Federal Budget October 2022 Special

Speaker 1:
Welcome to CPA Australia's With Interest podcast, bringing you this week's need-to-know information for businesses and accounting professionals.

Jane Rennie:
Hello and welcome to this special edition of With Interest, all about the 2022 federal budget. I'm Dr. Jane Rennie, general manager media and content at CPA Australia. It's Wednesday the 26th of October, the day after the budget was handed down. Joining me to provide an expert perspective on the budget, are senior manager business policy Gavan Ord and senior manager taxation policy, Elinor Kasapides. Welcome Gavan and Elinor. Now I'm going to be a bit mean to you both by asking you right out of the gate, how would you rate this budget overall? Who's going to be brave and answer first?

Gavan Ord:
As you know, Jane, I'm not a big fan of rating budgets. I think a lot of the ratings you see are based on the vibe rather than a detailed assessment of each measure in the budget. And I was in the budget lockup yesterday and some of the people in those lockups were talking about, do we give it a six, a seven, an eight? And it was no science to it. It was just the feel, the vibe. But putting that aside, overall, we look at the budget and we gave it a thumbs up. But we are concerned that it does lack a bit of a vision for the future. That some of the big pressing economic issues are not, I couldn't say addressed in this budget, but at least not mentioned in this budget.

Elinor Kasapides:
I'm going to go with the vibe of it being a bit meh. So I'm a little bit like you Gavin, but the thumbs up is conditional on actually, well what happens next? Where are the burning issues and what will come in the next budget in May?

Jane Rennie:
So Gavin, we've had two budgets this year. The first being the coalition's March budget. That's pretty unusual, but is it unprecedented?

Gavan Ord:
Well, no it's not. In fact, mini budgets used to be quite common. So there was at least four or five mini budgets in the eighties and the last one was 1988 and that happened a few months after the stock market crash in October '87 for those of you who remember. So that was a budget brought about by some of those significant economic challenges that the stock market crash created. And you can see elements of that in the economic data from the budget as well.

Jane Rennie:
Gavan, even back in 1988, I'm quite sure you were up late reading the budget papers, but it's not really fair of me to call this a second budget, is it? Because it's actually a first in many respects. Is that right?

Gavan Ord:
Look, I think that's an appropriate characterization of this budget. It's quite different to the March budget. I mean, it is a smaller budget than usual. And to be fair to the treasurer, Jim Chalmers, he did talk about this being not a full on budget. This is just the government reprioritizing spending, and I think that's what they've done. They've reprioritized spending and they're focused on delivering their election commitments. So it's more than a mini budget, but I would say less than the traditional full-on budget. So it's somewhere in between. It's the Goldilocks budget.

Jane Rennie:
Elinor, what about you? Do you think the Labour Party has put their stamp on this budget?

Elinor Kasapides:
Like Gavan mentioned before, a lot of this reflects their election commitments and you see the costings come through and a lot of those plans, so it's really been consistent with their messaging. And so in that sense, things like the housing accord you might expect to see come through and those are good examples of the ALP repositioning where the budget is heading.

Jane Rennie:
Elinor, I could swear in the lead up to this budget, I heard it called so many different names. It was called a wellbeing budget, a reconciliation budget. We had a nuts and bolts budget. We even had a bread and butter budget and a business as usual budget. The list goes on, but which of those labels do you think actually hits closest to the mark?

Elinor Kasapides:
I called this a meh budget before, but perhaps it's kinder to say it's a BAU. So I think Gavan really articulated the signal was, let's look at a few things. It's not going to break the bank, nor is it going to change the world, and that's really what's come through. I think what is commendable is that there's a smattering of different policy announcements and some clarity as well that's been given by this new government and that is helpful for decision makers and organisations like CPA Australia.

Jane Rennie:
Gavan, how would you describe the fiscal policy approach in this budget?

Gavan Ord:
Look, I'd describe it as fiscally conservative. The government definitely set out to not scare the markets. They were obviously conscious of what happened in the UK a few weeks ago with its mini budget. So they basically delivered a budget. Yeah, there's very few surprises in this budget. We all basically knew what was going to be announced and that's what they delivered. It's not expansionary, it's not contractionary. It's just a bit meh, as Elinor said. It's in the middle, and I think that's the right approach for turbulent times. We're not looking for big spending initiatives. We're not looking for financial contraction. We're looking for a nice stable economic and political platform from the government.

Jane Rennie:
And Gavan, in fact, the treasurer did frame this as a two part budget. So are you satisfied that part one, announced last night, did lay out enough of a vision for part two to execute on?

Gavan Ord:
Oh, I'm pretty satisfied with that. The budget achieved what the treasurer set it out to be, and as you said, it's a two part budget. In May next year, we're going to see maybe a bit more meat on the bones in terms of the government's vision for the future, particularly in areas like jobs and skills. And we may see a few more spending cuts because they do have a razor gang going through a number of the previous government's initiatives. So we are like to see more cuts in the next budget, but we also maybe see a little bit more support. Hopefully we see a little bit more support for particularly small business in the next budget as well.

Jane Rennie:
All right. Well given that you've now both described it as a bit meh, the cynic in me feels that perhaps we didn't need a second budget this year. Is that fair to say?

Gavan Ord:
Look, I'll go first and say, look, a new government is entitled to reprioritize where taxpayer money is spent. And given the situation, I think setting out a clear direction to the market and to the community and to our members is important. So I'm supportive of this approach, and as Elinor said, I think there's clarity on issues, and I like the idea of just doing it all at once rather than this drip feeding of policy initiatives through press releases. So, I think it was a good approach, a good choice in the end, by this new government.

Elinor Kasapides:
And certainly, I think even though we're a little bit tired with having all of these mini budgets and keeping up with things, it's really important in dynamic and uncertain times to have that real time delivery, and for a new government really to say these are our policies and these are the changes that need to be made to the budget. So in that respect, I think it's actually a really good move and they've signalled quite clearly what this is. Perhaps part of it is also that the public expectations just need to be managed about what should be expected. So like we said, it's meh, but we weren't wanting or looking for anything else.

Jane Rennie:
I'm pleased you mentioned the economic conditions because last night's budget did incorporate the mid-year economic and fiscal outlook. Gavan, can you give us a bit of an indication of what the economic conditions are that the government has based its spending decisions on?

Gavan Ord:
Yeah, so I'll just read what some of the forecasts, the government is basing it's budget on. So real GDP is expected to fall to one and a half percent in and next financial year. The unemployment rate is expected to rise ever so slightly to four and a half percent, which is still an incredibly low unemployment rate. The CPI inflation, which is obviously a very important figure at this time, that's expected to decline to around about three and a half percent, which is still a bit above where the RBA is comfortable. And obviously global economic conditions are not looking great either.

Jane Rennie:
And it's households, isn't it, that are very much feeling the pain of the conditions that you've just outlined. So to what extent, Gavan, did the government acknowledge and act on that pain with new budget measures?

Gavan Ord:
Yeah, look, this is an interesting question. The government obviously did some things on cost of living, so it's going to increase childcare subsidies for example. But I think the major message out of this budget is, the government was trying to take measures which actually didn't add to cost living pressures. Sometimes, stimulatory spending can actually add to cost of living pressures, not take away. So I think the main message out of this budget was, this is a conservative budget. They didn't want to stimulate higher inflation. So, I think that's their major contribution to cost of living pressures by not actually adding to those pressures.

Jane Rennie:
And Elinor, I just want to throw that point to you as well because there is always that risk with cost of living measures, that they can contribute to inflation. So how well do you think the government side-stepped that problem?

Elinor Kasapides:
They've taken a cautious approach. Certainly, Gavan is right in that they haven't pushed more money into the economy willy-nilly. The challenge is with inflation being so high, unusually for many, many people, they haven't lived through these sorts of price rises, compounded by interest rates growing. For many of our more vulnerable people or those on lower incomes, are they actually getting the targeted support that they need? So while it's a good step backwards for the government to withdraw some of the money that's flushing through the economy, we still need to make sure that those who really are struggling get the assistance that they need.

Jane Rennie:
Now even though you've described it as a conservative budget, Gavan, there were still some pretty significant sums of money thrown around. So to the extent that that's new funding, where's it going to come from? Is it borrowings or programme cuts or eliminating efficiencies for example?

Gavan Ord:
So yeah, I think the major areas of where this money's coming from is reprioritizing spending. So they've taken some money out of the previous government's initiatives, what this government calls re-profiling, which I don't actually fully understand what that means. But they're basically moving money from one programme to another. And another large chunk actually comes from a better than expected increase in tax receipts. So commodity prices are higher than expected, and also with more people in employment, obviously personal tax receipts are also up. So it's a combination of cuts to government programmes and increase in revenue from various tax sources.

Jane Rennie:
Elinor, since we're talking about cost of living, I know there are a lot of people who'll be wondering about the fate of the low and middle income offset or LMITO as some people call it. The March budget increased it. It was worth up to $1,500 but didn't extend it. Has this budget consigned it to history?

Elinor Kasapides:
Yes, it has. At the time, when the decision was made to extend the LMITO, it was a different world. There was COVID, we had lockdowns, people were struggling, and so therefore it was maintained beyond its use by date. So once again, this is another example of the government pulling back some of the money that's flowing through the economy. So by removing this double dip and restoring what should have been the tax rates at that part of the income range, things should be moving forward as planned.

Jane Rennie:
And since we're talking tax measures now, the ALP in its election campaign, talked about cracking down on multinational tax avoidance. Was this reflected in the budget?

Elinor Kasapides:
Yes, and like we mentioned before, we were very much expecting this budget to reflect some of those election commitments. So the information for example, around the royalties and intangibles payments, and there's also some things around the level of debt a large multinational can carry as well as improvements to their corporate tax transparency. So that's a suite of measures that has been out to consultation and has been signalled. There was also one surprise around off-market share buybacks, where the devil will probably be in the detail. So that's the suite really at that larger end of town.

Jane Rennie:
And I read there's a range of extended funding for the tax office. What's this going to cover? Does that mean someone's in their line of sight?

Elinor Kasapides:
So every budget or every few budgets, the tax office will get a big injection of funding to deal with particular issues. So in this budget, the government has confirmed it will continue to extend funding for individuals compliance. So that means the ATO will continue to look at those work related expenses and rental deductions. They're also looking at the small business/shadow economy and that's really looking at cash and lower than expected business tax performance. And then finally the Tax Practitioners Board will also be getting some money for looking into unregistered tax agents and those that are not complying. But actually I did forget one, the Tax Avoidance Taskforce, which is also huge. That gets an injection. So when you look at that in their entirety, the ATO and the Tax Practitioners Board have got a lot of funding to look at non-compliant taxpayers and tax agents.

Jane Rennie:
Okay. Let me throw another tax measure at you, the stage three tax cuts. In the lead up to the budget, talk went into overdrive about what might happen with the stage three tax cuts. How were these treated in the budget?

Elinor Kasapides:
So the stage three tax cuts are still there. The way I read this budget, this is confirmation that Labour will stick to its election commitment and it's been costed in. So what it does do though, because there was a lot of conversation in the lead up about stage three tax cuts, should they go ahead, should they be repealed? But it really highlights the problem with our tax base that we need tax reform. It shouldn't be about such and such pays this much as an individual. It should be about where does Australia get its revenue from? How in line are we with the rest of the world and do we have the right mix? And CPA Australia's view is that no, we don't and we really need to have that conversation.

Jane Rennie:
Well, was there any hint in the budget that there might be a broader discussion on tax reform into part two of the budget next year?

Elinor Kasapides:
Unfortunately not. And sometimes when you have a weak prequel, then the actual main show needs to be big. And when you think about the limited amount of time to May and the fact that there hasn't been any substantive discussions on reform, there is a concern that how close to the next election are these conversations going to be held.

Jane Rennie:
So any last measures on the tax front that you'd like to mention for listeners?

Elinor Kasapides:
A really quick one, just around modernising business registers, which is the programme that's delivering director ID. With the due date for director ID registrations coming close, it's a good sign to see extended funding and increased funding to make sure that that stays on track. So that's one good thing that we saw.

Jane Rennie:
I want to talk a bit about small business now, and Gavan, I know you don't like giving ratings, but on a scale of very friendly to very unfriendly, how would you rate this budget in terms of support for small business?

Gavan Ord:
Not friendly, I would say. It's not like friends with benefits, maybe friends with fringe benefits. No, it's nothing like that at all. It's just not much in this budget for small business. Maybe in the May budget next year they might be building up to something there, but very limited number of announcements on small business.

Elinor Kasapides:
And I think that's a problem because you think about small business, the contribution they make to Australia, how many people they employ, where are they in the conversation and what is the government's approach to supporting them? They've been through a lot. They're struggling with a lot of uncertainty and issues. So certainly in May we'd expect to see hopefully a lot more for small business.

Gavan Ord:
Great point. And we talk about these troubling economic times. Now small business are also managing through these troubling economic times like the government is. But there's just incredibly small fraction of the resources of this government. So I think some of them are looking for a little bit more from government and just to help them through a period where high inflation is unprecedented for many people, labour shortages are unprecedented for many people, supply constraints. So they're managing through all these problems which are by themselves once in a generation events, but they're all happening at the same time. So I think the government and also the state governments do need to step up and support a bit more.

Jane Rennie:
The recent jobs and skills summit built a lot of positive momentum on the issue of skills and labour shortages, which is something that has affected small businesses in particular. Gavan, did the government capitalise on this momentum in the budget?

Gavan Ord:
I mean there's a few things in there in the budget, but the government was very clear that this budget wasn't going to be the budget going to answer a lot of those questions. There's still a white paper process. But I will point out a few things. One thing that stood out to me was the increased funding for immigration to clear the backlog of skilled visa applicants. That's very much needed. We've heard stories of up to 18 months for a visa application to be approved or not. And also we note that there's funding for a large number of fee free TAFE places and also I think there's about 20,000 more university places as well. So there's a few things that were in this budget that came out of the jobs and skills summit. But the real meat on the bone and rubber hits the road is when we see the white paper and we'll probably see more in the May budget.

Jane Rennie:
And Gavan, there was also a chunk of cash for the environment. We know that climate change is a major contributor to wellbeing and economic outcomes. Early on in its tenure, the Albanese government legislated an emissions target of 43%, something the previous government had resisted. Would you say there was a more or even a different emphasis on the environment in this budget?

Gavan Ord:
Yeah, I'd say different emphasis is a good description. You can't call this a climate change budget. They didn't issue their climate change statement, but they didn't intend to. But in the next budget, they intend to issue an annual climate change statement. This budget was about giving the resources to the Department of the Environment and Climate Change to actually build up the capacity to actually issue that statement. So I think that's a real positive. Build up the capacity of the public service to actually better advise government and the community on climate change and the impact of government decisions on climate change.

Jane Rennie:
Now for something on a bit of a lighter note, were there any quirky or unusual items in the budget that might make our listeners smile? Elinor, over to you.

Elinor Kasapides:
A couple of things. One thing we haven't talked about was the wellbeing budget. And I popped onto Treasury's consultation site last night and there's a whole consultation paper about what Australians might want to see in their wellbeing budget. And I think that opens up a lot of thought bubbles about how do we want to measure our happiness? Is it the number of dogs that we have in a household or is it something like income or how many chips we might eat on the weekend or beers we have at the pub? So that's a really interesting conversation that will likely frame the May budget. But more specifically with this one, I did love the $11 million for detector dogs to help our biosecurity in Australia. That was nice.

Jane Rennie:
Well that can help everyone with their happiness as they move through airports. And Gavan, what about you? Unusual or quirky items in the budget?

Gavan Ord:
I mean it might make a more friendly experience for going through the airport unless you're trafficking drugs. They might not have such a positive experience on that.

Jane Rennie:
We'll put them into losers, budget losers list.

Gavan Ord:
There's about $2 million for a seaweed project. Now this piqued my interest and I looked a bit further and it's actually a good reason for this. They want to turn this seaweed into animal feed and apparently this particular seaweed as animal feed reduces methane emissions by a significant amount. So it does have a climate change bent to it. So that was of interest to me and a bit amusing. And there's lots of other things that El spoke about, the wellness budget, and it prompted me to think about that Bhutan, the centre of the happiness index has got consular recognition in Australia, and that means their consulate doesn't have to pay GST. So that was also in the budget papers as well.

Jane Rennie:
Now looking ahead, next week, the Reserve Bank will deliver its November interest rate decision. Gavan, is this week's budget likely to have any impact on what they decide?

Gavan Ord:
No, and I think that was the intention of the government. They didn't want this budget to lead to the Reserve Bank having to put up interest rates higher than expected. Now this doesn't mean the RBA won't increase interest rates, but it just means that the federal government is not inadvertently pushing the RBA to increase interest rates. Many people would know what happened in the UK a few weeks ago where the Bank of England, their central bank, had to intervene in the markets after a very badly received mini budget in the UK.

Jane Rennie:
Just on that point, Gavan, how have Australian markets reacted to the budget announcement?

Gavan Ord:
Let's see, I've just got to go to the website now. In the morning, the markets read quite positive. At the moment, the Australian dollar's up around about 0.8% from overnight. So the markets have reacted quite well and the ASX 200 is up 0.3%. So the markets have gone, meh, that's okay. We all knew that sort of stuff, and I think that's what the government intended. So I think, if I was Jim Chalmers, I'd come away thinking, you know what? I did okay.

Jane Rennie:
And looking ahead to next year, can we expect a return of more usual budget scheduling in 2023?

Gavan Ord:
Yes, absolutely. And for those who are avid budget people like myself, set your calendar invite for the second Tuesday in May, 7:30 PM. So you can set your watch by it. It'll start again and we'll go back to the traditional May budgets.

Jane Rennie:
Well, Gavan and Elinor, thank you very much for sharing your expertise with us today. For listeners, a range of budget analysis is already available on our website with more to be added in coming days, including a special edition of CPA Tax News, multiple articles in In the Black, a budget webinar, and our budget media release issued last night. To find all our budget commentary, visit cpaaustralia.com.au and type federal budget into the search bar. That brings us to the end of today's With Interest episode. Just a reminder, With Interest is a weekly podcast. Look out for future episodes and don't forget to subscribe to CPA Australia podcasts on your favourite app.

Speaker 1:
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