Budget 2021 - What's in it for me?
This year’s budget has been described as the “Game of Thrones – Winter is Coming” Budget (Andrew Conway, IPA CEO).
This motto from House Stark signifies words of warning and our need to maintain our vigilance going forward.
Treasurer Josh Frydenburg’s opening words “Australia is coming back” doesn’t mean that we are out of the woods yet, although we are well-positioned to address the challenges facing the economy.
This budget, as expected, is your classic Federal-Election style budget with plenty of cash being splashed around. It signifies the 3 B’s - Big Government, Big Spending and Big Debt.
Spending and jobs are the priorities for this budget with an expected $161 billion deficit. By 2024-2025 this is expected to reduce to $57 billion deficit which is a $52 billion improvement on the forecast.
Given that the last federal budget was only handed down in October last year it was always going to be interesting to see who the government was going to try and appease only 7 months later.
So, let’s get down to it. What’s in it for me?
A. Personal Taxation
Low- and Middle-Income Earners Tax Offset.
The tax offset of up to $1,080 will be extended. The full amount will be received for those earning between $48,000 and $90,000. This means that the tax offset will be applied to both the 2020-2021 and the 2021-2022 financial years.
Tax rates remain unchanged from the 2020-2021 financial year.
The low-income threshold for both singles and families will be increased. To $23,226 and $39,167 respectively with an increase for each dependent child. This will take effect from the 2020-2021 year.
B. Small Business
The measures for small businesses are probably not more than was expected to be received in this budget. There have already been measures implemented along the way, particularly during the peak of the pandemic. Small business is expected to benefit from the social-type policies outlined in the budget, particularly with an increase in mental health funding.
Sole Traders will benefit from the tax offset outlined above if their income falls in the low to middle income range.
Temporary Full Expensing
The Government will extend the temporary full expensing measure until 30 June 2023. It was otherwise due to finish on 30 June 2022. Other than the extended date, all other elements of temporary full expensing will remain unchanged.
Under Temporary Full Expensing a deduction is allowed up to $150,000 for assets used in the business and which can be depreciated. Normally these would need to be deducted over a number of years.
Note, however, that motor vehicles are only allowed to be deducted up to the vehicle cost limit which for the current financial year is $59,136.
But, and this is a big but – a ute is not defined as a motor vehicle because it is not specifically designed to carry passengers. This is a similar story for commercial vehicles.
So expect to see a lot more utes on the road in the next couple of years.
The minimum amount of $450 an employee needed to earn in order to qualify for the superannuation guarantee to be paid by the employer will be abolished.
This is in addition to the increase in the super guarantee from 1 July 2021 which will increase from 9.5% to 10%.
The Government will introduce legislation to allow small businesses to pause or modify ATO debt recovery action where the debt is being disputed in the Administrative Appeals Tribunal (AAT). It basically means that the ATO can’t be overzealous when it comes to recovering tax debts.
C. Social Issues
The Budget confirmed that the Government will make an additional $1.7b investment in childcare. The changes will commence on 1 July 2022, ie not in the next financial year.
Commencing on 1 July 2022, the Government will:
▪ increase the childcare subsidies available to families with more than one child aged 5 and under in childcare
▪ remove the $10,560 cap on the Child Care Subsidy.
Mental Health Funding
There is a firm focus on mental health services, which have been stretched as a result of the pandemic. There is a commitment to improve the government's digital mental health services and to expand Headspace and Head to Health mental health centres across the country.
The government has committed to funding 80,000 more home care packages over the next two years, and to mandate a minimum of 3 hours and 20 minutes of care per day for people in residential care — with at least 40 minutes of that being with a registered nurse.
In summary, there will be a cash splash which will be funded by debt and it will be at least a decade before we can get back in surplus. With interest rates at an all-time low, the government is taking advantage of this situation and is not rushing to clear its debts.