With the Federal Budget being released next week we have once again gazed into our crystal ball to compile our predictions for this year’s Budget.

The Government has flagged that this Budget will deliver relief from cost-of-living pressures against a backdrop of sticky inflation and higher interest rates. We believe that the Government will take the opportunity to focus their attention on the concerns of generation next (voter), the Millennials and Generation Z.

Unfortunately, our tea leaves still do not indicate that there will be any substantial reform of the tax system, which is overly reliant on income taxes. Nor do we envisage any (long overdue) reform of the Goods and Services Tax. However, we do anticipate that there will be targeted incentives for businesses in certain sectors.

Stage 3 Tax Cuts

The Government will be sure to trumpet the relief they are providing taxpayers in the form of the Stage 3 tax cuts. Whilst Dr Chalmers and Mr Albanese had promised not to touch the Stage 3 tax cuts that were legislated by the previous government, they had an itch that needed scratching, so the tax cuts were pared back for higher income earners. Of course, we couldn’t let this go without saying “I told you so” in our last set of Budget predictions (and also the one before that…)!

Generation next voter

We anticipate that the Government will target younger voters (sorry, taxpayers) with measures designed to bring some balance to the perceived generational wealth divide. Given the apparent voter acceptance of the $3 million superannuation balance cap, we are concerned that similarly “high wealth” targeted policies may see the light of day. We have expanded on potential measures below.

Student debt relief

The Government has already released plans to limit the growing cost of HELP (previously HECS) to the younger generations by changing the way that student debts are indexed each year. The Government states that for a graduate with a debt of $27,500 would be $1,200 better off under their changes. This change will be implemented to recalculate the indexation that occurred in June 2023, effectively reducing current debts.

Limits to negative gearing

Despite reports that Dr Chalmers has ruled out changes to negative gearing in this year’s budget, we foresee in the future that the Government could limit negative gearing deductions for high income earners. One way of doing this would be to expand the “non-commercial loss” rules to include losses on residential rental properties. These rules apply to taxpayers with incomes of at least $250,000 from deducting losses from business activities against their other income. The losses from such activities may only be claimed against similar types of income. It would be relatively easy to expand the application of these rules to also apply to rental properties.

Changes to the Main Residence CGT Exemption?

Whilst the family home has historically been off limits for tax, a policy that seeks to tax that portion of a gain on a main residence which value exceeds a certain threshold, say $5 million or $7 million, may be tempting. This would sit comfortably alongside any rhetoric that Baby Boomers have disproportionately benefited from a rise in house prices at the expense of generation next.

CGT discount?

As always, the CGT discount remains in the sights of the Treasury. It’s possible that the Government could reduce the discount to, say, 33% instead of the present 50%.

Targeted business incentives

We expect this Budget will contain incentives for businesses in specific sectors that align with the Government’s “made in Australia” and green energy mantras.

Contact Pilot

If you would like to discuss any of this in more detail, please contact Murray Howlett, Tom Howard or your Pilot advisor on (07) 3023 1300.