The new Labor Government handed down its first budget yesterday. Already dubbed a ‘bread and butter’ budget, it is characterised by spending restraint in the face of skyrocketing inflation and global uncertainty.
Today’s economic outlook is very different to the March budget. That budget, delivered by the former Government, contained all the short-term cash splashes you’d expect coming up to a Federal election. Today, with global inflation spiralling, the cost of oil soaring and interest rates rising, the mood is far more sombre. The short-term sugar hits are thin on the ground, with the government focusing on long-term strategies that won’t exacerbate the inflation crisis.
The government has been very clear that it is unlikely to consider once-off payments to ease the cost of living crisis, or to extend the tax excise cut to decrease the price of fuel. This is because such payments stimulate the economy, encouraging people to spend more. In a depressed economy, this can be a smart strategy to get things moving. In the current environment, it can backfire. Increased spending means increased inflation – the one thing the government is keen to keep under control.
We’ve concentrated on the budget measures that affect homeowners, downsizers and renters, with a brief wrap-up of some of the other headlines from the 2022 budget.
Housing affordability
New homes
Labor has set an ambitious commitment to build one million new homes over the five years from 2024 to 2029. The delayed start is due to current capacity constraints and supply chain issues, which the government is hoping will ease soon.
Of those one million homes, there will be funding for 10,000 affordable homes on top of existing funding for 30,000 social and affordable homes that was a pre-existing campaign promise. Finally, the states and territories will fund another 10,000 affordable homes in regional areas.
The strategy also includes the release of state- and Commonwealth-owned land, and amendments to zoning and planning regulations to operationalise the new builds.
Downsizer incentives
Pensioners will be encouraged to downsize their homes in another attempt to increase housing stock for families. Eligible people will be able to:
- Make ‘downsizer contributions’ to super from the age of 55 (down from 60). A downsizer contribution allows you to contribute up to $630,000 from the sale of your house into superannuation. The contribution doesn’t count towards your non-concessional contribution cap.
- Take advantage of the principal home sale proceed exemption for up to 24 months (up from 12). This means that if you’ve sold your primary home in the last two years, the money you made from the sale won’t preclude you from claiming the pension.
Help for regional buyers
The Regional First Home Buyers Guarantee (RFHBG) supports eligible citizens and permanent residents to buy a first home in a regional area. To be eligible, you must have lived in the area for at least 12 months and not bought property before. There are 10,000 places per year to 30 June 2026, and the scheme allows buyers to purchase with a 5% deposit and no lenders’ mortgage insurance.
This is part of the wider Home Guarantee Scheme, which also offers:
- 35,000 places per year to eligible first home buyers who have saved at least a 5% deposit;
- 5,000 places per year via the Family Home guarantee, available to a single parent with at least one dependent child and who has saved at least a 2% deposit.
Solar power for renters
Renters very often miss out in Federal budgets. With power bills tipped to rise by up to 55% in the next two years, one slice of relief is on the horizon. A $102.2 million solar banks program will help social housing and rental accommodation access clean energy technologies.
Education and child care
To boost workforce participation and ease the pinch for young working families, the government will be increasing childcare subsidies for most families. A $4.7 billion spend will go towards:
- Increasing the maximum Child Care Subsidy (CCS) rate from 85% to 90% for the first child for low income households.
- Increase the CCS rate for all households earning up to $530,000.
- Maintain higher CCS rates for families with multiple children in childcare.
An extension to paid parental leave to 26 weeks (to be effected in two-week increases per year) will also help families who want a caregiver to stay at home in those early years.
Schools will also receive funding, this time aimed at increasing wellbeing and health after the extended COVID-19 lockdowns. The $204m ‘student wellbeing’ boost will cover mental health supports, excursions, sports and social activities. Additional funding is provided for better ventilation and air quality.
Tax cuts
The ‘low to middle income offset’ (LMINTO) will not be extended beyond 2022. This means that those earning less than $126,000 will no longer receive the $1,500 rebate. The ‘temporary’ measure was first announced in 2018 and extended by the Coalition government through the pandemic.
The ‘stage three’ tax cuts, on the other hand, will proceed at this stage. The cuts abolish the 37% marginal tax bracket, lower the 32% tax bracket to 30%, and raise the threshold for the 45% marginal tax rate. The effect is that everyone earning between $45,000 and $200,000 will pay the same percentage in tax.