7 key budget announcements and how they'll affect your finances

Treasurer Jim Chalmers is set to deliver the 2022/23 federal budget tonight.

The budget outlines the financial approach the government will take to secure Australia’s economic future. It will be released amidst a backdrop of rising inflation, global supply chain issues, military conflict between Russia and Ukraine, and a post-pandemic environment.

Despite fears of a looming global recession, there are some interesting and potentially positive announcements to be drawn from Labor’s first federal budget since 2013/14.

These are seven of the most significant revelations to emerge from the upcoming budget:

The lag on inflation is expected to drag 

Inflation will be stickier than anticipated. The federal budget will illustrate that inflation is predicted to peak at 7.75 per cent by the end of the year, reduce to 5.75 per cent by mid-2023, and fall to 3.5 per cent in mid-2024, according to the Sydney Morning Herald.

These markers are substantially higher than the previous government’s forecasts, released in March, that put inflation at 3 per cent by the middle of next year and 2.75 per cent the following year.

Chalmers said that the revised outlook took into account the impact of flooding in Victoria, concurrent interest rate hikes by the world’s central banks, the war in Ukraine, China’s covid-zero policy, and other economic constraints.

Higher inflation means higher prices and reduced borrowing power.

However, it’s not all doom and gloom…

Inflationary pressures, audit savings improve budget’s bottom line

High commodity prices and low unemployment mean that the government will receive an additional $100 billion in income tax revenue over the next four years. However, Chalmers said he understands that the extra funds are only a “temporary” boon to the government’s coffers, not to be squandered, but instead saved.

“We will take a far more responsible approach to temporary revenue upgrades than our predecessors and that’s because we understand a temporary boost to revenue from commodities goes nowhere near making up for the persistent structural spending pressures on the budget,” Chalmers told the SMH.

The Australian reports that around $33 billion will be spent on propping up pensions, repairing the National Disability Insurance Scheme (NDIS) and improving Australia’s debilitated aged care industry.

Finance Minister Katy Gallagher declared that an audit, priced into the budget, will expose almost $22 billion in savings, either as a result of ending funded programs or delaying them.

“We have gone to every single department and asked them to look at their programs to identify programs that don’t need to be done any longer or don’t align with government priorities, and where we’ve been able to return some money to the budget we’re doing that,” Gallagher told the SMH.

Nearly one third ($6.5 billion) of the audited funds has been surrendered by the infrastructure portfolio in the form of project cancellations and delays, owing to a lack of building materials and workers.

Popular tax cuts go ahead, but the door is open for future changes

Labor included the previous government's stage three tax cuts as part of the October budget. From July 2024, the 37 per cent marginal tax bracket will be abolished and the 32.5 per cent marginal tax rate will be lowered to 30 per cent.

This means that everyone earning between $45,000 and $200,000 will pay the same tax rate (30 per cent), while the threshold for the top marginal tax rate (45 per cent ) will increase to those earning $200,001 or more.

The low and middle income tax offset (LMITO) was finally phased out after being extended two years beyond its initial temporary implementation during the covid pandemic. 

However, the government may seek changes to marginal tax rates in next year's May budget.

The fuel excise is finished, but there’s a push for electric vehicle affordability

The six-month reduction in the fuel excise ended in September. This initiative provided relief of about 25 cents a litre at the bowser, according to findings published by the Australian Competition & Consumer Commission (ACCC).

Despite its success, the government won’t be extending the excise rebate.

Instead, the government will move ahead with its plan to improve the affordability and uptake of electric vehicles (EVs) and hybrid models. The proposal, laid out in the budget, suggests removing Fringe Benefits Tax (FBT) from eligible vehicles and doing away with the existing 5% customs duty.

The government expects it could make emissions-friendly models, like the Nissan Leaf, up to $9,000 cheaper for employers who run fleets, and $2,000 cheaper for some individuals, according to the ABC.

While the upfront cost of an EV may seem like a contradictory factor when you’re looking to save money, it’s worth keeping in mind that they’ve been found to be significantly cheaper to run, including fuel savings of up to 70% and maintenance savings of around 40%.

Compare competitive car loans or personal loans if you're considering buying an EV. State governments provide rebate incentives for EV purchases and green car loans may offer eligible customers lower interest rates than loans for petrol and diesel vehicles to encourage Australians to make more sustainable vehicle purchases.

Changes to childcare, paid parental leave offers greater flexibility

One of the primary initiatives in this year’s budget is making childcare cheaper. Childcare subsidy rates will increase and be made available for families earning up to $530,000 pa. Around 96% of families will be better off with the new subsidies, while the other 4% will be no worse off, according to economists at the Commonwealth Bank of Australia.

The aim is to incentivise female labour force participation and remove the disincentive for second income earners to work reduced hours.

The paid parental leave scheme, as it stands, allows the primary caregiver 18 weeks off at minimum wage. The other parent receives just two weeks leave. This will be expanded, allowing families an extra two weeks’ parental leave each year, reaching a maximum of 26 weeks by 2026/27. Additionally, leave can be split between both parents.

National Broadband network (NBN) upgrade

This year’s budget will include Labor’s election promise of a $2.4 billion equity investment in the NBN over four years.

The investment will expand full-fibre NBN access across the country, in all states and territories. Approximately 1.5 million Aussie homes and businesses will be given the option to upgrade their internet access from copper to fibre connections by 2025, improving speed and reliability.

Determining what speed you need, how to access the network when renting and selecting the right provider can improve your NBN experience. If you lose connection there are simple steps you can take to remedy the situation.

Revised economic growth figures foreshadow national slow down

Gross Domestic Product (GDP) growth in 2023-24 is forecast to be 1.5 per cent - one percentage point lower than what was announced in the March 2022 budget, according to draft figures from the Treasury. Growth for this fiscal year (2022/23) has been downgraded to 3.25 per cent, a quarter of a percentage point lower than March's forecast.

Findings from ANZ-Roy Morgan Research's latest consumer confidence report found "broad-based" contractions. amid sharp inflation and rampant interest rate rises, has burned a hole in household budgets, forcing some home loan borrowers into ‘mortgage prison’.

Earlier this month, the Reserve Bank of Australia (RBA) lifted the cash rate by 25 basis points to 2.60%. Once again, home loan lenders passed this increase on to their variable rate customers.

If you’re looking for light at the end of the rate hike tunnel, don’t fear. Experts from the big banks have put forward their calculated predictions as to when the cash rate could fall again and, in turn, decrease home loan interest rates.

According to the latest forecasting models from the big four banks, the cash rate may move as follows:

• CBA: 2.85% by November 2022, then dropping to 2.35% by November 2023
• Westpac: 3.60% by March 2023, then dropping to 2.60% in 2024
• NAB: 3.10% by December 2022, staying steady into 2023-24
• ANZ: 3.35% by November 2022, then dropping to 2.85% in late 2024

Given that the cash rate is arguably the biggest ongoing cost that can influence a home loan, preparing your budget for a rate rise may be useful in reducing potential financial stress. Find out what other actions you can take to give your budget some breathing room and better afford higher mortgage repayments.

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