pexels-tiff-ng-2097616

Understanding the Impact of the 2023-24 Federal Budget on Your Finances

As your trusted financial advisors, Talem Wealth is committed to staying up-to-date and informed of the latest developments and how they might affect you.

In this overview, we’ll highlight some of the key elements of the 2023-24 federal budget that may impact our clients’ wealth strategies.

Feel free to reach out for further clarification.

Key points:

  • The temporary 50% reduction in minimum annual payment amounts for superannuation pensions is set to end on 30 June 2023. This means that superannuation trustees and members will need to start planning for the additional cash flow requirements to satisfy the minimum annual payment amounts for 2023-24 in relation to account-based, allocated and market-linked pensions.

  • Transfer Balance Cap Indexation is expected to increase the general transfer balance cap from $1.6 million to $1.9 million from 1 July 2023, allowing more money to be held in the tax free pension environment.

  • No changes were announced to the Stage 3 personal income tax cuts legislated to commence in 2024-25.

  • The introduction of payday super, effective from 1 July 2026, will require employers to make super contributions on the same day as they pay their employees’ salary and wages.

  • The government is reducing super tax concessions for people whose total balance exceeds $3 million, bringing the headline tax rate to 30%.

  • An initiative to exempt eligible lump sum payments, such as compensation for underpaid wages, from the Medicare Levy for low-income earners will come into effect from 1 July 2024.

 

Pension Drawdowns: Planning for Increased Cash Flow Requirements

The budget did not announce any further extension of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities. 

As a result, the 50% reduction in the minimum pension drawdowns, which has applied for the 2019-20 to 2022-23 income years, is set to end on 30 June 2023. 

This means that superannuation trustees and members will need to start planning for the additional cash flow requirements to satisfy the minimum annual payment amounts for 2023-24 in relation to account-based, allocated and market-linked pensions.

 

Transfer Balance Cap Indexation

The Transfer Balance Cap Indexation refers to the scheduled increase in the general transfer balance cap from $1.6 million to $1.7 million from 1 July 2021, followed by a further increase to $1.9 million from 1 July 2023. 

While there were concerns that the government might move to pause or limit indexation, the 2023-24 budget was silent on any changes to the indexation of the general transfer balance cap. Therefore, we can expect the cap to increase to $1.9 million from 1 July 2023 as scheduled.

 

Income Tax: Stage 3 Tax Cuts to Come Next July

No changes were announced to the Stage 3 personal income tax cuts legislated to commence in 2024-25. These tax cuts are the final phase of the former coalition government’s plan to reform Australia’s taxation system. The stage three tax cuts will benefit all Australian workers who earn between $18,000 and $200,000 in some capacity.

Currently, the stage three tax cuts are scheduled to be implemented in the 2024-25 financial year. The tax cuts will provide significant relief to Australians by increasing their take-home pay by more than $9000 annually. However, critics have called for the abolition or amendment of these tax cuts, citing concerns about their impact on the government’s revenue and fairness in the taxation system.

Under the current taxation system, people earning up to $18,000 do not pay any tax. Those earning between $18,001 and $45,000 pay a tax rate of 19 percent. Workers earning between $45,001 and $120,000 pay a tax rate of 32.5 percent. Those earning between $120,001 and $180,000 pay a tax rate of 37 percent, and anyone earning $180,001 or more pays a tax rate of 45 percent. The stage three tax cuts will result in lower tax rates for all income brackets, providing relief to many Australian workers.

 

Superannuation Concessions: Payday Super and Tax on Balances over $3 Million

The government proposed a range of superannuation concessions that will benefit lower-paid workers and those in casual and insecure work. The introduction of payday super, effective from 1 July 2026, will require employers to make super contributions on the same day as they pay their employees’ salary and wages. This is estimated to increase the retirement savings of a 25-year-old median wage earner by $6,000. 

The government is also reducing super tax concessions for people whose total balance exceeds $3 million, bringing the headline tax rate to 30% (up from 15%). The higher tax rate is only payable on earnings corresponding to the proportion of a person’s super that is greater than $3 million.

 

Medicare Levy

The Medicare Levy is a levy paid by Australian taxpayers to help fund the public healthcare system. The 2023-24 budget included several changes to the Medicare Levy thresholds to provide relief to low-income earners and seniors. 

For single seniors and pensioners eligible for the SAPTO, the Medicare Levy low-income threshold will increase to $38,365 from $36,925 for the 2021-22 financial year. The family threshold for seniors and pensioners will also increase to $53,406 from $51,401, plus $3,760 for each dependent child or student.

 

Exempting Lump Sums in Arrears from the Medicare Levy

The 2023-24 budget included an initiative to exempt eligible lump sum payments, such as compensation for underpaid wages, from the Medicare Levy for low-income earners. This initiative, which will come into effect from 1 July 2024, will ensure that low-income earners who receive lump sum payments are not subject to a higher Medicare Levy. 

However, the impact of this initiative is expected to be minimal, as the cost to the budget is only $2 million over the next five years. Nevertheless, it will provide some relief to those who receive lump sum payments and are currently subject to a higher Medicare Levy.

 

Cost-of-Living Relief Measures: Energy, Health, and Housing

The 2023-24 federal budget includes $14.6 billion of what the government calls “targeted relief” for Australians who are struggling with the rising cost of living. The government is co-funding up to $3 billion of direct energy bill relief to vulnerable households and small businesses. More than 5 million households are expected to benefit from this measure. The government will also invest $2.3 billion in a new Medicare Benefits Schedule (MBS) list, which includes new items such as telehealth consultations, mental health services, and diagnostic imaging tests.

Additionally, the budget includes a $1 billion package for affordable housing, which includes the construction of new social and affordable housing units, as well as support for first-home buyers. The government aims to increase the supply of affordable housing and reduce homelessness.

 

We’re here to help

Talem Wealth understands the importance of managing household budgets and ensuring that individuals and families have access to the support they need to manage their finances. The cost-of-living relief measures announced in the 2023-24 federal budget will help many Australians in this regard.

Our advice is to take advantage of these measures where possible and to seek professional financial advice to ensure you are making the most of opportunities. We are always available to assist, support and inform.

the exit blueprint

The complete guide to getting clear on what you want from your money, where to start and how to exit earlier and on your terms.

Contact Info

100 Walker Street
North Sydney, NSW, 2060
Phone: 02 9906 1125
Email: enquiries@talemwealth.com.au

Talem Wealth
ABN 89 074 122 428

Talem Wealth is an Authorised Representative of Walker Lane Pty Ltd.
ABN 706 2619 9826
AFSL #509305

Let's Connect