Budget Update: Australia to Run Economy Hot

The Government has unveiled a big spending budget that aims to add fuel to the economy and drive unemployment down to levels rarely seen in the past 50 years. The Budget is further evidence of a transition from crisis support to growth recovery, as the economy exhibits a sharp V-shaped rebound; GDP growth is now expected to be 4.2% in FY2021/22 up from the December estimate of 3.5% leaving Australia in an enviable economic position. With leading indicators such as the ASX and business confidence at record highs and iron ore prices touching $US230 per tonne (against treasury estimated of US$55 for the Budget), the Government appears determined to capitalise on this strong momentum.

Extended tax cuts for both business and households should be a boon for demand and employment growth. The Government’s re-orientation to big spender is a dramatic turnaround from just 18 months ago, when it was driving toward the first budget surplus in a decade. This is being aided by low borrowing costs and a better starting position than global peers. Net debt is expected to be at 34.2% of GDP in June next year and peak just shy of A$1 trillion in June 2025, or 40.9% of GDP. That’s about half the U.S. and U.K. levels and about one-third of Japan’s, according to budget estimates.  The budget was well received by the three major credit ratings agencies that reaffirmed Australia’s AAA rating.

Nexus Private Financial Planning have hand-picked several proposals, which may assist our clients in building future wealth in a tax-effective manner:

  • Individuals aged 67 – 74 will not be required to meet a work test to make non-concessional contributions to Super and will also be able to access the non-concessional ‘bring-forward’ arrangements. This would potentially enable a contribution of up to $330,000 in a single income year for individuals who are eligible. Those who sell property or receive a financial windfall, for example, may be able to accumulate more retirement savings in a tax-friendly environment.
  • The eligibility for downsizer Super contributions will reduce from age 65 to 60, which can be made up to maximum of $300,000 per individual, despite Super balance, work status and regardless of age. This provides additional flexibility to those under 65 who may wish to downsize to a more suitable home and at the same time contribute up to $630,000 to their Super, when combined with the non-concessional bring-forward rule.
  • A higher subsidy of 95% for childcare fees, from the current 85%, will apply to the second and any subsequent child in care for families with multiple children under five in childcare. In addition, families with a combined income above $189,390 will no longer be subject to the childcare subsidy cap of $10,560 per child, which will be abolished. Both proposals have the potential free up cash flows to assist with living expenses or for further investment opportunities.
  • Housing markets are believed to remain strong with incentives to first home buyers, down-sizers and the expected influx of migrants wanting to enter the ‘Lucky Country’ once our international borders re-open.

Please see below a Federal Budget Summary by the IOOF Tech Team, which provides further details.

Federal Budget Summary

Should you wish to discuss further please feel free to contact Nexus.

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