On Tuesday evening at 7:30 PM Eastern Time in Australia, Federal Treasurer Jim Chalmers announced the analysis of the 2023-2024 Federal Budget.
The government has stated that they will allocate around AUD 15 billion in subsidies over the next four years to alleviate the cost-of-living pressures for the Australian population. Specific measures include expanding childcare subsidies, increasing unemployment benefits (Jobseeker), and providing electricity bill subsidies.
Energy costs
To address the issue of energy bill burdens for 5 million Australian residents and 1 million small businesses, the Australian federal government will provide energy bill relief starting from July 1, 2023. Eligible households and small businesses will receive a reduction of $500 and $650 respectively on their energy bills. Additionally, the government will directly intervene in the energy supply side by implementing restrictions on retail contract prices for natural gas and the price of coal used for power generation, aiming to reduce electricity costs for households and businesses.
The advantages of this measure are twofold. Firstly, it allows for a reduction in retail and wholesale energy prices, which helps alleviate the current high inflation rates (as energy prices are a significant component of inflation). Secondly, it is anticipated that this action will contribute to a decrease of 0.75% in the inflation rate for the 2023-2024 fiscal year.
Medical subsidies
A funding of AUD 3.5 billion has been allocated for full reimbursement of Medicare over the next five years, allowing 11.6 million Australian residents, including children under the age of 16, retirees, and concession card holders, to access free consultations with general practitioners (GPs).
The budget also includes approximately AUD 360 million for strengthening existing emergency care resources and establishing eight new emergency clinics. Starting from September of this year, patients with chronic illnesses will receive increased medication doses, allowing them to receive up to two months’ supply at a time. This will effectively reduce patients’ consultation costs, with an annual savings of up to AUD 180 for regular patients.
Furthermore, pharmacies located in remote areas will receive a funding subsidy of nearly AUD 80 million over the next four years. This funding will ensure the smooth operation of pharmacies in remote regions, and pharmacists working in these areas will also receive subsidies to support the implementation of the National Immunisation Program in Australia. The program’s expenditure is estimated to be approximately AUD 115 million over the next four years.
Health and Disability Insurance
Government to Spend AUD 234 Million to Combat E-cigarettes, with AUD 63 Million Allocated for Awareness Campaigns to Prevent Smoking and Vaping.
The growth rate of the National Disability Insurance Scheme will be reduced from the current 13.8% to 8% by July 2026. The budget will also include a funding of AUD 720 million to increase staff and implement reforms necessary for cost reduction. The government aims to save over AUD 60 billion over the course of 10 years.
Subsidy for Impoverished Families
Extension of Single Parent Family Allowance to Children Up to the Age of 14: The eligibility age for receiving the Single Parent Family Allowance will be extended to include children up to the age of 14, bringing positive news for single-parent households. Currently, the maximum age limit for receiving the allowance is 8 years old.
Increase in JobSeeker Allowance for Long-Term Unemployed Individuals (Aged 55 and above): The budget will prioritize long-term unemployed individuals aged 55 and above by planning to increase the JobSeeker allowance by AUD 50 per day. This measure aims to assist these individuals in reentering the job market.
Allocation for Social and Economic Inclusion Programs: A funding of nearly AUD 11 million will be allocated in this budget to promote projects fostering the participation of youth, disabled individuals, those with mental health issues, disadvantaged women, and unemployed individuals in society and the economy. These measures aim to provide these groups with more opportunities, improve their quality of life, and enhance their social integration.
Childcare Allowance
Starting from July this year, a program called “Cheaper Child Care” will save childcare costs for 1.2 million Australian families. This program not only aims to make childcare more affordable but also assists the primary caregivers of these children in rejoining the workforce and re-engaging in the labor force. To achieve this objective, the federal government will invest AUD 7.24 billion in the recruitment and training of early childhood educators, including providing support for some teachers to complete undergraduate and postgraduate degrees in early childhood education.
Expenditure on childcare allowances will increase by AUD 1.4 billion or 12.35%. With the additional funding allocated for the 2026-27 financial year, the government’s total expenditure on childcare allowances over the four-year period will amount to AUD 55.31 billion.
Defense and Armaments / National Debt
Soldiers, sailors, and pilots will receive a subsidy of AUD 50,000 as an effort to encourage them to serve an additional three years in the defense forces, addressing Australia’s recruitment and retention crisis.
To save AUD 7.8 billion in expenditure, over 30 defense projects will be reduced, delayed, or canceled, in order to prioritize an investment of AUD 19 billion in defense over the next four years, responding to the escalating external threats faced by Australia.
Since the budget last October, estimated interest expenses on federal debt over the next four years have been reduced by AUD 10 billion. However, it remains one of the fastest-growing areas of government expenditure, second only to the National Disability Insurance Scheme.
The total interest expenses for this fiscal year and the next three years will amount to AUD 85.8 billion, and for this fiscal year and the next four years, it will amount to AUD 111.8 billion.
Taxation / Retirement Pension
Currently, the Petroleum Resource Rent Tax generates an annual revenue of AUD 2 billion for the federal government, applicable to oil and gas projects in the offshore federal waters. Chalmers is considering a review of this tax by the Treasury Department. However, it is expected that the third stage of personal income tax cuts will not be affected. The Labor Party has faced pressure to repeal these tax cuts as they are projected to cost over AUD 20 billion annually starting from July 1st next year.
From 2025 onwards, the Labor Party plans to impose a 30% tax on income generated from retirement pension balances exceeding AUD 3 million, an increase from the previous 15%.
Companies will be required to make contributions to workers’ retirement pensions on each payday, with the new regulations set to take effect from July 1st, 2026.
Indigenous / Cultural Resources
Some specific measures of the above budget will be supported through government funding to promote the development of cultural education, collecting institutions, scientific research, and other areas. In relation to Indigenous issues, the government will provide funding support for relevant educational projects aimed at enhancing public awareness and understanding of the Constitution and history.
Furthermore, major cultural collecting institutions in Australia will receive AUD 535 million in support to bolster their exhibition and research activities. The Australian Institute of Marine Science will also receive AUD 163 million in support to continue its marine scientific research.
Government Consultation / Privacy Protection
The budget is expected to strengthen measures against fraud, including allocating AUD 10 million for the long-awaited implementation of the Sender Identification Registration system. This system will prevent cybercriminals from sending fraudulent text messages impersonating organizations such as the Australian Taxation Office, myGov, and Australia Post.
Additionally, the budget will provide extra funding for privacy enforcement and announce the appointment of a new Privacy Commissioner.
To combat waste and inefficiency in projects, the Treasury will establish a new evaluation department, investing AUD 10 million over the next four years, with an estimated savings of up to AUD 200 million in consultation costs for the government.
Environmental Health
The budget will allocate AUD 262.3 million for national parks, while the national emergency alert system will send alerts to mobile users who are about to be affected by natural disasters. Additionally, the Labor Party has pledged to allocate AUD 10 million to establish an emergency response team.
Housing Subsidies
The current budget proposal addresses Australia’s housing supply crisis and long-term high housing prices and rents. The measures include:
- Providing an additional $2.7 billion over the next five years for rental subsidies to low- and middle-income households, representing a 15% increase compared to previous levels. Approximately 11 million households are expected to benefit from this policy, marking the largest increase in rental subsidies in 30 years.
- Building one million affordable housing units by 2024. Additionally, by reducing the withholding tax rate from 30% to 15%, the government aims to encourage real estate investment trusts and other funds to invest in the rental market, thereby increasing the supply of rental housing. It is projected that tax incentives will result in the construction of 150,000 additional homes over the next decade.
- Relaxing some rigid requirements for first-time homebuyers. For instance, the previous requirement that applicants must be in a spousal or de facto relationship has been expanded to include “any two people.” Furthermore, the HomeBuilder Grant Scheme (HGS) has been broadened to include a wider range of applicants, such as individuals who have not owned property in Australia in the past ten years.
Immigration Reform in Australia
The Australian government plans to significantly increase the quota for skilled migration, allocating the 2023-2024 fiscal year quota to skilled migrants and providing a temporary visa of up to 2 years for graduates in specific professions. To ensure the attraction of high-quality talent, the minimum salary for corresponding positions must not be lower than AUD 70,000, and equal opportunities for overseas and local talent will be ensured. Additionally, to fill hundreds of thousands of job vacancies, the government will offer free employment skill assessments and job training services to onshore skilled migration applicants, aiming to retain local talent in Australia.
The government expects a basic cash surplus of AUD 4.2 billion in the current fiscal year, marking the first surplus in nearly 15 years. However, Treasurer Jim Chalmers downplayed the prospects of a consecutive second budget surplus. The budget bottom line indicates that interest payments over the next four years are nearly AUD 10 billion lower than estimated six months ago, with debt not expected to exceed AUD 1 trillion in the next two years. The government plans to allocate around AUD 15 billion to alleviate cost-of-living pressures, including expanding childcare subsidies, increasing Jobseeker payments, and providing electricity bill assistance. These expenditures have been carefully calibrated to strike a balance between investment in economic supply and considerations of inflation.
Major rating agency S&P Global Ratings views the improvement in the budget bottom line positively, but warns that budget allocations may add to inflationary pressures. It is expected that inflation rates will remain above the Reserve Bank of Australia’s target until the 2026 fiscal year. However, deficits at both the state and federal government levels will remain small compared to gross domestic product. The Australian economy and finances are influenced by fluctuations in commodity prices, ongoing expenditure pressures in social security, welfare, health, defense, and the rising interest bill. David Bassanese, Chief Economist at Betashares, states, “Treasurer Jim Chalmers’ second Labor budget spends a lot, with GDP growth expected to be around 1.5% over the next two years. This increases the risk of the Reserve Bank of Australia raising interest rates, with at least one, and possibly two, rate hikes in the coming months.”
Therefore, the precise targeting of welfare and subsidies in this fiscal budget alleviates pressure on residents while mitigating inflation risks, posing a true challenge for the Labor government.
However, for the majority of Australian residents, nearly everyone is a beneficiary in this fiscal budget.