Poppy Johnston
(Australian Associated Press)

The federal budget is likely to remain in the red for at least four years despite a $50 billion turnaround in the government’s bottom line.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher handed down the final budget outcome for 2021/22 on Wednesday, posting an underlying deficit of $32 billion.

This was about $50 billion less than the $79.8 billion deficit originally forecast for the year, with the government’s finances expected to be in much worse shape due to COVID-19 support spending.

Dr Chalmers welcomed the improvements in the budget bottom line but said the favourable conditions wouldn’t last.

“Australia faces more substantial pressures that will have an ongoing impact on our fiscal position including higher costs of servicing government debt, increased spending on government payments from higher indexation, and underlying spending growth in areas such as NDIS, health, aged care and defence,” he said.

Senator Gallagher also said there was some delayed spending last year that would need to be addressed.

As such, the treasurer said his October 25 budget for the 2022/23 year was unlikely to contain a surplus forecast.

“In October, I would encourage people not to anticipate a surplus budget even in the out years,” he said.

“The situation is more difficult than that, and I think Australians understand that given the fiscal and budget circumstances that we’ve inherited, it will take much more than one budget to turn that around,”

AMP economist Shane Oliver agreed the budget would take time to recover, in part because commodity prices were likely to drop and an economic slowdown would likely boost unemployment.

He also said the government would need to cover higher spending in the areas it had specified and expectations of lower long-term productivity growth could drag on government revenue.

“So the October budget is likely to project ongoing deficits in the years ahead, albeit they may be a bit lower than projected in March,” Dr Oliver said.

The $32 billion deficit follows a $134.2 billion shortfall in 2020/21, and an $85.3 billion deficit in 2019/20.

The budget took in $27.7 billion more than expected due to strong commodity prices and more income tax due to low unemployment.

Outgoings were also $20.1 billion lower than predicted.

“This was due to delays in the contracting of COVID spending, temporarily lower-than-expected demand for some health and NDIS services, and the impact of supply chain disruptions and capacity constraints on road and rail infrastructure projects and other spending,” the budget outcome papers said.

Take-up of COVID-19 business support was also lower than anticipated.

Shadow treasurer Angus Taylor said the improvement in the budget bottom line was well diversified and not just about high commodity prices.

Mr Taylor pointed to high employment – leading to more income tax and fewer welfare payments – as well as healthy business performance despite workforce challenges.

“Labor has inherited an extremely strong position,” he told reporters.

He also said the government was playing down the $48 billion reduction in debt.

“Perhaps he’s just buttering up the Australian people for more taxes. For a big spending budget he needs to tax people more,” he said.

Mr Taylor said a higher level of spending would fuel inflation.

Dr Chalmers said the budget would contain restrained cost-of-living measures that would not add to inflationary pressures.

“(The government) is providing responsible cost of living relief in a way that delivers an economic dividend and doesn’t force the Reserve Bank’s hand even more,” he said in parliament.

Dominic Giannini and Poppy Johnston
(Australian Associated Press)

With a recession looming and rate hikes hurting hip pockets, a fight over tax cuts is escalating as Labor prepares to deliver its first budget in almost a decade.

Government ministers have consistently stood by legislated stage-three tax cuts, which will largely benefit high-income earners.

But there is now speculation the government is considering changes to the tax plan amid worsening economic circumstances.

Finance Minister Katy Gallagher said the government hadn’t changed its policy but did not deny that a shift was being discussed.

“We haven’t changed our position on stage three but we are being up-front about some of the challenges facing the budget,” she told ABC Radio.

“Let’s not pretend the economic circumstances aren’t changing and haven’t changed since May.”

The stage-three cuts will flatten the marginal tax rate to 30 per cent for people earning between $45,000 and $200,000 from July 2024.

In doing so, the existing tax bracket for those earning $120,000 to $180,000 will be removed while the top tax threshold will also be lifted.

Opposition Leader Peter Dutton said the government was trying to ditch the stage three tax cuts and that Labor MPs were split over the proposal.

“The government promised a plan before the election which included these tax cuts,” he said.

Greens leader Adam Bandt said Australia needed to learn a lesson from the UK prime minister backing down from proposed tax cuts for the nation’s top earners.

Mr Dutton said the stage three tax cuts were not comparable to the UK’s since-abandoned plans.

“In the UK, they were abolishing the top marginal tax rate for people on incomes of over $260,000 Australian – that’s not what is being proposed here,” Mr Dutton said.

Independent economist Chris Richardson says the impact of the stage three tax cuts on fairness is overblown, but warns they will be too expensive.

He said the final stage of the three-pronged plan was adopted because Australia is more reliant on income tax than other wealthy nations and it has a high 45 per cent top tax rate that kicks in at a relatively low level of $180,000 a year.

Mr Richardson said the tax changes would make little difference to the proportions of tax paid by higher income earners.

“Although stage three does benefit the top 10 per cent, it actually delivers tax cuts to the top 78 per cent of taxpayers,” he wrote on Twitter.

However, he said they were too expensive and there was a case for trimming the tax cuts.

The Australia Institute’s senior economist Matt Grudnoff said it was true the top 78 per cent of taxpayers would benefit from the stage three tax cut but higher income earners would enjoy a much bigger tax break.

He said the top 20 per cent of taxpayers would get 75 per cent of the benefit if the cuts go ahead.

Mr Grudnoff also told AAP that Australia pays relatively low levels of income tax compared to other rich nations when social security contributions, used in other countries to fund welfare supports, are factored in.

Social security contributions are effectively a form of income tax and when included, he said Australia falls in the bottom third of the OECD when it comes to personal income tax reliance.

Poppy Johnston
(Australian Associated Press)

Government finances are in better shape than expected despite massive spending during the pandemic to support households and businesses.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher handed down the final budget outcome for 20201/22 on Wednesday, posting an underlying deficit of $32 billion.

This was about $50b less than the $79.8b deficit originally forecast for the year and followed a $134.2 shortfall in 2020/21.

In 2019/20, the deficit was $85.3b.

The government brought in $27.7b more than expected due to strong commodity prices and more income tax due to low unemployment.

Outgoings were also $20.1b lower than predicted.

“This was due to delays in the contracting of COVID spending, temporarily lower-than-expected demand for some health and NDIS services, and the impact of supply chain disruptions and capacity constraints on road and rail infrastructure projects and other spending,” the budget outcome papers said.

Take up of COVID business support was also lower than anticipated.

Dr Chalmers welcomed the improvements in the budget bottom line, but said the favourable conditions wouldn’t last.

“Australia faces more substantial pressures that will have an ongoing impact on our fiscal position including higher costs of servicing government debt, increased spending on government payments from higher indexation, and underlying spending growth in areas such as NDIS, health, aged care and defence,” he said.

As such, his first budget on October 25 will stick to the basics with some limited cost of living relief.

“The 2022/23 October budget will lay the foundations for the better future that Australians deserve – providing responsible cost-of-living relief, investing in the potential of our people and capacity of our economy, and beginning the hard task of longer term budget repair,” he said.

Opposition Leader Peter Dutton said the government should use the budget to outline a plan to address cost of living pain felt by households.

“If they can’t come up with a plan, Australians will suffer,” he said.

He said Australia’s economy was resilient to economic headwinds on the global stage.

“We can avoid recession here because of the strength of the budget presided over by the coalition over nine years,” Mr Dutton said.

Maeve Bannister
(Australian Associated Press)

More than 4.7 million Australians struggling to cope with cost of living pressures are in line for a helping hand.

An indexation increase on September 20 will be the largest rise for welfare payments in more than 30 years and the biggest for pensions in 12 years, Social Services Minister Amanda Rishworth says.

“This government knows that pensioners and those on social security payments are facing cost of living pressures,” she told parliament on Monday.

“That’s why it’s so important … we give them every little bit of help we can.”

The Age Pension, Disability Support Pension and Carer Payment will all rise $38.90 a fortnight for singles and $58.80 a fortnight for couples.

The maximum rate of pension will increase to $1026.50 a fortnight for singles and $773.80 for each member of a pensioner couple or $1547.60 per couple.

The raise was driven by inflation increases which exceeded the increase in the Pensioner and Beneficiary Living Cost Index.

People on the aged, veterans and disability pensions will also be able to earn extra income without losing their benefits.

In response to growing labour shortages, the government last week announced people eligible for the pension will be able to earn an extra $4000 a year without penalty as an outcome of last week’s jobs and skills summit.

The measure is designed to give people on the pension the option to work if they want and to keep more of their income, Veterans Minister Matt Keogh said.

“We are committed to delivering a package of practical support measures that will improve the welfare and wellbeing of veterans and families building on the services already available,” he told parliament.

Meanwhile, a review of the JobSeeker payment would take place in May next year, Home Affairs Minister Clare O’Neil said.

“Australians are going to be significantly better off as a consequence of this, but there’s a lot more work to do and that’s why we’re here in Canberra,” she told the ABC.

“We’re trying to bring the political parties and groups of Australians together so we can try to move some of the big issues in our country forward and certainly that issue around JobSeeker payments is one of them.”

Former Nationals leader Barnaby Joyce said with the end of the fuel excise discount at the end of the month, cost of living pressures are set to increase.

“Real pressures are going on people and unless you want them in poverty, they need to be supported,” he told Seven on Monday.

Recipients of JobSeeker, Parenting Payment, ABSTUDY and Rent Assistance will also get a top-up.

JobSeeker for singles without children will increase $25.70 a fortnight to $677.20, while Parenting Payment Single will rise $35.20 a fortnight to $927.40.

The rate for partnered JobSeeker Payment and Parenting Payment recipients will increase $23.40 a fortnight to $616.60.

Flagging the move in July, Treasurer Jim Chalmers said the government understood pensioners were doing it “incredibly tough when it comes to their costs of essentials like groceries, electricity and petrol and in other parts of the household budget”.

(Feedsy Exclusive)

No one can blame you if, during your 20s and 30s, you didn’t really think much about retirement. If you’ve been putting away a reasonable fixed amount (about 10% of your monthly salary) toward your savings since you first started working, it’s highly possible you’re set for life.

But if you haven’t been saving regularly, and you want to maintain your present standard of living well into retirement, you’ll probably need to save more than half of your annual income.

Of course, the amount you’ll have to save also depends on how old you are now and how early (or late) you plan to retire. If you want to live a comfortable life, you also have to factor in your criteria for what living a comfortable life is all about.

In case you’re feeling a little lost and want to know the average cost of retirement per month, then this article can help.

The Retirement Standard According to ASFA

The Association of Superannuation Funds of Australia (ASFA) invests a ton of resources in keeping track of retirement expenses and providing estimates on the cost of retirement in Australia.

Each year, ASFA releases budgets for seniors who may be single or living as a couple, providing approximations on how much money they’ll need to maintain a modest or comfortable standard of living. The document called the Retirement Standard is a terrific resource if you want to get a fair idea of how much money you should be saving for retirement.

The Standard presents three broad lifestyle categories: a comfortable retirement, a modest retirement, and a retirement completely supported by the Age Pension.

• Comfortable: A comfortable retirement entails having enough money to cover healthcare, house repairs, local holidays, occasional trips abroad, a good-quality car, regular leisure and lifestyle activities, as well as a few other luxuries that go into daily living. Maintaining a comfortable lifestyle is predicted to cost about $65,445 per year for couples between the ages of 65 and 85. A single person might need a budget of $46,494 annually to maintain the same standard of living.
• Modest: Cutbacks in many living expenses are necessary for a modest retirement. However, this lifestyle still allows for the purchase of a car and participation in plenty of leisure activities that probably won’t include overseas holidays. A modest lifestyle could cost about $42,621 per year for couples between the ages of 65 and 85. For a single person, a $29,632 annual budget may be enough to cover expenses.
• Age Pension-dependent: Retirement supported by the Age Pension typically entails a conservative way of life as you’ll be living on a limited budget. This means the majority of spending would be restricted to necessities. For couples, their combined Age Pension will provide around $35,000 per annum. For individuals, the amount would be approximately $23,000. Note that your Age Pension will vary depending on your income and assets. Since this amount falls short of even the moderate threshold for retirement, there wouldn’t be money to spare for luxuries or non-essential items.

While these ASFA estimates are based on data-based projections, they don’t consider the average monthly cost of retirement homes in the distant future, that is, in case you don’t see yourself living in your own home.

However, the above figures can serve as a guide as you try to build up your retirement fund. And to ensure you cope well with the cost of retirement in the future, it’s best to start saving today.

If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.