace Bacon: 

Thanks Andrew. Hi everyone. And joining us for the first time, I’d really like to welcome RSM Australia’s new economist, Devika Shivadekar. Devika has a wealth of experience in macroeconomic and financial research spanning both public and private sector. She’s here today to shed some light on broader implications of last night’s federal budget announcement from a macroeconomic perspective. Look forward to hearing from you, Devika. 

Devika Shivadekar:

Thanks so much, Andrew, and good morning, everyone. Excited for the webinar. 

Andrew Sykes:

Let’s get started. Excellent. So now last night’s budget held few surprises for those who’ve been watching it, as we’ve seen with budgets in the last few years. There’s so much leaking.

But what really has been central to it again is the cost of living. The cost of living remains a focus for the government with the modified Stage 3 tax cuts delivering to everyone earning above the tax-free threshold of $18,200, energy bill relief and additional rent assistance. Plus wiping out three billion worth of HELP debt. This is going to help many Australians who are struggling with the cost of living.

Now, prior to the budget, RSM Australia conducted our own survey of Australian individuals and businesses to find out where people wanted support to be directed. Our results showed that the cost of living was a big concern for many Australians, with strong concerns coming from those who won’t actually benefit from Stage 3 tax cuts, such as retirees and aged pensioners.

The rising cost of utilities such as energy was highlighted as the most significant amongst those surveyed. It’s a financial burden, which will hopefully be offset to some extent by the energy bill relief, which is a notable addition to state-based relief already provided by some of our states. Our survey results also revealed the cost of business as a major concern for more than two-thirds of Australian businesses, with, once again, energy prices being the biggest financial burden. The government is addressing this through a $325 energy bill relief for around 1 million Australian small businesses, as well as a one-year extension of the instant asset write-off for items under $20,000. There are a couple of QR codes on the screen. So, if you’d like to see our full survey results, just follow that QR code and it will take you directly to them. 

The other major feature of the Australian budget was the future made in Australia, with more than $15bn allocated to support green hydrogen and critical minerals production.

Today, we’re going to have a look at the major highlights from the budget with a commentary from our panel of experts. For those in the audience who would like more detail, we’ve also put together a tax report through our report on the budget, and our RSM tax team has been up most of the night doing that. A big thanks to Tony and the team who’ve done that. If you follow the QR code on the screen that we’re going to put up, our assistant Julie will share a few things throughout the presentation.

There will also be a link put through into the chat that you can follow to get the full report. You can also go to the RSM website, RSM .com .au, to follow or download a copy of our free report. We’re going to commence our webinar now. 

First up is Devika, who’s going to provide us with some insights from an economic perspective. Devika, over to you.

Devika Shivadekar:

Thanks so much, Andrew. We’ve had a fair amount of leaks, and you gave an excellent overview of where most of the spending is focused. I won’t be delving too much into the details, but I would like to share some insights on what it means for the broader economy as well as for the RBA’s policy setting. First, of course, the focus is more on building an Australian-made future, looking at strengthening defence and renewable energy initiatives and providing support to businesses and individuals. More so for the SMEs than for large businesses, that’s one observation. The fiscal outlook, obviously all the subsidies, all the initiatives, and the spending come from the government’s purses. The fiscal outlook has deteriorated over the coming years.

We are still going to print a fiscal surplus for this financial year, but going forward, the budget is going to go into red. A surplus of $9 .3bn or 0 .3 % of the GDP is forecast for fiscal year 2024, but we are going to see a deficit of $28 .3 billion, which is almost 1 % of GDP in FY25, and it’s also going to go further up in 2026. Obviously, net debt is also expected to rise to almost $500bn AUD, but they will fall as a share of GDP as we continue to grow as an economy. Of course, commodity prices are key to the government’s books. So far, we’ve had to date commodity prices and a low robust labour market have resulted in consecutive budget surpluses.

However, they are going to be reversed by the projected deficits driven by increased spending and, of course, the global uncertainties in the economic landscape. Usually, the treasury’s forecasts are more conservative. And, of course, we understand why they do that. It’s obviously better to prepare for the worst. We can expect a somewhat upwardly revised balance position, even if the forecasts today look quite dismal. 

Can we please have the next slide, Julia? The growth estimates for this financial year are unchanged from the earlier budget number, which was 1.75%. However, we are seeing some downward revisions for 24-25 and 25-26 by 0.25 percentage points. Inflation forecasts are much lower than what the RBA is expecting.

Primarily driven by the subsidies we are seeing in the rental space, energy space, as well as the childcare space to bring the overall cost of living pressures down. The unemployment rate has also been revised down to 4 %, and it is expected to peak at 4.5%, which is also the Nehru level that the RBA considers. The wage price index is expected to remain at 4 % for this financial year and 3.25%. Inch a bit lower as the unemployment rate goes higher. And, of course, real disposable incomes are expected to grow once inflation also starts coming down, and we just tend to moderate at about the 3.5% level. Population growth is, of course, key, as we have seen coming out of the pandemic. It has driven much of the growth, but it has also driven much of the inflation. So, a significant outlook around the population growth is that there has been an upward division to 2 % for growth this financial year and a projection for 1.5% in the following years. We heard the treasurer say yesterday that the net intake of migrants has been halved, and it is expected to fall a bit further in the year 2026.

Productivity assumptions are also slightly weaker than what was previously assumed. Previously, the long-run average has been 1 .5%, but the budget estimates that productivity will remain at the 1 .2 % level going forward. Can we please have the next slide, Julia? Thanks so much. I think the numbers are up for everyone to see, but I would just like to talk about my view on the divergence in the forecast of the Treasury and the Reserve Bank of Australia and what it means for the policy setting. Of course, the government’s primary emphasis remains on addressing pressures related to the cost of living.

Impact on Interest Rates and Inflation

 But in my opinion, to say the budget is not inflationary would be to deny the obvious. I’ll explain my point of view. So, the budget is likely to make it harder for the RBA to bring inflation down to target in the real sense. So, what I mean is that the measures, while targeted to bring down headline costs, risk stoking demand-driven inflation if Australian households end up spending that surplus cash elsewhere. The proposed relief measures, some of them particularly at the discount we are going to see on electricity bills, are neither targeted nor temporary. So, it does carry the risk of reversing the progress we have made on inflation to date. In the short term, it’s definitely going to bring inflation down, but it just makes you think, what if we are better off today but worse off later? So, in fact, the budget and the policy setting today bring to the fore how important the behavioural side of the economy is going forward. So, it really is down to households and businesses to make sure that the subsidies they’re getting are not diverted to spending elsewhere. Otherwise, we will continue to face the problem of inflation in the months ahead.

The contrasting perspectives on the economic metrics between the government and central banks are quite obvious in the forecast released by the treasury yesterday and what we saw in the RBA’s recent statement on monetary policy. Even if we acknowledge that the RBA wasn’t aware of what the subsidies are in the budget, we believe the RBA has demonstrated sufficient foresight in accounting for potential inflationary pressures. So, their upwardly revised inflation forecasts do make sense in the foresight. And our concern is whether cost-cutting measures will result in sustained reductions in inflation over the long term or not. For us and for the policy setting, I think we believe...it is unlikely the RBA will see the effects of this stimulus activity for another two quarterly CPI prints. So once these measures kick in at the beginning of July, the RBA would like to see two more quarterly CPI prints at the end of July and the end of October. So at least until November, we think the RBA should be comfortable holding rates. But come November, if things change, the rates could go either way. Even if the RBA feels the current 4.35% interest rate is sufficiently restrictive. It may be compelled to contemplate interest rate hikes with the intention of directing the surplus funds towards mortgage repayments rather than towards discretionary expenditures. 

Thanks so much, Andrew. I’ll let Tony take over. 

Andrew Sykes:

Terrific. Thank you very much. Now, we’re going to be answering some questions in our panel session. So, if you have any questions for our panellists, please enter them in the Q &A section.

Also, I remind you for more detail, there’s more detail than what we can provide here. Please download our free report at RSM .com .au. 

Tony, over to you for a brief review of the taxation implications of the budget. 

Tony Fulton:

Thank you, Andrew. Look, this is a budget that is quite limited in terms of specific tax changes. I’ll run through a few of them.

Critical Minerals and Clean Energy Incentives

But first of all, clearly a key focus of this budget was the critical minerals and clean energy incentives. And that is probably where we see the most significant proposed changes around providing incentives for hydrogen production and production of critical minerals. It’s been proposed that there will be a production credit of some kind. There’s limited detail in the budget, but the government is committing over $22 billion towards these incentives. There’s obviously a period of consultation to go on around exactly what those incentives will look like, and they’re heavily targeted towards generating activity and particularly downstream activity in the development of critical minerals for the clean energy transition. Outside of that, as I said, it was a fairly slow night last night for us corporate tax professionals. We scoured the budget papers for interesting and impactful change.

And unfortunately, we were a little bit disappointed that the budget did not take the opportunity to address some of the many areas that have been put on the table as being justifying potential change, anything towards tax reform. 

Tax implications for SGEs and foreign residents

What we did see buried in the detail were a couple of proposed changes, which...impact very specific types of businesses and probably the first one which is highlighted on the slide there being a new penalty regime for significant global entities who mischaracterize or undervalue royalty payments. Being in a significant global entity that only applies to groups that have global income of over one billion Australian dollars, which for many of you, unless you’re part of a global group, that won’t be of particular concern. But it does sort of signal a direction from the government as the tax office has been pursuing as well towards really looking to tax royalties paid by Australian companies to overseas parties. So, I wouldn’t be surprised to see some of this find its way into the broader business community.

 The second element there is some proposed measures to strengthen the taxation of foreign residents in respect of their investments in Australian assets. Again, there’s very limited detail about what this exactly will involve. They talk about clarifying and broadening the base of Australian assets that might be taxed to a non-resident. This is an extremely complicated area and again really only relevant to foreign companies and individuals investing in Australia. But it will certainly create some complexities when undertaking M&A transactions with foreigners, there’ll be a new reporting regime which extends the existing reporting regime of around asset sales by foreign residents. 

Outside of that, I would call the rest of it for corporates is largely tinkering. I won’t go into it in a lot of detail. Perhaps the one that might be of concern to a number of you is the ATO’s mandatory notification period for refunds under BAS being extended to 30 days, that basically gives the tax office the right without any explanation whatsoever to defer payments of refunds and extends that period from 14 days out to 30. So again, puts the ball in the court of the ATO in terms of how quickly they want to deal with any queries they have around the payment of refunds.

There are some changes there to support some of the wage compliance issues and probably the main one there are additional funding for the Office of the Fair Work Ombudsman to continue targeting non -compliance with wage compliance and so clearly this issue is not going away and we’ll see even more activity in that space.

Perhaps if you could move on to the next slide.

A little bit more activity for SME businesses, probably the most significant being a further extension of the Instant Asset Write-Off. That is proposed to apply to businesses with a turnover less than 10 million. Some of you might be aware that we do actually have an Instant Asset Write-Off applying for the current year, which, in fact, has not been legislated. So, there is ongoing uncertainty at the moment as to exactly how the current rules should work. But that current system has a threshold of 50 million. So, it comes down to 10 million really targeting SME businesses going forward. In terms of some of the other measures, a little bit of tinkering again, eligible SMEs will receive $325 against eligible electricity bills, which mirrors to some extent the individual cost of living support that’s being offered. 

Outside of that, there is the move to remove a number of import items, import tariffs, 457 items. My understanding of that is that quite a significant portion of those items, are already subject to various concessions and exemptions, but that should hopefully help to clarify for those businesses that do need to import those types of products. I think in a nutshell, as I said, from a tax point of view, this is a relatively light budget if you are not in the potential business of providing, you know, produce a future producer of hydrogen or critical minerals. Outside of that, it’s relatively limited. I would call them page fillers as far as some of those non-resident CGT measures and royalty matters are concerned. Outside of that, I’m struggling to see any great effort towards any meaningful tax reform or indeed progress towards some consideration of the need for corporate tax reform in the future. I think on that note, Andrew, I’ll pass it back to the panel.

Andrew Sykes:

Terrific. Thank you very much, Tony, and look forward to some questions coming to you. So just a reminder that if you have any questions, please enter them in the Q &A. Next up, we’ve got Grace Bacon and something on the personal impact of the budget, which is very close to all of us. What does the budget mean for us personally, Grace? 

Grace Bacon: 

Thank you, Andrew. Hello, everyone.

One of the things that was announced in the budget again, which was already actually been passed earlier this year, was the stage three tax cuts that will come into effect from 1 July this year. And essentially, if you are in the tax bracket at 19%, you’ll now be paying 16%. So, getting a reduction in tax cuts. So, every tax bracket is actually getting a tax cut, which is really just to prevent income tax creep as your income increases. So, if someone’s earning about $100,000 a year, you’re getting a tax savings of about just over $2,000 going forward. High-income earners are probably the ones that are going to be losing out a little bit more, even though the rates are coming down to 45 % or are at 45%. That’s where the list of the savings are going to be. If we could go to the next slide, please, Julia.

The good news around superannuation is they haven’t really announced too much in the superannuation space, except that the government is now going to be paying 12 % super guarantee from 1 July, assuming the legislation gets passed to the government-funded paid parental leave to any parents that are taking leave, which is good news, particularly for women, because two-thirds of parental leave in Australia is taken by women. And that is just to help make sure that we are closing the retirement savings gap for parents who are taking a period of time off work to look after their children. So, if a parent is earning an average of about $70,000 a year, you’re getting about an extra $2,500 into super, or that represents about 1 .15 % increase in your super, which actually will help out in the long-term as those funds accumulate in super.

Next slide.

As Davika talked about as well, there’s been a lot of focus on cost-of-living subsidies in the cost-of-living initiatives to help with the pressures that everyone is facing. We’ve already talked about the energy bill rebates that are coming through. Other subsidies that are going to be there will be for the PBS medical scheme. That’s now going to be applied from two years to five years. And this would be especially valuable for the vulnerable of our community and particularly for those that we’ve concession cards and pensioners. So, pharmaceuticals will now be, that price freeze is now in place for five years. There’s also been incentives introduced to help students, students with the help debt. Previously that was indexed with CPI and on 1 June, it achieved and previously it was announced it would be indexed at about 4 .8%. making a help debt more expensive than a home loan. But now it’s going to be applied to the lower of CPI or wage price index, which is actually around 3%. So that’s a real relief for our students that have helped it. And just to give you an idea, if you’ve got a help debt of about $25 ,000, that will be an approximate savings of $1 ,100 per year for you, $1 ,100 off that debt. So that’s a good relief. That also helps our students as well.

In terms of the rental assistance payment that is going to be increasing by 10 % from September this year for those that is eligible for rental assistance that would actually help those that needs help with the rising cost of rent these days. For our age care, our Centrelink age pension, there is a freezing of the deeming rates so that’s not going to be extended for another 12 months. And that would actually help with further assistance in terms of making sure that interest rate rises is not going to reduce the age pensioned payments for our retirees. There has also been some more flexibility announced around the carers pension and recipients as well, making more people eligible for the carers pension, carers payment going forward.

So, in terms of cost of living, there’s been quite a bit there. There hasn’t been much in the super space. I think a lot of us were anticipating changes to the tax on the $3 million balance in super. Unfortunately, we were a little bit disappointed last night that we didn’t see further announcements or further clarification on the two contentious points, particularly around taxing of unrealised gains and whether the $3 million limit will actually be indexed. 

So, Andrew, I’ll pass back on to you now. 

Andrew Sykes:

Terrific. Thank you. And thank you to all the panel there. I mean, generally a theme there that once again, we’re seeing a government that’s delivered a budget that hasn’t tackled some of the really difficult questions in relation to the taxation system or potentially even the economy. I’m now going to run through some questions we’ve been asked and I’ll ask the panellists to answer those questions.

Some of those will be a bit paraphrased. We’ve got some long questions there. If you have any more, please type them in. One of the first questions we were asked was the outlook of the resource sector and whether this is going to stimulate any activity. We don’t have an expert on that, but I think what we can generally make the assumption, if we see government money flow into a sector, then it should stimulate activity. So hopefully very, very good news for the exploration sector.

Andrew Sykes:

Our first question is going to be for Devika and we’ve also had this one emailed in several times. What does this budget mean for interest rates over the next 12 to 24 months?

Devika Shivadekar:

Good one, Andrew. I’m pretty sure the RBA must be mulling the exact same question after the budget yesterday. So, for this year, I think, like I mentioned before, we do not expect the RBA to make any moves until November. Primarily because all these subsidies are going to flow into the economy beginning July. So considering that inflation has been trending down consistently over the last couple of quarters, the RBA would like to wait and watch and see how consumers react to the surplus cash, which is why the following two quarterly prints, the second quarter 24 print, which is going to be released end of July, and the third quarter 24 CPI print, which will be released end of October.

These two are quite critical because that will be enough time for the RBA to see how consumption has changed and how consumer confidence has changed. Following yesterday’s budget, I think a key metric the RBA would be looking at is consumer confidence. If it starts seeing that consumer confidence is going up, I think the RBA will tighten its belts because usually what happens is consumer confidence almost translates to increase in spending and consumption. So, if the RBA is focused on bringing down demand-driven inflation, I think for this year, it waits for two more CPI prints. November is a very live meeting. Rates could go either way depending on how the data comes out. But beginning 2025, I think we should expect inflation to have moderated quite significantly. So, by the end of 2025, I think the interest rates should be well below the 4 % mark.

Andrew Sykes:

So, it looks like we’re waiting for the next six months really to get a much clearer picture. That’s right. That’s right, Andrew. OK. So, I’ll continue on to the next question for you, Devika. There is some announcements in relation to the 1 .2 million new homes and national planning reform blueprint. This seems to rely very heavily on government involvement. Does this budget move us towards achieving those targets?

Devika Shivadekar:

To be honest, Andrew, anything mentioning the housing sector usually is quite ambitious and we have to look at it very realistically because it’s one thing to say that we will build so many homes and it’s another thing to actually build so many homes because there are so many factors that feed into actually building those many houses. For example, Australia is still just about coming out of that really bad phase of excessive builder insolvencies. We are still facing some labour shortages. Input costs are high for construction firms. So, if we put all this into perspective, yes, demand for housing is high. So, the government would like to deliver on that. But there are so many other structural problems which are beyond the government’s control that it’s a bit too ambitious in my opinion.

 And to your point about reliance on government, yes, I think this is going to need the federal government and the state governments to work together. But having said that, of course, like I said, the structural challenges are what will actually drive ultimately how many houses are built, even if the ambition is to build 1 .2 million homes.

Andrew Sykes:

 Thank you, Devika. Martin has a question: Do you feel the government is shortsighted in its budget, not considering the election cycle?

I think I’ll tackle that one and just say that I think every government looks towards the next election cycle. So, I don’t really see too much in this that looks beyond that. 

Now, over to you, Tony, for a tax question. Accelerated depreciation for small business and big business, is there anything beyond the instant asset write-off that we should be looking for here, and what does this mean for business? What’s the upside for business in this budget? 

Tony Fulton:

Well really Andrew, I’m afraid to say there isn’t a lot of upsides for business in this budget. There are no measures around depreciation or incentives for businesses to invest beyond the instant asset write-off -and as I said earlier, in fact, the way the threshold’s been drawn in at a 10 million turnover business, it actually is a specific SME measure. Whereas previously, at one point, the Instant Asset Write-Off applied to almost every business in the country. Now it’s going to apply to a much smaller component of the business community. So again, it is not an incentive that is directed towards incentivising business more generally to invest. Now, I’m sure Devika would suggest that had it been broader, then that might have also had the other impact of potentially stoking inflation by causing business to invest and expand equipment, et cetera. But we all know that in order to. You know, to generate future jobs and future opportunities, businesses need to invest. Unfortunately, I see nothing particular in this budget, Andrew, which supports that from that point of view. So, it’s businesses turning over less than $10 million are going to be eligible for that extension. If you turn over more than that, you’re not. You’re out. So again, we go back to we revert to the old rules of essentially, you know, very, very low caps for instant deductions. Otherwise, you’re into the usual depreciation rules, which, you know, to some extent are, you know, quite generous around accelerated depreciation. So, I think it probably is going to require a little bit more effort from you and your tax agent to make sure you’re optimising the benefits around the depreciation of assets within the framework of the existing rules that applied before the instant asset write-off came to play a role here. 

Andrew Sykes:

Yeah, terrific. Thank you. It is a good win for small businesses and tradies. Grace, some superannuation questions are coming through. First up, is there any change to the five-year rollover of unused super cap concessions?

Grace Bacon: 

 Nothing was mentioned last night, Andrew. So, as far as we are concerned, there aren’t any changes to the current rules at the moment. 

Andrew Sykes:

OK. And so, is there any incentive in there for sustainable financing in Australia, Grace? 

Grace Bacon: 

That’s probably not an area of expertise for me if we can come back to that question and ask maybe Linda, our partner in ESG to answer that question and go back to our client on that. 

Andrew Sykes:

Yes, I will respond to some of these questions that have been emailed. We’ll respond via email. So, thank you very much for that. 

A: Devika, if I can ask you, there’s a question that’s come through, and it’s that they’re curious about what’s driving the assumption for lower productivity. 1 .2 % compared to historical 1 .5. Do we all want to work a little less? 

Devika Shivadekar:

Well, who doesn’t, Andrew? But no, to be honest, I think the government understands that we are currently facing this problem of structural unemployment. So, productivity is lower because we are still in a pandemic-aligned economic cycle. We are still coming out of the effects of what we saw during the pandemic.

There are a lot of challenges going forward. We are seeing young people, young families who decided to move away from the cities to stay far from the CBD areas because they assumed work from home is going to be the new norm. A lot of people started their families. So, they have young kids to take care of. And then it’s really expensive to, in fact, it’s not just expensive. It’s hard to find a spot in a childcare.

So given all these challenges that young families are facing, what the government expects is people are being underutilised and by underutilisation, it goes both ways. Number one, people are not really functioning to their optimum levels because of personal challenges and also because businesses are not finding the right set of skill required for their particular businesses.

So structural employment is going both ways. On the personal front, it’s the employees who are struggling to really come back full time to work, be able to dedicate full eight hours in one go while managing all their personal responsibilities. And then there’s the businesses who are really not finding the best match for their requirement. So, when you are in this weird labour market setup, you can expect that productivity is essentially going to be a bit lower than what it has been previously.

But again, things do normalise. We just need to give it time. Like I said before, we are still reeling from the impacts of the pandemic. If the pandemic could last three years, we should give ourselves at least four years to get over it and return to normalisation. So, this is what I think drives the government’s outlook on lower productivity.

Andrew Sykes:

Okay, while we’re on productivity, Devika, there’s a question that’s come through in relation to the pre -application process for work and holiday visas that will be introduced for people from China, Vietnam and India. What does that mean to the labour market? 

Devika Shivadekar:

So, very good question, Andrew, and thank you so much for asking, I think. So, the problem with limiting these entrants is, we are going to face an immediate, we are going to see an immediate impact in the gig economy. All the youngsters who come to Australia with the backpackers, working holidaymakers, they tend to fill jobs which perhaps someone, a university student may not necessarily be able to do because university students, so I’ll give you an example, working in a cafe. Working holidaymakers essentially end up working in cafes or more in the hospitality industry.

For an international student, the hospitality sector obviously is quite attractive to get into while to support themselves while they study. But student visas come with a cap on the number of hours they can work. So, this is where the working holiday visa holders fill the gaps. So what we are going to see with a cap on these visas is we might see a bit of a struggle among small business owners, particularly cafes or in those sectors which do not necessarily require very high skills, but just more people skills and you have to have a good personality to be able to do well, not something highly technical. I think those are the sectors that are going to suffer the most in the short term. 

Andrew Sykes:

Terrific. Thank you. Now, Grace, we’ve had a question that’s just come through on the announcement of super on parental leave. Some sectors already require that to be paid, but...Is it envisaged that the federal government will pick up the tab or is this a cost on business or can you just explain a little bit about that, the changes on that? 

Grace Bacon: 

Research has shown that a number of private-sector businesses have already adopted paid maternity leave without having legislation in place. What was announced last night is for those parents who qualify for the government-funded parental leave scheme, which is a 20-week parental leave scheme, the government is picking up the super contributions that are going into that. What I may anticipate seeing is where businesses are already paying parental leave voluntarily to their staff may also consider in terms of trying to make sure that we’ve got social equality, gender equality, particularly around retirement savings and gender pay gap is that they may consider also picking up that and paying the super contributions as well.

Andrew Sykes:

Okay, terrific. And I’m not sure if you’ve had a chance yet to form an opinion on how the aged care transition funding will be impacted. 

Tony Fulton:

Look, there’s been some comments around aged care in the budget last night, and particularly around offering around 24 ,000 placements for at home aged care. So just to try and alleviate the pressures in hospitals and major systems where we’ve got an aging population where people is able to stay at home and still have care at home. There is some further announcements on that last night.

Andrew Sykes:

Thank you. Tony, we’ve had a couple of questions that have come through in relation to the budget and any impact on tax R &D incentives. Have we seen anything on that?

Tony Fulton:

 No, Andrew and I think a lot of people were probably a little bit relieved that there has been no further tinkering or significant change to R &D. I mean, we had seen some significant change to the R &D incentive a few years ago with the move to the R &D intensity measures that we’ve seen no further change. So, in terms of the system, it will operate as normal. Again, we perhaps see this as a bit of a missed opportunity around supporting the incentives for innovation and further development. We would like to see the government focusing more on this space in future and seeking to expand R &D concessions. We’re not seeing that at the moment. There is a bit of a race around the world to invest in R &D and so this is probably a critical area for future governments. But at this stage, Andrew, thankfully, no changes to our R &D settings. Left a system that’s working pretty well alone, it would seem, which is great.

Andrew Sykes:

 Now, a couple of questions in relation to sectors. Tony, is there anything in there in particular for retailers that we should look at? 

Tony Fulton:

Look, Andrew, I haven’t seen anything particularly focused on the retail sector. I’m not sure if any of the other panellists have seen, but in my read of it last night, I didn’t pick up anything that was particularly important there. I mean, I think the retail sector in particular has had a difficult time around wage compliance. And so, some of the measures there to provide additional support for say the Fair Work Ombudsman, for example, I think is showing that there will be an increased focus on wage compliance. I know from our own work with clients in the retail sector, the compliance from a wages perspective, enterprise bargaining agreements or wards, and this goes also through to the employment taxes and superannuation associated with payments in the retail sector. There’s been a lot of focus from regulators on this and the ATO. So, I think if you are operating in that sector, I think you should, if you haven’t had a look at your wage compliance previously, we would be encouraging you to make sure that that’s pretty high on your agenda.

Andrew Sykes:

 I think further to that, Tony, is the comment around payday super where superannuation guarantee now needs to pay behave to your employee on the day of your pay going into the employee as opposed to quarterly. 

Tony Fulton:

So that ties in into the wage compliance and making sure that super is also paid in a timely manner into your employees’ accounts. 

Andrew Sykes:

Yeah, so we do seem to have a few questions coming through too on compliance and what you’re both saying seems to reflect that the ATO is sharpening their efforts around compliance. Do you get that feel from the budget, Tony and Grace? 

Tony Fulton:

Look, certainly there’s additional funding again for the ATO in the budget. I think we see it in almost every budget. There is still a very strong focus on compliance. There’s the extension of the tax avoidance task force. So, some funding in there for that.

But just more generally in terms of what we’re observing at the moment, we’ve seen a strong shift from the ATO towards carrying out reviews of both the top 1000 and the next 5000 taxpayers. So, I probably can’t recall a period where I’ve seen so many reviews commencing amongst our client base. So, there’s certainly a shift in focus there, Andrew.

And look, part of that is a reallocation of resources within the ATO. So, the ATO over the pandemic era did refocus a lot of their resources out of the review areas into job keeper support and the like and supporting taxpayers around their tax payment arrangements. We’ve seen a strong shift in their focus.

Obviously with those areas coming to an end, we’re seeing a refocus from the tax office on undertaking the more traditional review processes and indeed more focus on substantive review of SME taxpayers in particular. So going back to basics and wanting details and sending extensive questionnaires out. So, we’re certainly seeing that movement.

Grace Bacon: 

 Yeah, I agree with that. We are certainly seeing there’s been questions there around the formalisation of informal practices in agriculture and hospitality and particularly in relation to visa workers. I think our view would be that we are going to see greater compliance in particular with anything in relation to employee pay. We’re seeing that across the board and an increased ATO compliance. So, it’s something business really needs to focus on in the next 12 months. 

Andrew Sykes:

Now, Grace, your comments in relation to payday super have sparked another couple of questions. And then really the question coming through is, whenever we have a pay run, do we have to pay super that day? Is that what it means? 

Grace Bacon: 

That’s what it means, yes. So previously, businesses have a quarter from every quarter you pay your super your staff super into their respective super funds. So effectively now I would suspect that businesses may consider reviewing their pay cycles, which is not good for employees. If they’re used to getting a fortnightly pay now, they might be going to monthly pay to reduce the compliance reduce the administrative burden.

Andrew Sykes:

Yeah, so you really that’s going to be a bit of a cash flow impact on businesses and a compliance burden on them as well. 

Grace Bacon: 

Yeah. 

Andrew Sykes:

Do we have a view on the penalties that will apply if you miss that payday or we’re just waiting to see? 

Grace Bacon: 

Payday super is coming in from 1 July 26. So, you’ve got a couple of years to get, I guess, your operations adjusted and in order for that.

Andrew Sykes:

Okay. And a further question for you, Grace, we’re being asked about any update on taxing of unrealised profits in super funds. I think we were all waiting very eagerly to hear about that last night. And unfortunately, there hasn’t been any further updates. And this is an area that’s been heavily debated over in the media over the last few weeks. But I don’t believe we’ve come to a conclusion or resolution yet. 

Grace Bacon: 

That’s something that we all are waiting eagerly to see what happens there. Yeah. Yeah. So, thank you very much for that. And a final one on the super, is that small business or all business for Payday Super? That’s I think small. It’s that’s something we can just double check that. But it is something to just think about, given that we’ve got two years to cover that off.

There may be a cut off for small businesses, but we’ll need to just double check the details and get back to you on that question.

Andrew Sykes:

 So as usual with these announcements flagged by the government and budgets, the devil will be in the detail and we’ll have time to prepare. So overwhelming volume of questions coming through for you, Devika, in relation to the inflationary impact of this budget. How are you initially seeing the inflationary impact of it?

Devika Shivadekar:

Like I said before, Andrew, to say that this budget is not inflationary is to deny the obvious. There’s been a significant cash surplus, cash splash, if I may use the term, and a lot of households are going to benefit. To give you an example, the energy rebate, which is $300 for all households in Australia, it’s neither targeted, it’s not temporary. Not everyone needs that. So perhaps, it would have been better to have had some measures which were more targeted towards the ones who are actually in need. So, the tax cuts are a good example where they were tailored more towards the lower income earners as opposed to the high-income earners, which to some extent does make sense because the low-income earners are the ones who are actually struggling because of inflation, because of mortgage payments. And considering the extremely fast pass through of interest rates to an average Australian household via the Moorgate channel. It made sense to divert excess funds towards lower-income earners. But some of the subsidies in yesterday’s budgets are just so generous. It just makes you think that it’s only a matter of time before people adjust to having that excess cash in hand.

And it’s only a matter of time before they are able to get on top of their finances and manage their money in such a way that they are left with additional cash to spend outside. So, they’ll be done with their utilities, which is going to be heavily subsidised. They’ll be done with their mortgage payments. And then they’ll have excess cash. What do they do with that once you’ve done all your, once you’ve fulfilled all your responsibilities? So, the risk obviously is that the cash surplus stokes inflation in the near to medium term.

Andrew Sykes:

Terrific. And is any of us surprised that a budget from a government heading into an election looks like a bit of a cash splash? So, it’s not unusual with budgets. So just one last question out to the panel. We’re getting questions in relation to the mental health space. Anything there for the mental health space and in particular mental health providers? Are we seeing any benefits in there?

No views on that. Well, we’ve pretty much run through all our questions. Would like to thank everybody for attending. You should see coming up, thanks to Julia, who’s assisted today, the link for the download to our report. So, if you follow that QR code or go to rsm .com .au, you will be able to download our free report, which gives more detail on the budget.

I would like to thank everybody for taking the time to attend our webinar today. And thank you to our budget and our tax budget team and our panellists for their participation today. Thank you very much. And that’s a wrap for the 2024 -25 budget webinar. Thank you. Thanks, Andrew. Thanks, everyone. Thanks, Andrew. Thanks, everyone. Thanks. Good day. Thank you.