Federal Budget 2021/22

It’s hard to reconcile this Treasurer (who once said his heroes were Margaret Thatcher and Ronald Reagan) with this Federal Budget which would make any ‘Keynesian’ proud - but in a pandemic, ideology goes out the window.

This Federal Budget ticks the boxes and fills the gaps in Government policy that were achingly obvious from the ‘hard-hat’ 2020/21 Budget (was that really only six months ago?).

These include:

  • Stimulus that is directed at improving employment for women
  • A positive response to some issues raised by the Royal Commission into Aged Care Quality and Safety
  • Additional funding to the health sector to support mental health
  • A projected unemployment rate of less than 5%.

On the superannuation side there is a definite feel of a Budget that aims to clean up some out-of-date rules and restrictions that no longer have a place in super and retirement:

  • The minimum monthly income threshold of $450 before super guarantee contributions are payable by employers will be abolished. The Retirement Income Review acknowledged that there was universal support for removing this threshold across all sectors of the industry. It unfairly penalises low income workers (63% of whom are women) and its original purpose of creating employer administrative efficiency is no longer relevant given SuperStream and Single Touch Payroll exist.
  • The work test to make non-concessional contributions by those aged 67 to 74 will be abolished. Some sort of work test will be required to claim a tax deduction for personal contributions over age 67. This is a sensible move that will fix some of the more convoluted rules in super. Removing the work test is relatively easy by making a change to a super regulation. Any tax changes, which we think there will be, will need to be passed through Parliament.
  • The age for making downsizer contributions will be reduced to age 60. This is to encourage empty nesters to sell their houses earlier, to increase housing stock for families. The advantage of downsizer contributions is that they are not counted under the non-concessional contributions cap, so a couple can sell their four bedroom Californian bungalow in an inner city suburb and make a downsizer contribution of $300,000 each into super plus make personal contributions under the non-concessional contributions cap.
  • Self-managed super funds (SMSFs) and small APRA funds (SAFs) will finally get a break. SMSFs and SAFs with old complying pensions (including term allocated or market-linked pensions) will be able to exit these. For some SMSFs the cost of running these pensions (such as actuarial costs) has been more than the actual pension they receive. This will also extend to APRA funds with old complying pensions. Additionally, the residency rules for SMSFs will be relaxed so that members can be non-residents for five years before this will affect the SMSF. Again, these are sensible changes that are fixing up old rules that have been a ‘bugbear’ for clients and their financial advisers.

It is also important to take note of super issues NOT addressed in the Budget:

  • Despite an earlier push from the Coalition backbench, the super guarantee will increase to 10% from 1 July 2021.
  • With financial markets bouncing back over the last year, the account-based pension minimums will return to normal from 1 July 2021.

What was good to see was the reappearance of ‘The Women’s Budget Statement’ with substance (we assume thanks goes to Senator Hume, perhaps?). Many new policies have already been released. We’re happy that the Government is finally recognising that money into child care allowing women to return to the workforce more easily, will help to kick-start economic recovery.

We’re very pleased to see ‘The Women’s Budget Statement’ addresses measures to improve the problem of financial abuse towards women and the importance of developing financial literacy programs to counter it. There is no doubt more can and should be done in this area of financial literacy to empower women. It is disappointing that the retirement savings gender gap has not been addressed by this Budget, particularly as the rates of poverty for older women is an ongoing and significant problem.

It’s good to see the Government is getting back to its knitting with aged care. While the findings of the Royal Commission into Aged Care Quality and Safety would have been hard to digest, it’s good to see 80,000 new aged care packages and overall improvement in funding.

Finally, and one of our favourite measures from the Budget, is that the Government will provide tax support to craft brewers and distillers by aligning the excise refund scheme with the wine equalisation tax producer rebate, supporting local businesses.

Download the full analysis of the Federal Budget 2021/22 from the IOOF TechConnect Team.

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Federal Budget 2021/22

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