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Following the 21 May 2022 Federal election, the 2022-23 Federal Budget has outlined the new Federal Government's priorities for the coming term.

From personal tax to banking, superannuation, infrastructure, health, defence, climate change, and more, the Federal Budget has implications for every corner of the Australian economy and impacts our status on the global stage.

KPMG’s team of experts provide a full analysis following the Federal Budget announcement outlining insights and implications for various sectors and businesses. Our analysis is aimed at helping you prepare for any implications that may affect your business.


Select a topic below to view KPMG's analysis

Federal Budget - At a glance

This Budget predicts an improved fiscal position for the current year, but the Treasurer has highlighted the fiscal challenges that remain for the government.

The underlying cash balance for 2022-23 is forecast to improve by $42 billion compared to the pre-election forecast (PEFO). The government expects that this figure will also improve by $12 billion for 2023-24 compared to PEFO, but thereafter the position is less favourable.

Budget deficits appear set to continue through to 2032-33, but from 2024-25 are not expected to exceed 2 percent of GDP.

Unsurprisingly therefore, the Budget includes certain revenue raising measures.

There is more detail about the election proposals to limit tax deductions for multinational enterprises and increase tax transparency. The Budget also provides additional funding to the ATO for compliance activity on personal tax, business tax and the shadow economy.

We are pleased that the fiscal position has not deterred the government from investing in measures which can support gender equity, such as the expansion of paid parental leave to 26 weeks and a commitment to introducing gender responsive budgeting.

In addition, the proposed Housing Accord with the state and territory governments, investors and industry have the potential to drive much-needed improvement in the supply of affordable and social housing.

A new feature of this Budget is the chapter entitled Measuring what matters, which sets out the government's aspirations for tracking Australia's development in areas such as educational attainment, health outcomes and reduction in inequality.

Managing the consequences of climate change is a central feature of this fresh look at how the government will evaluate and explain policy.

The government has committed to releasing a further statement on this theme in 2023. We await with interest the development of the policy detail that will back up this welcome initiative.

Short-term improvements do not mask the fiscal challenge facing the government. This Budget acknowledges the structural factors that will continue to lead to deficits unless fiscal action is taken. 

Key contacts

Andrew Yates
Andrew Yates Chief Executive Officer
David Heathcote
David Heathcote National Managing Partner, Deals, Tax & Legal

To find out more, please contact KPMG.

Australia is facing more traditional economic challenges in a post-pandemic world. The new government has to negotiate the tricky path of delivering on election promises without stoking inflation or materially worsening the fiscal position. Unsurprisingly this budget only achieves one of these targets.

Treasurer Chalmers has revealed an improvement in the forecast Budget deficit of nearly $42.7 billion over the forward estimates, noting that much of the heavy lifting in this bottom-line improvement has come from positive adjustments in assumptions associated with government tax receipts.

Even with this uplift in forecast revenues the government has maintained generous assumptions about the return of commodity prices to more normal levels. For example, metallurgical coal is assumed to fall from US$271/tonne to US$130/tonne by the end of March 2023, while thermal coal is assumed to fall from US$438/tonne to US$60/tonne over the same time-period. The latest Resources and Energy Quarterly prepared by the Department of Industry, Science and Resources suggests prices for metallurgical coal will not fall below US$200/tonne between now and at least until the end of 2025, while spot prices for thermal coal are forecast to average around US$230/tonne and US$125/tonne during 2023 and 2024 respectively The implication of such generous assumptions is that revenues collected from company income tax are likely to be well above the forecast in the Budget.

In the weeks leading up to the Budget much was discussed regarding the affordability of the Stage 3 Personal Income Tax cuts, which are legislated to come into effect in 2024-25. KPMG's analysis of the forward estimates indicates that the tax-to-GDP ratio is projected to hover between 22.7 percent and 23.4 percent; and if the tax settings for the 2023-24 financial year were kept the same for the following year, the tax-to-GDP ratio would likely push up to 23.8 percent. This estimate also includes a relatively weak company income tax contribution, meaning that the 23.9 percent 'threshold' would be breached for the 2024-25 financial year if company income taxes were about 2 percent higher than forecast.

The bigger question however is what amount of tax revenue is necessary to balance the budget and create a surplus to allow for the repayment of national debt that has been built up over the last few years during the pandemic. Our analysis suggests tax receipts would need to increase to around 25.2 percent of GDP to achieve a balanced budget - about 1 percent more than the previously highest tax-to-GDP ratio which occurred in the 2004-05 and 2005-06 financial years.

This analysis suggests, that while part of the immediate solution to reducing national debt and solving the longer-term issue of Australia's structural budget deficit involves generating higher tax receipts, it must also include expenditure reforms.

The good news is that Australia's structural fiscal gap is not acute, and the Budget reinforces that message. Between now and the delivery of the 2023-24 Budget in May 2023, attention will be focussed on how the government frames the discussion around its policy agenda to promote the future economic prosperity of the nation. This discussion will include how government revenues can be increased through productivity and tax reform, and how expenditures can be targeted and managed in a way that is sustainable and consistent with the government's mandate.

Key Insights

  • Australia's economic outlook is dominated by the impacts of tighter monetary and fiscal policy designed to bring inflation back to the target range.
  • The Budget deficit is expected to be nearly $43 billion lower than previously anticipated largely because of stronger personal income tax and company income tax revenues.
  • This turnaround is likely to be even better as the Budget still incorporates generous assumptions about commodity prices, meaning that company income tax receipts are likely to be stronger than expected in the Budget.
  • Analysis of projected tax receipts suggests that some fiscal consolidation could occur if the tax-to-GDP ratio was increased further, taking it to historically high levels. However, improving the national debt and deficit position is also likely to require spending reforms. Reforms that stimulate productivity growth have the potential to reduce the pressure on the government to increase taxes and reduce expenditures.

Key contact

Brendan Rynne
Brendan Rynne Chief Economist

To find out more, please contact KPMG.

The Budget estimates are underpinned by forecasts of fundamental economic drivers. It is important to consider how sensitive Budget estimates are to these forecasts and the likelihood that the outcomes for these key drivers will be materially different to the forecasts. Key risks for the macroeconomic indicators are discussed below.

2021-22 2022-23 2023-24 2024-25 2025-26
Real GDP 3.9% 3.3% 1.5% 2.3% 2.5%

The Australian economy is expected to slow rapidly during 2023 with consumption growth moderating as households contend with declining real wages, higher mortgage payments and increased rents. Despite a backlog of existing projects, private sector investment activity is also expected to moderate as businesses respond to lower demand and a more subdued profit environment. Net exports are expected to turn negative as global demand for commodities moderates.

2021-22 2022-23 2023-24 2024-25 2025-26
CPI 6.1% 5.8% 3.5% 2.5% 2.5%

September 2022 quarter CPI data is due to be released the day after the Budget and is widely anticipated to show that headline inflation is running at just over 7 percent. Inflation running over 7 percent is expected to persist to the end of 2022. The current flooding in Victoria and New South Wales will put upward pressure on food prices. This is likely to keep inflation trending higher into the first quarter of 2023. Inflation will start to moderate through 2023 and into 2024 as contractionary policy settings settle demand and supply imbalances that currently exist in the economy.

2021-22 2022-23 2023-24 2024-25 2025-26
Wages 2.6% 3.8% 3.8% 3.3% 3.5%

The June 2022 quarter Wage Price Index (WPI) revealed that annual wage growth has remained subdued at 2.6 percent despite escalating inflation and a tight labour market. The September 2022 quarter WPI is expected to tick up to around 3.5 percent due to several factors, including the 5.2 percent increase in the minimum wage for 2.7 million workers that took effect from 1 July 2022. Around 40 percent of private sector workers in Australia have traditionally had their salaries reviewed at this time of year so we may see some of this reflected in the September 2022 WPI. While the immediate outlook is for stronger wages there are a few signals, including the SEEK Advertised Salary Index and the Melbourne Institute Wage Expectations Survey, which suggest wages growth will soften in 2023 and 2024.

To find out more, please contact KPMG.

These tables summarise the evolution of federal government finances over the period since the March 2023 budget.

Annual budget deficit - underlying federal government cash balance ($billion)

Government announcement 2021-22 2022-23 2023-24 2024-25 2025-26
2022-23 October Budget -32.0 -36.9 -44.0 -51.3 -49.6
2022-23 March Budget -79.8 -78.0 -56.5 -47.1 -43.1
2021-22 MYEFO -99.2 -98.9 -84.5 -57.5 N/A
2021-22 Budget -106.6 -99.3 -79.5 -57.0 N/A
2020-21 Budget -112.0 -87.9 -66.9 N/A N/A

Federal government net debt ($billion)

Government announcement 2021-22 2022-23 2023-24 2024-25 2025-26
2022-23 October Budget 515.6 572.2 634.1 702.8 766.8
2022-23 March Budget 631.5 714.9 772.1 823.3 864.7
2021-22 MYEFO 673.4 773.1 855.9 914.8 N/A
2021-22 Budget 729.0 835.0 920.4 980.6 N/A
2020-21 Budget 812.1 899.8 966.2 N/A N/A

To find out more, please contact KPMG.

Federal Budget analysis

Individuals

With no new individual tax measures announced, the focus of this Budget is on providing support to working parents and continued monitoring of individual tax compliance.

Personal income tax rates

Despite some conjecture in recent weeks, this Budget has not sought to defer 'Stage 3' tax cuts, originally announced in 2018. From 1 July 2024, the 37 percent bracket will be removed entirely, and the 32.5 percent bracket will be reduced to 30 percent. In addition, the threshold above which the top marginal rate of 45 percent applies will increase from $180,000 to $200,000.

Taxable income Current tax rates
Up to $18,200 0
$18,201 - $45,000 19 percent
$45,001 - $120,000 32.5 percent
$120,001 - $180,000 37 percent
From $180,001 45 percent
Taxable income Tax rates from 1 July 2024
Up to $18,200 0
$18,201 - $45,000 19 percent
$45,001 - $200,000 30 percent
From $200,001 45 percent

Support for working parents

Australia's paid parental leave entitlement will be extended by six weeks to a total of 26 weeks (i.e. six months), easing the cost of living for families and reducing barriers to greater workforce participation. The extension will apply in increments of two weeks, starting from 1 July 2024 until it reaches the full 26 weeks, from July 2026.

Prior to the election, the Government committed to a number of changes to the Child Care Subsidy which this Budget confirms. Specifically, the maximum subsidy will be raised to 90 percent for families for the first child in care. Many families with a child currently in care (i.e. those earning less than $530,000) will enjoy increased Child Care Subsidy rates.

Personal Income Taxation Compliance Program

The government's focus on addressing non-compliance by individual taxpayers remains, with funding allocated for a further two years to support corrective activities targeted at overclaiming of deductions and incorrect reporting of income.

Key Insights

  • Maintaining the legislated changes protects middle income earners from bracket creep and reduces the tax burden for top rate taxpayers (with a lift in the top bracket threshold from 1 July 2024).
  • Extended parental leave entitlements will provide families with more flexibility. Reforms to the Child Care Subsidy will mean that for many families, it may contribute to a decision to re-enter the workforce following time off to care for young children.
With rising cost of living a significant concern across Australia, this Budget brings a number of welcome measures to relieve the financial pressure on households.

Key contact

Ben Travers
Ben Travers National Leader, People Services

To find out more, please contact KPMG.

Government backs up election promises with $6.9 billion of major spending commitments to drive gender equitable outcomes.

The Budget has delivered on the new government's major election promise, with the expansion of the first child Child Care Subsidy (from 85% to 90%, with all households with an income below $530,000 per annum seeing some benefit) implemented from 1 July 2023.

Together with the phased implementation of paid parental leave, these two measures will collectively add $5.2 billion to spending over the forward estimates, and are a substantial commitment towards achieving the goal of gender equity. The "use it or lose it" feature to encourage both parents to take some parental leave is noteworthy.

Beyond these commitments, the government has also committed $1.7 billion over six years to end domestic violence and ensure women and children are safe at home and work.

More broadly, the continued implementation of gender responsive budgeting is a further positive step. The additional funding for social housing will have gender-positive outcomes, as women are more likely to find themselves in unaffordable and unsafe accommodation.

Furthermore, the introduction of the National Strategy to Achieve Gender Equality and funding ($68.5 million) for reproductive and women's health provides additional impetus to achieving gender equity.

Collectively these announcements will improve the lives of millions of women across Australia, and KPMG is broadly supportive of their implementation.

Key Insights

  • Increase in childcare subsidy for families earning below $530,000 per annum has been confirmed, with the increase to commence in July 2023.
  • Earlier announcement of the extension of paid parental leave to 26 weeks also confirmed, with the rollout starting at 20 weeks in 2023-24 through to full implementation in 2026-27.
  • Commonwealth Government has committed to expand its gender responsive budgeting pilot program to all policy decisions, and to develop and implement a National Strategy to Achieve Gender Equality.
  • Further support to tackle domestic violence and increased funding for social housing will also have gender-positive outcomes, particularly for intersectional women with a disability and/or from an ethnic minority background.
The new government has followed through on its major election commitment on the childcare subsidy, albeit with the introduction delayed to 1 July 2023. Together with the extension in paid parental leave, the gender responsive budgeting pilot, commitments to fund programs to end domestic violence and to tackle women's health issues, this budget is another step towards achieving gender equity.

Key contact

Dr Sarah Hunter
Dr Sarah Hunter Senior Economist & Partner

To find out more, please contact KPMG.

The government affirmed its commitment to strengthening workforce planning and combatting Australia's skills shortages by ensuring the migration program is fit for purpose and complements the evolving skills and capabilities of the Australian workforce.

The Budget echoes the announcements made by the government during the Jobs and Skills Summit in early September 2022. These key announcements include the increase in the permanent Migration Program planning level from 160,000 to 195,000 places in 2022-23 (with priority given to offshore applicants and already lodged applications for the New Zealand stream of the Skilled Independent visa), providing an additional $42.2 million in funding over two years to accelerate the processing of visa applications, and extending the relaxation of work restrictions for student visa holders and secondary training visa holders until 30 June 2023. The intention behind these measures is to ease widespread critical skills and labour shortages.

The Budget also aims to strengthen Australia's partnership with the Pacific region by boosting participation in the Pacific Australia Labour Mobility scheme and boosting permanent migration from Pacific countries by creating a new Pacific Engagement Visa for nationals of Pacific Island countries and Timor-Leste. This commences on 1 July 2023 and allows up to 3,000 visas per year, in addition to the existing permanent Migration Program.

Migration also featured in the Women's Budget Statement, including an acknowledgment that barriers to full participation in society and economic inequality can be compounded by a multitude of factors including migration status. In efforts to support visa holders experiencing violence, the Budget confirms that the Temporary Visa Holders Experiencing Violence Pilot program is receiving $12.6 million in additional funding to provide financial support and legal assistance, including migration support, to eligible individuals.

Key Insights

  • The government will establish Jobs and Skills Australia, a consultative independent body, that will work with employers, unions, states and territories, and the training and education sector to provide detailed analysis to help address workforce shortages, build long-term capacity in priority sectors, and identify distinct challenges in regional, rural, and remote Australia.
  • The government will develop a Migration Strategy to identify reforms required to ensure the migration system serves Australia's national interests and complements the skills and capabilities of Australian workers. The strategy will also further Australia's geostrategic interests with the intention of unlocking the potential of all migrants and providing clear pathways to permanent residency.
  • Net overseas migration is predicted to return to pre-pandemic trends at 235,000 arrivals from 2022-23. Recent migration data and new visa issuances show an improved outlook for migrant arrivals, especially of students, and a delayed recovery in temporary migrant departures.
Now more than ever in the midst of our nation's acute labour market shortages, Australia's migration program must be focused on talent attraction and retention to support Australia's economy.

Key contact

Mark Wright
Mark Wright Principal Director, Immigration Leader

To find out more, please contact KPMG.

This was a holding budget for the Jobs and Skills sector, pending the outcomes of current consultations and inquiries.

Whilst Jobs and Skills has been at the centre of this government's focus to-date, culminating in the Jobs and Skills Summit in September 2022, this was very much a holding budget for the sector as they await the outcomes of the protracted National Partnership Agreement negotiations.

Fee-free TAFE places (including the TAFE Technology Fund) were the central skills element of the Budget. $550 million has been allocated over the next 12 months, to be matched by states and territories. The Commonwealth has indicated that these places will be in sectors experiencing acute skills needs, and for priority cohorts. An additional $337 million has been allocated for 2024, for fee-free TAFE places, subject to negotiations with states and territories.

The government has also continued the former-Coalition's JobTrainer Fund for another year,totalling $269 million, providing low-fee and fee-free training places for job seekers.

The Budget was silent on broader workforce initiatives. This is expected, given the current House Select Committee on Workforce Australia Employment Services was established on 2 August 2022.

Key Insights

  • Fee-free TAFE places are central to the Jobs and Skills announcements.
  • Except for fee-free TAFE places, this portfolio saw only very small savings or revenue measures, with both the skills and employment sectors awaiting outcomes of separate reviews or negotiations.
There was nothing new in the Budget in the context of Jobs and Skills – we await the outcomes of the National Partnership Agreement negotiations and the Employment White Paper to see where this government will go with much-needed reforms to revitalise the sector and the economy more broadly.

Key contacts

Morgan McCullough
Morgan McCullough National Sector Leader, Education
Jemma Horsley
Jemma Horsley National Skills Lead

To find out more, please contact KPMG.

Business overview

Inflationary pressures continue to create risks for businesses of all sizes.

Until recently, Australian businesses have largely been resilient to global challenges due to record economic support measures. The absence of wide-scale support in the Budget and prolonged inflationary pressures will create further risk for businesses.

Inflationary Pressures

Higher energy prices and supply chain disruptions are continuing to translate into higher input costs for businesses, particularly in the construction sector. Business profitability is being impacted to the extent that those cost increases need to be absorbed.

Rising prices and interest rates may make consumers become more selective about their discretionary spending habits, which in turn may increase competition for discretionary consumer businesses.

Australian Taxation Office (ATO) activities

The Budget includes additional funding of $200 million per year over the next four years for the ATO's Tax Avoidance Taskforce. This means there will be a continued focus on compliance activities and the recovery of tax arrears. This may lead to further liquidity challenges for businesses.

Small and Medium Enterprises (SMEs)

SMEs are the cornerstone of the Australian economy, with many of these businesses still in their recovery period following a challenging two years of COVID-19 lockdowns and natural disasters.

The Budget includes $62.6 million over the next three years to support SMEs to fund energy efficient equipment upgrades.

The Budget also provides $15.1 million over two calendar years from 1 January 2023 to extend the Small Business Debt Helpline and the NewAccess for Small Business Owners programs to support the financial and mental wellbeing of small business owners.

Key Insights

  • Businesses need to be agile in identifying the liquidity and profitability impacts of rising input costs through robust forecasting and scenario planning.
  • We expect to see continued stress in the building and construction sector from rising input costs, particularly as demand and property values are continuing to be adversely impacted by interest rate rises.
  • It will be important for businesses to proactively engage with stakeholders, including the ATO, in order to manage liquidity challenges.
Businesses should be vigilant with modelling the impact of increased input costs and interest rates so as to regularly assess feasibility of operations.

Key contacts

James Stewart
James Stewart National Leader, Restructuring Services
Amanda Coneyworth
Amanda Coneyworth Partner, Restructuring Services

To find out more, please contact KPMG.

A Budget that focuses on election commitments and budget repair, with a range of measures aimed at increasing tax collections from business.

Thin capitalisation changes

Consistent with its election commitments, the government will amend the thin capitalisation rules from income years commencing on or after 1 July 2023. The measures include:

  • Replacement of the existing safe harbour test with a 30 percent of earnings before interest, taxes, depreciation, and amortisation (EBITDA) test. Following strong feedback, deductions denied under this test may be carried forward up to 15 years.
  • Replacement of the worldwide gearing ratio with a new earnings-based group ratio to allow debt-related deductions up to the level of the worldwide group's net interest expense as a share of earnings (which may exceed the 30 percent EBITDA ratio)
  • Limiting the Arm's Length Debt Test to an entity's external (third party) debt.

Off-market share buy-backs

The tax treatment of off-market share buybacks undertaken by listed public companies will be aligned with the treatment of on-market share buy-backs (in which no part of the buy-back proceeds is treated as a dividend). This measure will apply from Budget night.

Reversal of previously announced measures

The government will not proceed with the previously announced measure to allow the self-assessment of effective lives of intangible depreciating assets.

The government will also not proceed with a number of legacy tax measures that were announced but not legislated by the previous government, including amendments in relation to debt/equity (which appear to be the section 974-80 proposals) and the Taxation of Financial Arrangements (TOFA) hedging rules.

Measures aimed at multinationals

The government has proposed a number of measures targeted at multinationals including:

  • Denying deductions for payments relating to intangibles held in jurisdictions with a tax rate of less than 15 percent or a tax preferential patent box regime with insufficient substance.
  • Enhanced tax transparency reporting requirements, including public country by country reporting.

Extension of ATO Tax Avoidance Taskforce (Taskforce)

The government has boosted funding for the Taskforce, in addition to extending the Taskforce by a further year to 2025-26. A resultant increase in receipts of $2.8 billion for a cost of $1.1 billion over the forward estimates is forecast.

The Taskforce will focus on multinationals and large public and private businesses.

Key Insights

  • The Budget includes a number of tax collection measures aimed at multinationals and large businesses. The precise impact of these measures will ultimately depend on the drafting of the legislation.
  • The government continues to focus on boosting ATO capacity and revenue receipts through increased funding for the ATO's Tax Avoidance Taskforce.
The pre-election multinational integrity measures have been refined to deal with some of the major points of concern raised during the consultation process.

Key contact

Justin Davis
Justin Davis National Leader, Corporate, Deals & International Tax

To find out more, please contact KPMG.

Thin capitalisation

The expected thin capitalisation announcement was light on details. In comparison to our key trading partners, the proposals align with UK rules but differences exist, including that there are no industry-based carve outs (which exist for real estate / infrastructure in the US and certain infrastructure in the UK).

Businesses with related party debt funding will be most affected as they will be precluded from using the Arm's Length Debt Test (ALDT). However, key terms have not yet been defined, and it is unclear how the revised ALDT will operate.

A number of questions from the government's consultation paper are not answered in the Budget proposal and further details will be critical to evaluating the impacts on global financing arrangements.

Intangibles

This measure will deny deductions for significant global entities' direct and indirect payments to related parties in low tax jurisdictions in relation to intangibles. Notably, the proposal moves away from other multinational integrity precedents, with no principal purpose test or broadly applicable substance based carve-outs announced. This difference in approach will widen the net and is not aligned with other established anti-avoidance rules.

The definitions of intangibles and indirect payments are not clear. On the latter, if a similar approach is adopted to anti-hybrid compliance, impacted groups may face compliance complexity.

Transparency

Significant global entities will be required to prepare and provide for public release of certain tax information. The "public" Country by Country (CbyC) measures fall in line with other similar measures globally, including the EU CbC Reporting directive.

Other

Australia's tax treaty network will expand, with the announcement of a new treaty with Iceland.

No announcements were made in relation to Pillars One or Two, or the previous government's corporate tax residency changes.

Key Insights

  • Whilst businesses may seek to restructure their related party debt borrowings, care will be needed to ensure that interest rates and debt amounts are on arm's length terms. Debt structured conservatively may give rise to risks of additional imputed (non-deductible) interest and associated withholding tax.
  • The intangibles measure does not include the usual hallmarks of an anti-avoidance rule, which is inconsistent with other precedents.
  • New transparency measures may cause significant compliance effort for multinationals.
There's a strong focus on multinational integrity and cross-border financing in the Budget. While following global trends, some proposals go further than Australia's peers and may give rise to significant complexity during implementation.

Key contacts

Peter Oliver
Peter Oliver Partner, International Tax
Tim Keeling
Tim Keeling National Leader, Global Transfer Pricing Service
Denis Larkin
Denis Larkin Partner, International Tax

To find out more, please contact KPMG.

The recently signed Green Economy Agreement (GEA) between Australia and Singapore establishes a framework to advance clean energy transformation, energy security and trade diversification. The GEA seeks to reduce non-tariff barriers to green trade, promote collaboration and investment, and the harmonisation of standards with an initial investment of $19.6 million.

The new Australia-Japan Critical Minerals Partnership will promote foreign investment into critical mineral projects in Australia and strengthen the supply chain between Australian resources, including rare earth elements, and Japan's advanced manufacturing sector. Similarly, the government has committed $5.8 million to the India-Australia Critical Minerals Investment Partnership to build on established supply chains and the growing minerals and manufacturing sectors in both countries.

Support for local critical minerals projects will be provided through the allocation of $100 million in grants and $50.5 million over 4 years to establish the Australia Critical Minerals Research and Development Hub.

The Export Supply Chain Service will provide ongoing assistance to small to medium enterprises that export perishable produce as Australia's farm exports are expected to exceed $70 billion this year. Tougher biosecurity measures on arrivals at Australian air and seaports are proposed under amendments to strengthen the agricultural supply chain, with $134.1 million allocated to bolster Australian and neighbouring countries' biosecurity capability.

From an indirect tax perspective, the heavy vehicle Road User Charge has increased from 26.4 to 27.2 cents per litre of diesel fuel. This is expected to result in a decrease in government expenditure on Fuel Tax Credits by $215.7 million over 4 years from 2022-23.

Additionally, as previously announced from 1 July 2022, in line with the government's commitment to clean energy, electric vehicles with a retail price below the luxury car tax threshold ($84,916 for fuel efficient vehicles) will be exempt from FBT and free of customs duty on importation. The value of the benefit is still required to be included in the employee's reportable fringe benefits amount. This is expected to decrease government receipts by $410 million and decrease expenditure by $65 million over 4 years.

Key Insights

  • $19.6 million Green Economy Agreement between Australia and Singapore.
  • Significant contribution of more than $150 million to Australia's critical minerals strategy.
  • Removal of FBT and Customs Duty on certain electric vehicles from 1 July 2022.
  • Increase to Road User Charge for heavy vehicles resulting in lower fuel tax credit claims.
Continuing with the government's commitment to clean energy, this budget sees the removal of Fringe Benefits Tax (FBT) and customs duty on certain electric vehicles. There is strategic investment in support for critical minerals, advanced manufacturing and export supply chains with key regional trading partners. This is intended to support exports of Australian resources, forecast to reach record highs of up to $450 billion in 2022-2023.

Key contacts

Leonie Ferretter
Leonie Ferretter Partner, Trade & Customs
David P Sofra
David P Sofra National Leader, Indirect Tax

To find out more, please contact KPMG.

The government has extended the ATO's Tax Avoidance Taskforce funding by around $1.1 billion with forecast increased receipts of $2.8 billion through to 2025-26, reflecting its shift towards 'budget repair' mode in economically uncertain times.

In the 2022-23 Budget handed down by the prior government on 29 March 2022, the government announced additional funding of $652.6 million to extend the Tax Avoidance Taskforce ('Taskforce') through to 2024-25. This year the government has announced a further circa $200 million in funding per year, for the next three years, to extend the Taskforce and, in 2025-26, there is a significant increase of $534.5 million for that year.

This year's budget also outlines that the boosting and extension of the Taskforce will support the ATO to "pursue priority areas of approved business tax risks."" The ATO is regularly publishing its views in respect of the 'tax gap' and, in the Budget, the additional boosted funding is expected to increase receipts by $2.8 billion and increase payments by $1.1 billion over the 4 years from 2022-23. This in turn will assist to further reduce the ATO's perceived 'tax gap'.

The ATO's increased compliance activity (including the significant number of Justified Trust reviews being conducted) has enabled it to identify new or emerging risks. This is reflected in the number of Practical Compliance Guidelines and Taxpayer Alerts issued by the ATO over recent years.

Consistent with the above, KPMG Law's Tax Dispute Resolution practice has seen an increase in ATO activity and, given this budget announcement, there is no doubt that taxpayers will continue to be scrutinised through ATO reviews and audits. The key message is that taxpayers should be prepared for ongoing and targeted ATO review activity, with a focus on multinationals, large public and private groups, trust structures and high net wealth individuals.

Key Insights

  • The Taskforce will continue to be focused on compliance activities that target multinationals, large public and private groups, trusts and high wealth individuals.
  • Taxpayers should seek advice early and prepare for ATO reviews (which may cover a range of issues including direct taxes, transfer pricing/international related party dealings and GST).
The government continues to extend and boost its investment in this space demonstrating that it will be a matter of 'when' not 'if' taxpayers will need to be prepared to respond to scrutiny regarding their tax positions.

Key contact

Angelina Lagana
Angelina Lagana National & ASPAC Leader, Tax Dispute Resolution & Controversy, KPMG Law

To find out more, please contact KPMG.

Industries and sectors

The Budget maintains the status quo for the financial services sector, with no significant changes announced and a number of legacy measures discontinued or deferred.

Thin capitalisation

The Budget provides further clarity on the application of the EBITDA interest-limitation rule.For financial entities (and presumably authorised deposit-taking institutions) it confirms that the existing rules, including the safe harbour ratios, remain unchanged.

Previously announced measures

The Budget lists numerous previously announced measures that the government has decided to scrap. These include a number of Taxation of Financial Arrangements (TOFA) measures. For the financial services sector, the most significant of these is the proposed change to the operation of the hedging election for entities that have also made the Reliance on Financial Reports election. This measure would have allowed these taxpayers to align their tax and accounting outcomes by excluding the ineffective portion of a hedging arrangement from the hedging election.

In contrast, the Budget has affirmed the government's commitment to other previously announced measures, while deferring their start date. Such measures include extending the TOFA hedging election to portfolio hedging arrangements, with the previously announced commencement date of 1 July 2022 being deferred and instead applying to income years commencing after the date of Royal Assent.

The previously announced extension of the functional currency election to certain partnerships and trusts has been scrapped, as too has the broader reform and simplification of the TOFA rules.

Off-market share buy-backs

The Budget night changes to off-market share buy-backs (discussed in more detail elsewhere) will impact the capital management strategies that investment banks can offer to their clients. When coupled with the recent Exposure Draft Legislation on franked distributions and capital raising, opportunities to release franking credits are becoming more limited.

Digital currencies

The Budget re-affirms the Treasurer's June 2022 announcement to exclude digital currencies (such as Bitcoin) from the foreign currency tax rules.

Key Insights

  • Financial entities relying on the arm's length debt test may be impacted by the proposal to limit that test to third-party debt.
  • Excluding digital currencies from the foreign currency tax rules will ensure most taxpayers will not be able to claim deductions for their crypto losses.
The long list of unenacted measures scrapped tonight, some dating back more than a decade, highlight an unprecedented level of uncertainty in the tax system that has to be navigated by both taxpayers and the ATO. The industry has made its case for many of these measures. The revenue impact of their demise might indicate a lack of will and resources to bring these to fruition, rather than a fundamental change in policy.

Key contact

Natalie Raju
Natalie Raju Financial Services Tax Leader

To find out more, please contact KPMG.

The May 2022 budget was light on measures relevant to superannuation funds. This Budget is likely to attract more focus within the industry.

Housing Accord – facilitating institutional investment by superannuation funds in affordable homes

Under a new Housing Accord, the Government will seek to facilitate investment by superannuation funds (amongst other institutional investors) into affordable housing by providing funding to make more projects commercially viable.

Off-market Share Buy-Backs – changing the tax treatment

The government will align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. Under the current rules, when a company buys back its shares off-market, a proportion of the consideration may be treated as a dividend. The change will mean that the entire consideration for off-market share buy-backs undertaken by listed public companies will be treated as capital proceeds, with no associated franking credits.

Superannuation – expanding eligibility for downsizer contributions

The sector and superannuants will be pleased with the proposal to allow downsizer contributions to superannuation for those aged 55 years and over (previously only available to those 60 years and over). A downsizer contribution is a one-off post tax contribution to superannuation up to $300,000 per person from the sale of their home. In the case of couples, both can contribute, and downsizer contributions do not count towards non-concessional caps.

Providing certainty on unlegislated tax and superannuation measures announced by the previous government

Measures previously announced which will not proceed include:

  • The 2018-19 Budget measure which sought to introduce retirement metrics disclosure in product disclosure statements; and
  • The 2018-19 Budget measure which had proposed new tax and regulatory framework for limited partnership collective investment vehicles.

The proposal to amend the Taxation of Financial Arrangement rules to facilitate access to hedging rules on a portfolio basis will now commence on or after the income year from date of Royal Assent.

Key Insights

  • Announcement of a new National Housing Accord.
  • Changes to the treatment of off-market share buy-backs by listed companies apply from Budget night.
  • Expanding eligibility for downsizer contributions to those from the age of 55 (previously age of 60 years or over).
  • No announcements regarding contribution thresholds or the transfer balance cap were made.
  • No announcements on the tax treatment of non-arm's length income/expenditure for superannuation funds (despite sector expectations in this regard).
This Budget provides some clarity on previously announced but unenacted measures, expanding eligibility for downsizer contributions and announcements relevant to fund investments such as affordable housing and off-market share buy-backs.

Key contacts

Damian Ryan
Damian Ryan Tax National Sector Leader, Asset & Wealth Management
Linda Elkins
Linda Elkins National Sector Leader, Asset & Wealth Management

To find out more, please contact KPMG.

Changes to the thin capitalisation rules is the main tax measure that will impact the sector in this Budget.

The Budget confirmed that the safe harbour thin capitalisation rule will be replaced by the Organisation for Economic Cooperation and Development's (OECD) recommended fixed ratio rule that will limit interest deductions of entities to up to 30 percent of their Earnings Before Interest Tax Depreciation and Amortisation (EBITDA).

The measures are expected to have effect from 1 July 2023 to all "general entities" under the current thin capitalisation rules.

The announcement was relatively light on detail but confirmed that denied debt deductions can be carried forward for up to 15 years for use in future income years where there is sufficient capacity to do so. It also confirmed the retention of the arm's length debt test, but this will only apply to external third-party debt. How these rules apply to unit trust groups with gearing in a holding trust is yet to be announced.

Given the capital-intensive nature of the real assets sector, we expect that the implementation of the above rules may have potentially significant impacts on the funding mix and tax profile of real asset projects.

The rules, as announced, are similar to those adopted by the UK. From a practical perspective, the impact experienced in the UK resulted in related party debt becoming a much less common form of funding for real asset investments.

Australian taxpayers may wish to consider restructuring their existing debt arrangements, particularly as there was no announcement of transitional or grandfathering provisions or sector specific carve-outs.

Retention of the arm's length debt test for external third-party debt will be welcomed by large real asset investors with projects which typically support higher levels of debt financing.

However, what is considered to be debt from external third parties under these measures will need to be monitored. For example, how will these measures apply to debt raised by a special purpose finance vehicle and on-lent to related parties on back-to-back terms?

ASIC reviews

The Budget includes additional funding to the Australian Securities and Investments Commission (ASIC) to support reviews of the regulatory framework for managed investment schemes, which is one of the requirements to be satisfied when investing in Australian real estate through a Managed Investment Trust.

Unlegislated tax and superannuation measures

The list of abandoned unlegislated measures does not include the 2018-19 Budget measure, 'Tax integrity -removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution MITs'.

Key Insights

  • The retention of the arm's length debt test, albeit modified to only cover external third-party debt, will be welcomed by real asset holders.
  • Existing taxpayers holding real estate assets may wish to consider restructuring their debt arrangements going forward if they rely on related party debt.
While the tightening of the thin capitalisation rules will likely have far reaching consequences, the retention of the arm's length debt test for external third-party debt will be welcomed by large real asset investors.

Key contact

Scott Farrell
Scott Farrell Partner, Corporate Tax

To find out more, please contact KPMG.

The Budget focuses on climate change, environment and water including carbon and biodiversity, and recognition of the challenging environment driving natural disasters and biosecurity threats to the industry.

Climate change and environment

  • $1.1 billion in funding over 6 years from 2022-23 to continue to support the sustainable management of Australia's natural resources through the next phase of the Natural Heritage Trust.
  • The government will establish a Powering the Regions Fund (the Fund) from 2022-23, with $1.9 billion allocated to assist industries and communities with the transition to net zero emissions.
  • Several carbon market initiatives were announced including $20.3 million over 4 years from 2022-23 to establish an outreach program to empower farmers and land managers, including First Nations peoples, to participate in carbon markets and integrate low emission technologies and practices.

Biosecurity and emergency response

  • A total of $134.1 million over 4 years has been allocated to assisting in bolstering biosecurity capability in Australia and neighbouring countries
  • Significant funding is being directed to Home Affairs, under the National Emergency Management Agency, with $630.4 million allocated to the Disaster Ready fund over 2022-2026 to support resilience efforts.

Water and related infrastructure

  • Following the government's spending audit, $1.67 billion is being removed from the National Water Grid Fund. The government is not proceeding with the $4.6bn previously allocated to Hells Gate Dam and has deferred funding to a range of other projects until business cases are completed and reviewed. $258 million remains for already committed projects across 2022-26 and there is $278.1 million over 5 years to expand investment in nationally significant, water infrastructure projects predominantly in the Cairns region and Tasmania.

Export and trade

  • The government will provide $204.8 million over 5 years from 2022-23 to support industry to improve innovation and encourage sustainable and productive growth for Australia's timber production.

Regions and infrastructure

  • The government will provide $757.7 million over 5 years from 2022-23 to improve mobile and broadband connectivity and resilience in rural and regional Australia.
  • The government will invest $15.0 billion over 7 years from 2023-24 to establish the National Reconstruction Fund (NRF) to support, diversify and transform Australian industry and the economy through targeted co-investments in priority areas, with $500 million focused on the farm sector.

Key Insights

  • Increased investment in the agriculture sector to support and enable the broader climate change and decarbonisation priorities is recognised, along with further funding to ensure we have a robust carbon market in Australia.
  • More immediate priorities for the sector, related to biosecurity and emergency response to ensure resilience, is crucial to safeguard it as it continues to focus on becoming a $100 billion industry by 2030.
Agriculture's contribution in addressing climate change and broader decarbonisation priorities has again been recognised in this budget, along with the need to safeguard our borders and support the industry to manage current climatic challenges.

Key contacts

Robert Poole
Robert Poole National Sector Lead, Consumer & Food
Georgie Aley
Georgie Aley National Sector Lead, Consumer Packaged Goods & Agribusiness

To find out more, please contact KPMG.

A restrained and prudent budget with a strong focus on ATO review programs, together with some targeted initiatives to support workforce participation in challenging economic conditions.

ATO Review Programs

Additional funding has been announced for the ATO Tax Avoidance Taskforce (established in 2016). The Taskforce will be extended until 30 June 2026 at an additional cost of $1.1 billion.

This measure is expected to collect an additional $2.8 billion in liabilities from 1 July 2022 to 30 June 2026 as a consequence of the additional funding for the ATO.

Further funding extensions were also announced to target individual tax compliance and the shadow economy.

Parental leave and childcare subsidies

The Government will add an additional six weeks of Paid Parental Leave for families, increasing the total leave payable by 2 weeks per year from 1 July 2024, reaching 26 weeks from 1 July 2026.

Cheaper childcare will also apply through an increase in the Child Care Subsidy rate for all families earning less than $530,000, encouraging workforce participation and supporting gender equality.

Thin capitalisation changes

The existing safe harbour method (which restricts debt deductions based on a maximum gearing level of 60 percent of assets) will be replaced from 1 July 2023. The new test will limit debt-related deductions to 30 percent of profits (EBITDA). Debt deductions denied under this new earnings test can be carried forward for up to 15 years.

The current arm's length debt test will be narrowed and the worldwide gearing test replaced. Subject to the final legislation, it appears that the current $2 million de minimis threshold may continue to apply.

Stage 3 Tax Cuts

Despite recent scrutiny, there were no changes announced to the legislated Stage 3 Tax Cuts. The tax cuts will abolish the current 37 percent individual tax bracket and lower the existing 32.5 percent bracket, applying a 30 percent rate up to $200,000. These tax cuts are to apply from 1 July 2024 assuming no changes occur.

Depreciation of intangible assets

The Government will not proceed with the previously announced measure to allow taxpayers to self-assess the effective life of certain intangible depreciating assets.

Key Insights

  • Taxpayers currently relying on the safe harbour method should begin modelling outcomes under the new thin capitalisation tests. Groups with lower profitability may be disadvantaged.
  • Further funding for the ATO Tax Avoidance Taskforce should sharpen taxpayer focus on developing tax governance frameworks and undertaking prudential tax reviews to address ATO focus areas.
  • Cheaper childcare and extended paid parental leave are a welcome measure for families and to support gender equality.
  • Temporary Full Expensing and Loss Carryback measures have not been extended. Both will expire on 30 June 2023.
  • The Government affirmed its commitment to exempting electric cars from FBT providing a salary packaging opportunity for employees.

Key contact

Clive Bird
Clive Bird National Tax Leader, KPMG Enterprise

To find out more, please contact KPMG.

The Budget supports industry via targeted programs consistent with Labor's 'Plan for a Better Future' with no changes to the R&D Tax Incentive and no announcements made on other innovation-related incentives.

$15 billion over seven years for the National Reconstruction Fund (NRF) through targeted co-investments across seven priority areas: Resources; Agriculture, Forestry & Fisheries; Transport; Medical Science; Renewables & Low Emission Technologies; Defence; and Enabling Capabilities.

Overview of grant expenditure

The following table summarises the key sectors in which grants are provided for in this Budget:

Grants
Sector Initiatives
Manufacturing ($15 billion) National Reconstruction Fund, Diesel Manufacturing, Rail Manufacturing Plan
Regions ($4.8 billion) Growing Regions, Community Infrastructure, Better Connectivity Plan, Regional Trailblazer, Northern Australia Infrastructure Facility
Environment ($205 million) Forestry Industry Innovation and Growth
Indigenous ($248 million) First Nations Community Microgrids, Modern Health & Chronic Disease Treatment
Energy ($540 million) ARENA Road Transport, Hydrogen Highways, Carbon Capture Technologies, Community Solar Banks, Energy Efficiency Grants
Critical Minerals ($150 million) Critical Minerals Development, Australian Critical Minerals R&D Hub

Key Insights

  • NRF delivery via co-investment (loans, guarantees and equity investment) is a significant change in industry support (away from grants and concessional loans). The government is seeking to fundamentally alter the funding landscape and the way projects are assessed.
  • Expenses under the Growing Business Investment component are expected to decrease by 87% reflecting the discontinuation of the Modern Manufacturing Initiative and reduction for funding for the Entrepreneurs' Program.
  • The government will retain $2 billion funding for the Northern Australia Infrastructure Facility (NAIF).
The Budget doesn't add to the mix of innovation programs, but will provide new funding for businesses in sovereign capability sectors and greater economic sustainability. Significantly, some of this support will be via co-investments

Key contacts

Alex Demetriou
Alex Demetriou Partner in Charge, Accelerating Business Growth
Georgia King-Siem
Georgia King-Siem Partner & Innovation Policy Lead

To find out more, please contact KPMG.

Infrastructure and environment

The Budget allocates significant resources to reduce emissions, improve resilience, foster international leadership and build the capacity of key institutions.

The Budget outlines significant measures to support Australia's transformation to net zero, with measures including:

  • Rewiring the Nation, which allocates $20 billion of finance to rebuild and modernise the electricity grid, to be coordinated by a new Rewiring the Nation Office and delivered via the Clean Energy Finance Corporation.
  • Support for energy security and reliability through the National Energy Transformation Partnership ($157.9 million over six years) between the State and Federal Governments, including developing mechanisms for ensuring firming capacity, and managing generator closures.
  • Rollout of Community Batteries and Solar Banks ($326.5 million over four years) to ensure wider access to renewable technologies.
  • Delivering the Driving the Nation Fund ($275.4 million over 6 years to invest in electric vehicle and hydrogen infrastructure.
  • Establishing the Powering the Regions Fund, redirecting existing climate spending towards supporting the new government's priorities including a reformed Safeguard Mechanism to drive industrial emissions reduction, and assist regions and industry with the transition to net zero.

The Budget also provides funding to enhance climate adaptation and improve resilience ($948 million). This includes funding to reduce climate impacts, and greater engagement with First Nations People on climate change.

The Budget provides funding to re-establish Australia's international climate leadership ($295 million), including expanding support for Pacific climate infrastructure.

There are significant investments in building the capability of Australian government institutions including to improve budget transparency and accountability.

Funding is provided to the Climate Change Authority to play its larger role in providing independent climate advice to achieve Australia's emission reduction targets ($101.5 million) and to uplift the Treasury's capability to Model Climate Risks and Opportunities. There is also funding to develop climate reporting standards for large businesses ($63.6 million).

Key Insights

  • This is the first Budget where climate change is explicitly framed as central to well-being, fiscal risk, and opportunity.
  • The Budget includes significant resources to support the transformation to net zero, improve climate resilience, re-establish Australia's international climate leadership and build the climate capability of Australian government institutions.
  • The Budget underlines the government's commitment to reduce Australia's emissions by 43 percent from 2005 by 2030 and net zero by 2050. This includes preparing for further actions such as the upcoming reform of the Safeguard Mechanism and implementation of the National Energy Transformation Partnership.
This is the first Budget framed towards the climate change challenge and its impact on communities, health, the environment, Australia's prosperity and well-being.

Key contact

Barry Sterland
Barry Sterland Partner, Energy Transition Leader

To find out more, please contact KPMG.

The Budget reconfirms the government's commitment to a $120 billion investment in transport infrastructure over the next 10 years.

Infrastructure continues to play a critical role in supporting and sustaining Australia's national and regional economies.

The government will re-profile $6.5 billion of funding for existing projects within the Infrastructure Investment Program, to make the pipeline more sustainable thereby aiming to reduce the pressure in an already overheated construction market.

With the Spending Audit, the government intends to achieve significant savings including:

  • Not proceeding with funding of $5.4 billion for the Hells Gate Dam project in Queensland.
  • Deferring funding of $899.5 million over 4 years from the Dungowan Dam and Pipeline, Emu Swamp Dam and Pipeline, Hughenden Irrigation Scheme and Wyangala Dam Wall Rising projects, to be reconsidered once business cases are completed.
  • Returning $173.5 million in funding over 4 years from unallocated and uncontracted funding within the National Water Grid Fund.
Key infrastructure commitments $ Million
QLD $2.1 billion including:
Bruce Highway Upgrade 866.4
Inland Freight Route Upgrades 400.0
Beef Corridors 400.0
NSW $1.4 billion including:
Sydney to Newcastle High Speed Rail 500.0
New England Highway and Muswellbrook Bypass 268.8
Epping Bridge 110.0
ACT $85.9 million including:
Canberra Light Rail Stage 2A 85.9
VIC $2.6 billion including:
Suburban Rail Loop East 2,200.0
TAS $78.0 million including:
Tasmanian Roads Package 78.0
SA $460.0 million including:
Freight Highway Upgrade Program 400.0
WA $634.8 million including
Alice Springs to Halls Creek Corridor Upgrade 400.0
Electric Bus Charging Infrastructure 125.0
NT $550 million including:
Tanami and Central Arnhem Road Upgrades 350.0

Key Insights

  • The Australian Government has reconfirmed its commitment to a $120 billion pipeline of investment in transport infrastructure over the next 10 years.
  • The Australian Government has reprofiled $6.5 billion of funding for existing projects within the Infrastructure Investment Program, to make the pipeline more sustainable thereby aiming to reduce pressure in an already overheated construction market.
The Australian Government's pipeline of rail and road projects will deliver improved public transport outcomes as well as making freight routes more efficient.

Key contact

Paul Foxlee
Paul Foxlee National Sector Leader, Transport & Infrastructure

To find out more, please contact KPMG.

The Budget announced a national plan to build one million new houses within the next decade in an accord between the government, private institutional investors and the construction industry.

The Budget announced a national Housing Accord, involving joint commitments from federal, state and local governments, institutional investors (including the superannuation industry) and the construction sector to build one million new homes in the five-year period from 2024. The Accord is intended to deliver affordable, well-located and energy-efficient new homes.

The Treasurer stated the Accord recognised that the majority of this housing supply needs to "come from the market" and committed the government to playing a key role in coordinating and kickstarting the required investment. The key announcements include:

  • establishment of the $10 billion Housing Australia Future Fund to generate returns to fund the delivery of 30,000 social and affordable homes and remedy acute housing needs for Indigenous communities and domestic and family violence victims
  • an initial $350 million in federal funding over five years from 2024-25 to deliver an additional 10,000 affordable homes
  • support from states and territories to deliver up to an additional 10,000 affordable homes
  • expansion of the remit of the National Housing Infrastructure Facility to more flexibly deploy up to $575 million in unallocated funding, potentially delivering up to 5,500 new social and affordable dwellings and attract more institutional capital to the sector
  • a number of other measures were included under the Accord including $324.6 million to establish the Help to Buy Scheme, $15.2 million to establish a National Housing Supply and Affordability Council, $0.5 million to establish Housing Australia and $8.3 million to administer the Housing Australia Future Fund.

Key Insights

  • An Accord between government, private investors and the construction industry to supply one million new homes in five years commencing from 2024-25.
  • Establishment of the previously announced $10 billion Housing Australia Future Fund to provide funding for the construction of 30,000 new social housing dwellings.
  • $350 million in federal funding for the construction of 10,000 affordable homes over a five-year period commencing in 2024.
  • Commitment by state and territory governments to build an additional 10,000 homes in the same period.
The new national housing agreement between the public and private sectors, along with significant commitments to deliver new social and affordable housing through the Housing Affordability Future Fund, delivers a targeted response to Australia's housing affordability crisis. It will unlock new sources of finance from superannuation and institutional investors, accelerating the supply of social and affordable housing needed by many Australians.

Key contact

Paul Morris
Paul Morris Partner, Sector Lead, Real Estate & Precincts

To find out more, please contact KPMG.

Government services

This government is focused on delivering on its election commitments through the Budget including the implementation of Urgent Care Clinics, cheaper medicines, and restoring mental telehealth services.

Restoring Regional Mental Telehealth

The government will invest approximately $48 million over the medium to long term to reintroduce bulk-billed psychiatry consultations in regional and remote areas. This reinstatement is welcome, however the limited additional funding for mental health raises the concern that investment may fail to keep pace with need in the wake of the pandemic's mental health shadow.

Urgent Care Clinics

The government will provide $235 million over 4 years to deliver on its election commitment to roll out Urgent Care Clinics designed to reduce pressure on hospital emergency departments, making it easier for Australian families to access non-life-threatening care. The success of this initiative will depend on effective partnerships between hospitals and primary care providers.

Plan for cheaper medicine

The government will provide $1.4 billion over 4 years from 2022-23 for new and amended listings on the Pharmaceutical Benefits Scheme (PFBS). $787.1 million over 4 years delivers on an election commitment to decrease the general co-payment for treatments on the PBS from $42.50 to $30.00 on 1 January 2023. This is a positive move for the affordability of medicines.

COVID-19 Pandemic

The government will continue to provide significant funding of $845.1 million for aged care, $759.9 million for vaccine delivery and $145.1 million for testing and treatments in an extension of its COVID-19 response.

Measures for future sustainability

The Budget provides $3.4 million over 4 years for a National Health Sustainability and Climate Unit, $3.2m in 2022-23 for design of the Australian Centre for Disease Control and $15.9 million over 4 years from 2022-23 to establish and support a National Centre of Excellence in Intellectual Disability in Health. Combined, this investment paves the way for a more sustainable and resilient health system.

Key Insights

  • Building on the government's election commitments outlined in the Plan for a Better Future, the Budget lays early groundwork for reforming the Australian health system.
  • The Budget provides some of the investment needed to reduce cost of living pressures through a reduction in the general patient co-payment for PBS treatments.
  • Funding to improve access to after-hours services, including Urgent Care Clinics, and a range of health infrastructure projects nationwide, demonstrates a commitment to improve equity and access for individuals and communities to the health services and treatments when and where they need it.
  • The Budget includes welcome investment in key areas, however further investment will be needed to achieve fundamental reform required to address future challenges including those associated with health workforce attraction, recruitment and retention.
The Budget reflects the government's commitment outlined in the Plan for a Better Future. While there are noticeable gaps in initiatives to address significant pressures including the health workforce challenge, it lays the groundwork for broader health system structural reform.

Key contact

Sarah Abbott
Sarah Abbott Partner, Public Health Lead

To find out more, please contact KPMG.

This Budget delivers against election promises and makes substantial investment in gender equity measures and social and affordable housing.

Social and affordable housing

An investment of $10 billion will be made, with returns to fund 30,000 affordable and social homes over five years, with an allocation of $330 million for acute needs. This includes improvements of housing in remote First Nation communities, crisis and transitional housing for older women, and women and children fleeing Domestic and Family Violence (DFV).

Disability

Funding of $437.4 million over three years to improve the National Disability Insurance Scheme (NDIS) including: $385.0 million in additional funding to ensure the National Disability Insurance Agency is adequately resourced to support NDIS participants; $21.2 million for NDIS Appeals providers to support people with disability and their families with the Administrative Appeals Tribunal appeals process; and $18.1 million to support an independent review of the NDIS.

Community Sector Organisations

New funding has been announced to support the sector's capacity to respond to local need and to deliver innovative solutions. This includes $560 million over four years to help meet staff wage pressures.

Social security

As expected, the Budget contains headline changes to Paid Parental Leave, increasing flexibility to allow both parents to use it, and expanding it to cover 26 weeks. Further detail is yet to be released, pending advice from the Women's Economic Equality Taskforce. Changes to Child Care Subsidy to ease cost of living and support workforce participation are part of $4.7 billion spending over four years on Cheaper Child Care, while the promised abolition of the Cashless Debit Card will go ahead, with an investment of $217.7 million over four years to transition to voluntary income management for those who wish to opt-in.

Violence against women and children

Funding to support the new National Plan includes $39.6 million in 2022-23 to meet increased demand for Escaping Violence Payment program; $25.0 million over five years for a trial of innovative responses to address perpetrator behaviours; $13.9 million over five years for a new First Action Plan Priorities Fund to respond to emerging priorities; and, $12.6 million over two years for a pilot program to assist Temporary Visa Holders who are experiencing DFV.

Election commitments will be delivered through $169.4 million over four years to provide an additional 500 frontline workers to increase support for women and children experiencing DFV, and $65.3 million over four years for respectful relationships education in schools to help prevent gender-based violence and keep children safe.

Key Insights

  • Much needed investment in affordable and social housing will provide relief for those at greatest need, including Indigenous communities, older women and women and children escaping violence.
  • Supporting women's workforce participation is a clear priority from a social security perspective.
  • The National Plan to End Violence Against Women and Children will be delivered through new initiatives that focus on prevention, innovation and crisis support, while building the workforce.
The Government is delivering on core election commitments with the announcement of the Housing Australia Future Fund and new funding to underpin the National Plan to End Violence Against Women and Children.

Key contact

Danielle Woolley
Danielle Woolley Partner, Human Services

To find out more, please contact KPMG.

With the aged care sector facing significant challenges due to ongoing COVID-19 outbreaks, significant workforce shortages, and financial viability declining in residential aged care, this is a critical budget for the sustainability of the sector.

The government has delivered on its election promise, committing $2.5 billion over four years to support residential aged care facilities to have a registered nurse onsite 24 hours per day, 7 days per week, and increasing care minutes to 215 minutes per resident per day.

The government has committed $23.1 million to support the implementation of the delayed Support at Home Program from July 2024 which should deliver more choice and control for older Australians within their home.

The government has made a commitment towards strengthening aged care provision in regional, rural and remote Australia and further responding to Recommendation 54 of the Royal Commission. The government has committed $68.5 million over the next four years to expand the Regional Stewardship of the Aged Care outreach model, and $23.2 million over 4 years to improve aged care infrastructure and services that provide services to older First Nations people and diverse Australians in regional areas. These measures are a significant investment to ensure adequate provision of aged care in regional, rural and remote areas through more effective governance and services that meet the needs of older Australians in these areas.

Several outstanding recommendations from the Royal Commission are funded, with $9.9 million allocated to establish the Aged Care Complaints Commissioner within the Aged Care Quality and Safety Commission and $38.7 million to establish the Inspector-General of Aged Care whose responsibilities will be investigating, monitoring and reporting on the administration and governance of the aged care system.

The government has focused on addressing workforce challenges through investment in migration with $154.6 million targeted towards a Migration Program in health and aged care. The Pacific Australia Labour Mobility (PALM) scheme has been expanded with an additional $67.5 million and expansion of the aged care skills pilot program which relocates Pacific Islanders to Australia to work in the aged care sector. Whilst providing additional workforce, there is no new commitment to skill development or workforce reform which remain critical to improving quality in aged care.

The Budget continues to invest in aged care reform. However, the investment focuses on improving oversight of the sector, rather than on improving the underlying financial and workforce challenges.

Key Insights

  • Funding for key election promises including 24-hour, 7 day a week on site registered nurses in residential aged care.
  • Sustainable aged care in rural and remote Australia is a key focus with additional funding and support measures.
  • Investment in addressing the aged care workforce shortage through expansion of migration programs, but challenges remain in respect of skill development and broader workforce reform within the sector.
An investment of $3.9 billion is more than the previous budget but potentially less than what is required to deliver quality aged care and a sustainable sector. Without further investment in skills development and workforce reform, the achievement of quality outcomes for older Australians may not be realised.

Key contact

Nicki Doyle
Nicki Doyle Partner, Aged Care, National Aged Care Sub-Sector Lead

To find out more, please contact KPMG.

Teacher training and student wellbeing are priorities in the Budget.

Higher Education

There is no new news for Higher Education. The university sector saw a range of minor announcements including $15.4 million over four years (and $2.8 million per year ongoing) to establish the Startup Year program that allows income contingent Higher Education Loan Program loans to up to 2,000 students to undertake accelerator programs. 20,000 additional Commonwealth supported places ($563.8 million over 11 years) have been made available for under-represented students in areas of skill shortage, with particular support for teachers, nurses and the regions.

Savings include the removal of discounts for students who pay their student contributions upfront rather than defer payment through the Higher Education Contribution Scheme.

Schools

Education Ministers agreed to develop a National Teacher Workforce Action Plan by the end of 2022. The Budget looks to address growing teacher shortages, with a focus of the 20,000 newly funded university places to be on priority skills shortages, including teacher training.

An additional $310.4 million over nine years has been committed to attract and retain teachers. Initiatives in this regard include $160.1 million for bursaries to university students and to attract final year placement students to regional areas, $78.8 million over five years to expand the High Achieving Teachers program and $60.6 million to implement the Quality Initial Teacher Education Review.

Schools infrastructure will receive a boost with $270.8 million over two years to implement the Schools Upgrade Fund, including small grants for school facilities and ventilation to respond to the risks of COVID-19. The impact of the pandemic on student wellbeing is also reflected with $203.7 million allocated towards the Student Wellbeing Boost including mental health and wellbeing initiatives.

The importance of teaching First Nations languages in schools has been acknowledged with a $14.1 million commitment over four years to work with local communities to teach local Indigenous languages and embed knowledge of local cultures across the curriculum in 60 primary schools.

Key Insights

  • The reimagining of the Higher Education Contribution Scheme as an instrument to fund new forms of educational experience is innovative.
  • The urgent need to address school teacher shortages has been prioritised.
Given the growing shortages of the teacher workforce, additional support for teacher training is positive, alongside other investments in teacher retention and quality.

Key contact

Morgan McCullough
Morgan McCullough National Sector Leader, Education

To find out more, please contact KPMG.

Security

A post-breach, pre-strategy cyber budget.

The Budget is understandably restrained on new cyber spending after the last Budget's seminal investment in the Australian Signals Directorate's REDSPICE, and ahead of next year's new Cyber Security Strategy.

The continued commitment to the $9.9 billion REDSPICE investment (as announced in the March 2022 federal budget) highlights the importance of cyber security within an overall effort to constrain expenditure. While this continuity is obviously welcomed and much-needed, success will be reliant upon a skilled workforce. The government's 2,275 additional Information Technology university places (approximately 11 percent of an overall investment in an extra 20,000 university places) represents a good start.

Most of the cyber investments in the Budget have a 'here and now' imperative. Following the recent spate of high-profile cyber compromises, $5.5 million is being invested in the Office of the Australian Information Commissioner (OAIC). Relatedly, combatting scams and online fraud has received $12.6 million, with $9.9 million being invested in the Australian Competition and Consumer Commission (ACCC) to establish a National Anti-Scam Centre, $2 million to IDCARE, and $0.7 million for awareness raising.

The injection of $31.3 million in this financial year to continue the Australian Public Service cyber hubs pilot is consistent with the government's concerns regarding the cyber resilience of Australian Commonwealth entities.

While there are no headline spends on Security of Critical Infrastructure measures, it is worth noting the government's investment in infrastructure extending to our neighbours. An additional $500 million of Official Development Assistance (ODA) is being committed to the Australian Infrastructure Financing Facility for the Pacific (AIFFP), bringing the Facility to $4 billion. $8.7 million is also being allocated for a range of assistance measures to Ukraine, including cyber security enhancements. A good reminder that in an ever-interconnected world, the prosperity and security of other nations contributes to our own.

With a new Cyber Security Strategy being developed (keep an eye out for consultation opportunities to get involved), we anticipate that there will be more to see in this space in next year's Budget.

Key Insights

  • $31.3 million for Cyber Hubs in this financial year.
  • $12.6 million to combat scams and online fraud.
  • $5.5 million to bolster the Office of the Australian Information Commissioner (OAIC).
This Budget represents an initial down payment on what will be this government's cyber and technology security agenda. The government's Cyber Hubs pilot is being given every chance to go faster and further, especially in the wake of recent compromises.

Key contacts

Ian Gray
Ian Gray Partner, Government Cyber
Greg Miller
Greg Miller Partner, Cyber Security and Critical Infrastructure

To find out more, please contact KPMG.

Veterans, supply-chain resilience and support to Ukraine are the focus. New and reprioritised capability is to await the outcomes of the Defence Strategic Review.

The government has maintained its commitment to supporting veterans and their families in response to the Royal Commission into Defence and Veteran Suicide's Interim Report. $87 million has been allocated to address Department of Veterans' Affairs' critical IT infrastructure and 500 new frontline staff will address claims backlogs to reduce wait times for veterans.

Defence spending will increase by 8 percent in 2022-23 as part of a commitment to total Defence investment, exceeding 2 percent of GDP per annum over the forward estimates. With submissions to the Defence Strategic Review remaining open until 30 October 2022, the Budget is silent on additional or reprioritised investment in Defence capability.

Recommendations are to be made no later than March 2023.

The government has committed to grow, reshape, reskill and retain the Defence workforce required for new platforms and emerging capabilities such as cyber and space. A key incentive within the Budget is the removal of a qualification period or post-separation limit for Defence personnel and veterans to access mortgage support payments. Increased investment in wellbeing and employment transition programs was also announced.

Defence capability is one of seven priorities within the new National Reconstruction Fund, intended to enhance national manufacturing and encourage innovation to reduce supply-chain risks. The Fund provides for $15 billion of targeted co-investment and subsumes $303 million in uncommitted funds from the $1.3 billion Modern Manufacturing Initiative. Space is not a named priority, but relevant industries are expected to benefit from investments by the Fund.

Support to Ukraine continues, including both military equipment, and humanitarian assistance in the form of visa allocations, settlement support and a contribution to NATO's Ukraine Comprehensive Assistance Package Trust Fund.

Key Insights

  • A $1,000 increase in the annual rate of the Totally and Permanently Incapacitated Payment for 27,000 veterans to help with cost-of-living pressures.
  • Extension to the Assistance to Ukraine measures announced in the March 2022 Budget to total $213.3 million over the five years from 2021-22.
  • $32.2 million for a simulation training facility in Townsville.
A strong focus on Defence personnel, veterans and their families in response to the Royal Commission.

Key contact

Meaghan D'Arcy
Meaghan D'Arcy Partner, Defence

To find out more, please contact KPMG.

Equality, transparency and shared values for our region are at the heart of sector budget announcements, with new funding for regional ties, First Nations justice and emergency relief.

Rebuilding ties in our region

The Budget commits Australia to working with our Pacific family to build a safe and prosperous Indo-Pacific, including through fostering long-standing alliances and working to re-establish Australia as a partner of choice in both the Pacific as well as Southeast Asia. This includes the following commitments over a four year period: $1.4 billion in additional Official Development Assistance and $147.5 million to expand Australia's engagement with Pacific partners, including expanded Australian Broadcasting Commission transmission and increased support to regional security priorities ($45.7 million for Australian Federal Police operations in the Solomon Islands and commitment to a network of Australian Border Force officers across the Pacific). Southeast Asian ties will be buoyed through the appointment of a special envoy to Southeast Asia and the establishment of an Office of Southeast Asia within the Department of Foreign Affairs and Trade to coordinate whole-of-government efforts across the region ($13 million).

Justice and transparency

The government has delivered on its election commitment to establish a powerful, transparent and independent National Anti-Corruption Commission to strengthen the institutional integrity of government, providing $262.6 million for its establishment and ongoing operation. Rights are also on the agenda, with a commitment of $99 million over four years to support improved justice outcomes for First Nations peoples. The range of measures for First Nations justice look to address systemic issues of over-representation in the justice system and includes options to report (in real time) on First Nations deaths in custody, to be met from existing costs.

Emergency Management Relief Support

Additional funding has been announced to support survivors of fires and floods across Victoria, Tasmania and New South Wales. The $630.4 million commitment over four years from 2022-23 to strengthen Australia's resilience to disasters includes funds repurposed from the existing Emergency Response Fund. The government will also strengthen volunteer response to emergencies with $38.3 million allocated to Disaster Relief Australia.

Other Measures

The Budget also references the next stage of the development of a National Security Office Precinct in Canberra but does not include details.

Key Insights

  • Over $1.56 billion has been allocated to strengthening ties with Indo-Pacific partners to enhance regional security and cooperation and promote Australia as a partner of choice in the Pacific and Southeast Asia
  • $262.6 million for the establishment and ongoing operation of the National Anti-Corruption Commission
  • $99.0 million over four years from 2022-23 to support improved justice outcomes for First Nations peoples
The government has committed to building trust with the community through integrity, safe workplaces and commitment to First Nations Justice.

Key contacts

Anthony Court
Anthony Court Sector Lead Partner, National Security & Justice
Monique Sheehan
Monique Sheehan Partner, National Security & Justice
Monique Sheehan
Claire McGuinness Partner, National Security & Justice

To find out more, please contact KPMG.

The final word

Leaders within finance and tax functions should consider the impact of the following measures as a priority.

Detail Checklist
1 Review debt funding structures in light of the proposed changes to the thin capitalisation regime (for non-financial entities) and consider any refinancing before the start of the income year commencing on or after 1 July 2023.
2 Identify any payments to related parties that could relate to intangibles held in low- or no-tax jurisdictions and assess impact of proposed anti-avoidance rule under the multinational tax integrity package.
3 Consider the reputational impact of, and prepare for, the proposed public country-by-country reporting requirements.
4 In light of the extension of funding for ATO's Tax Avoidance Taskforce, seek advice early to prepare for future ATO scrutiny. Review tax governance procedures and identify any potential weaknesses.
5 Where relevant, consider impact of changes to the tax treatment of off-market share buybacks undertaken by listed companies.
6 Assess the impact of the reversal of previously announced measures, such as the self-assessment of effective lives of intangible assets.
7 Review potential impact of increase in Heavy Vehicle Road User Charge from 26.4 to 27.2 cents per litre of diesel fuel.
8 Ensure that eligible electric vehicles are appropriately treated as exempt from FBT from 1 July 2022, noting that the value of the benefit must still be included in the employee's reportable fringe benefits amount.

To find out more, please contact KPMG.

A summary of key revenue and expenditure measures for 2022-26 which have resulted in a change in the forward estimates compared to the March 2022 Federal Budget.

Significant revenue reductions / expenditure increases $ billion
Increases to Child Care Subsidy 4.7
Aged care enhancements 2.9
Official Development Assistance - Department of Foreign Affairs 1.4
COVID-19 support package 1.4
Climate change, energy, the environment and water 1.0
Significant revenue increases / expenditure reductions $ billion
Cancelled or deferred infrastructure investment 4.7
Australian Taxation Office compliance activity, including Tax Avoidance Taskforce (net) 3.7
National Water Grid Fund 1.7
Responsible Investment to Grows Our Regions 1.4
Multinational tax integrity 1.0

To find out more, please contact KPMG.

The government has introduced some tax-related measures to parliament which have not yet been enacted. Other measures on which the current government has consulted have not yet been introduced to parliament.

Measures currently before parliament (as of 24 October 2022)
1 Require electronic platform operators to provide information on transactions made through the platform to the ATO.
2 Reduce the tax rate on certain income earned by foreign resident workers participating in the Pacific Australia Labour Mobility scheme.
3 Stop Australian taxation on certain payments or credits made to entities that are Indian residents for tax purposes.
4 FBT exemption for cars that are zero or low emissions vehicles and made available for private use of employees.
Measures consulted on but not yet introduced to parliament (as of 24 October 2022)
1 Implement the OECD / G20 Inclusive Framework agreement on new multilateral business taxation rules ("BEPS 2.0") to address tax base erosion and profit shifting.
2 Modify the thin capitalisation rules to further restrict the interest deductions that business taxpayers can claim.
3 Restrict the deductibility of certain payments to offshore recipients in respect of intangibles.
4 Business tax transparency measures, including the public reporting of certain country-by-country tax information.
5 Restricting the availability of franking credits where a dividend is linked to a capital raising by the payer.
6 Fringe benefits tax record-keeping concessions.
7 Bonus 20 percent tax deduction for small business expenditure on digital operations and on external training for employees.

To find out more, please contact KPMG.


A print version of our full analysis is also available.
 

KPMG Tax Now Podcast – Federal Budget episode

Alia Lum and Clive Bird explore specific tax measures as they relate to business announced in the Federal Government’s first budget, released on 25 October 2022.



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Federal Budget | March 2022