Budget 2024-25: Economy Update and Government Measures

This comprehensive guide unravels the intricacies of the latest pre election budget release for 2024-25. Here we delve into various aspects concerning government and regulators including the modernisation of digital assets, payment regulations, anti-fraud measures, and implications for the charity sector.

Alongside, it paints a vivid picture of the current economic landscape, exploring recent events affecting the economy, inflation rates, cash rates, and the government's proactive efforts to mitigate these challenges.

Interested in understanding how the budget impacts superannuation, investors, or small businesses? Explore our insightful blogs by clicking here:

• Budget 2024-25: Individuals & families
• Budget 2024-25: Business & employers

The economy

The first four years of this decade have tested Australia's economy and the resilience of its people. From floods and bushfires to a once-in-a-century global pandemic, followed by the most significant international energy crisis in 50 years, these events have left a lasting mark. The combined impact disrupted supply chains, spiked energy prices, and drove inflation and interest rates higher. Though these challenges may now seem like distant memories, their effects continue to reverberate through the economy.

Australia continues to grapple with global uncertainties driven by persistent inflation in North America, slowing growth in China and other major economies, recessions in both the United Kingdom and Japan, and escalating tensions in the Middle East and Eastern Europe.

Key Statistics

• GDP: Real GDP grew by 1.75% in 2023–24. Growth is projected to stay modest at 2% in 2024-25 and 2.25% in 2025-26.
• Inflation: The Government anticipates that inflation will meet its target by the end of 2024. However, the RBA's latest outlook suggests inflation won't fall within the 2-3% target range until the second half of 2025, reaching the midpoint in 2026. Global inflation remains high and is not expected to align with central bank targets until 2025.
• Unemployment: The unemployment rate remains close to its 50-year low at 3.8%, with the participation rate nearing a record high at 66.6%. Although unemployment is expected to rise, it should stay below pre-pandemic levels.
• Wages: Nominal wages in 2023–24 have grown at their fastest pace in nearly 15 years. Growth is expected to moderate to 3.25% in 2024-25 and 2025-26. Real wages are projected to continue rising, with a 0.5% increase anticipated by the June quarter of 2024.
• Business Investment: Business investment experienced a robust growth of 8.3% last year.

Inflation and Cash Rate

Inflation is moderating but remains above the target range of 2 to 3% set by monetary policy.

Michelle Marquardt, Head of Prices Statistics at the ABS, noted:

“Annually, the CPI rose by 3.6% up to the March 2024 quarter. Although prices continued to rise for most goods and services, annual CPI inflation decreased from 4.1% last quarter and has fallen significantly from its peak of 7.8% in December 2022.”

Rising inflation has increased the cost of living, with Australian households paying more for the same goods and services. The budget surplus in 2022–23 helped alleviate some inflationary pressures, allowing the Government to fund its priorities and reduce debt interest. While these are positive developments, the Government acknowledges the need for further and faster reduction in inflation. The budget measures aim to ease inflation without exacerbating it.

The cash rate currently stands at 4.35%. The RBA last raised the cash rate by 0.25% on 7 November 2023, intending to return inflation to the target range within a reasonable timeframe. While the prices of goods are moderating, services remain inflated. Higher interest rates have generally led to reduced consumer spending, which is slowing economic growth and aligning demand more closely with supply.

References

• Prime Minister, Anthony Albanese, A future made in Australia, 11 April 2024.
• Australian Bureau of Statistics (ABS), CPI rose 1.0% in the March 2024 quarter (ABS).), 24 April 2024.
• Treasurer, Jim Chalmers, Annual inflation almost halved under Labor, 24 April 2024.
• RBA, Media Release, Statement by the RBA: Monetary Policy Decision, 7 May 2024.

Government & regulators initiatives

Modernising the Regulation of Digital Assets and Payments

The government has allocated $7.5 million over four years starting from 2024–25, with an ongoing $1.5 million annually, to update regulatory frameworks for financial services. This initiative aims to enhance competition and bolster consumer protections for services driven by new technologies.

The Government's plans include:

• Developing and consulting on legislation to license and regulate platforms handling digital assets, alongside advancing related reforms. This encompasses continued exploratory work on Central Bank Digital Currencies, asset tokenisation, and decentralised finance.
• Introducing a new regulatory framework for payment service providers, including digital wallets and electronic stored value providers. This framework will feature licensing requirements and a mandated ePayments Code.

Extension of transitional reporting for charities

The current charity transitional reporting arrangement will be extended for five years.

The Government will remake the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 with an extension of the current charity transitional reporting arrangement for five years.

The purpose of the regulation is to reduce the regulatory reporting burden on certain not-for-profit entities (registered entities) under the Australian Charities and Not-for-profits Commission Act 2012 (the ACNC Act) by providing that the ACNC Commissioner may treat a statement, report or other document given under an Australian law to an Australian Government agency by a registered entity as satisfying certain reporting obligations under the ACNC Act.

ATO Counter Fraud Strategy

Date: First income year after Royal Assent of enabling legislation

The Government has announced a commitment of $187 million over four years, starting from 1 July 2024, to enhance the Australian Taxation Office's (ATO) capabilities in detecting, preventing, and mitigating fraud within the tax and superannuation systems.

Funding Breakdown:

• $78.7 million: Upgrades to information and communication technologies, enabling the ATO to identify and block suspicious activities in real time.
• $83.5 million: Establishment of a compliance taskforce dedicated to recovering lost revenue and intervening in cases of fraudulent refund attempts.
• $24.8 million: Enhancements to the ATO's management and governance of counter-fraud initiatives, including better support for individuals affected by fraud.
• $0.4 million: Allocation to the Department of Finance over four years from 1 July 2024 to conduct a Gateway Review process, ensuring independent assurance, oversight, and delivery of the measure.

Additionally, the Government will extend the ATO's notification period for retaining a business activity statement (BAS) refund for further investigation from 14 days to 30 days, aligning it with the time limits for non-BAS refunds. This extended period aims to bolster the ATO's fraud-combating efforts during peak fraud events, like Operation Protego, without significantly affecting legitimate refunds. Any legitimate refunds held for over 14 days will accrue interest payable to the taxpayer, as is currently the case. The ATO will also publish BAS processing times online.

This initiative is projected to increase receipts by $302.2 million and elevate payments by $187.4 million over the five years from 2023–24.

Decreased levy for sweet potatoes Date

Effective from 1 July 2024, the Government will lower the overall levy rate on sweet potatoes from 1.5% to 0.5%.

Funding ATO Priority Targets

The Australian Taxation Office (ATO) has received specific funding for key initiatives:

Personal Income Tax: The ATO’s Personal Income Tax Compliance Programme will be extended for one year starting 1 July 2027. This extension is projected to increase receipts by $180.3 million and payments by $44.3 million over the five years from 2023–24.

Shadow Economy: The ATO’s Shadow Economy Compliance Programme will be extended for two years starting 1 July 2026. This extension is expected to boost receipts by $1.9 billion and increase payments by $610.2 million over the five years from 2023–24. This includes an additional $429.6 million in GST payments to states and territories.

Anti-Avoidance Taskforce: The ATO’s Tax Avoidance Taskforce will be extended for two years starting 1 July 2026. This measure is anticipated to raise receipts by $2.4 billion and increase payments by $1.2 billion over the five years from 2023–24. The taskforce focuses on the top 1,100 public and multinational businesses, the top 500 privately-owned groups, and extends to all 5,000 high-wealth private groups with net wealth exceeding $50 million, as well as public and multinational businesses outside the ATO’s justified trust programmes. As of 30 June 2023, the taskforce has helped the ATO raise $32.7 billion in tax liabilities.

Child Care Providers: An allocation of $4.8 million over four years from 2024–25 will ensure satisfactory engagement with the Australian tax system regarding the fitness and propriety requirements of existing and new childcare providers, in relation to the Child Care Subsidy Programme.

Identity Checking: $155.6 million will be provided over two years from 2024–25 to continue the operation and improvement of the Government’s Digital ID, myGovID, and the system supporting authorised access to a range of government business services.

Migrant Workers: $1.9 million will be allocated in 2024–25 for a data-matching pilot between the Department of Home Affairs and the ATO to monitor income and employment data, aimed at preventing the exploitation of migrant workers and abuse of Australia’s labour market and migration system.

E-Invoicing: $23.3 million will be allocated over four years from 2024–25 to continue overseeing and operating the secure eInvoicing network. This initiative is part of the Government’s effort to combat scams and online fraud through the introduction of mandatory industry codes under a Scams Code Framework and increased use of the secure eInvoicing network.

Military Invalidity Payments: The Government will provide $11.9 million over five years from 2023–24 (and $0.9 million per year ongoing) to implement a social security means test for military invalidity payments affected by the Federal Court’s decision in FCT v Douglas [2020] FCAFC 220. This approach ensures that the Douglas decision does not impact income support payment rates for veterans receiving invalidity payments from the Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme, compared to pre-Douglas arrangements.

In the Douglas decision, the Full Federal Court found that invalidity pensions paid under the Military Superannuation Benefits and Defence Force Retirement and Death Benefits schemes starting after 20 September 2007 were classified as ‘superannuation lump sum payments’ rather than ‘superannuation income stream benefits’ under the ITAA 1997.

Delayed - Expansion of General Anti-Avoidance Rules

Date: Royal Assent of Amending Legislation

The 2023-24 Budget measure to extend Part IVA, initially set to commence on 1 July 2024, has been postponed. It will now apply to income years starting on or after the date the amending legislation receives Royal Assent.

Part IVA includes the general anti-avoidance provisions that the ATO can use to tackle arrangements designed to obtain tax benefits.

With the new measure, the scope of Part IVA will be broadened to cover:

• Schemes that minimise tax paid in Australia by leveraging a lower withholding tax rate on income paid to foreign residents.
• Schemes that secure an Australian income tax benefit, even if the primary purpose was to reduce foreign income tax.

Delayed - Enhancing Fuel and Alcohol Excise Administration

The implementation dates for the following components of the Fuel and Alcohol Excise Administration Enhancement Package have been adjusted:

• Streamlined Licence Applications and Renewals: The start date is shifted to the later of 1 July 2024 or the day following Royal Assent, from the initial 1 July 2024 target.
• Public Register of Excise Licences: The ATO will now publish a public register of excise licences and excise-equivalent warehouse licences on its website 30 days after the legislation commences.
• Removal of Regulatory Barriers for Bunker Fuels: The removal of regulatory barriers for bunker fuels in the commercial shipping industry is postponed from 1 July 2024 to 1 January 2025.

Exemption for Australian Plantation Forestry Entities from Thin Capitalisation Changes

Australian plantation forestry entities will be exempt from the new earnings-based thin capitalisation rule. The Multinational Tax Integrity Package, introduced in the 2022-23 October Budget, revised the thin capitalisation regulations, replacing the safe harbour and worldwide gearing tests with earnings-based assessments to align debt deductions with an entity’s profits.

However, Australian plantation forestry entities will continue to use the previous asset-based thin capitalisation rules.

Measures Not Proceeding

• Australian Business Number: The previous Government’s 2019-20 Budget measure, aimed at strengthening the Australian Business Number system to combat the Black Economy, had proposed start dates of 1 July 2021 and 1 July 2022. This initiative will not progress.
• Intangibles in Low-Tax Jurisdictions: The measure to deny deductions for payments related to intangibles held in low- or no-tax jurisdictions, announced in the 2022-23 October Budget, will also not proceed. Integrity issues will instead be addressed through the implementation of the Global Minimum Tax and Domestic Minimum Tax. Additionally, from 1 July 2026, a new provision will apply penalties to taxpayers belonging to groups with over $1 billion in global annual turnover. These penalties will target those found to have mischaracterised or undervalued royalty payments that would otherwise be subject to royalty withholding tax.

ATO Discretion on Offsetting Refunds Against Old Debts

Debts ‘On Hold’ Before 1 January 2017

The Government will amend tax law to grant the Commissioner of Taxation the discretion not to use a taxpayer’s refund to offset old tax debts, specifically for debts placed ‘on hold’ prior to 1 January 2017. This discretion will apply to individuals, small businesses, and not-for-profits, aligning with the Commissioner’s current administrative approach.

In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of the debt's origination date. This amendment addresses the issue for older debts but enforces the current practice for all debts from 1 January 2017 onward.

Pursuing Unpaid Superannuation in Liquidation Cases

Effective from 1 July 2024

The Government has announced plans to recalibrate the Fair Entitlements Guarantee Recovery Programme to address unpaid superannuation entitlements owed by employers in liquidation or bankruptcy, starting from 1 July 2024.

The Fair Entitlements Guarantee Recovery Programme is designed to enhance the recovery of employment entitlements advanced under the Fair Entitlements Guarantee (FEG). The FEG serves as a legislative safety net of last resort, providing assistance to eligible employees.

‘Payday’ Super Compliance

Date: Four years from 2024–25

Over the next four years, beginning in 2024–25, $60 million will be allocated to enhance the Productivity, Education, and Training Fund. This funding aims to facilitate practical initiatives by employer and worker representatives to improve workplace productivity and foster tripartite cooperation. Additionally, it will aid workplaces in implementing policy changes, such as the introduction of payday superannuation.

Funding Anti-Money Laundering and Counter-Terrorism Financing Reform

Timeline: Four years from 2024–25

The Government will allocate $168 million over four years starting from 2024–25 to implement reforms aimed at strengthening Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Between April and June 2023, the Attorney-General’s Department conducted an initial consultation round on proposed reforms to modernise Australia’s anti-money laundering and counter-terrorism financing regime. This followed the release of its first consultation paper. The Department received 142 submissions, which were broadly supportive of the reforms. Key aspects of the feedback included:

• Simplification and modernisation of the regime.
• Regulation of tranche-two entities, encompassing certain high-risk services offered by some professions, such as lawyers, accountants, trust and company service providers, real estate professionals, and dealers in precious metals and stones.

Funding Breakdown:

• $160.8 million over two years from 2024–25 for the Australian Transaction Reports and Analysis Centre to expand its regulatory, intelligence, and data capabilities and to provide guidance to newly regulated entities.
• $7 million over four years from 2024–25 for the Attorney-General’s Department to support the implementation of legislative reforms by providing policy and legal advice, engaging in stakeholder consultation, and delivering a programme to enhance anti-money laundering and counter-terrorism financing capacities in the Pacific.

Preventing Greenwashing and Managing Sustainable Finance Markets

Greenwashing: The Australian Securities and Investments Commission (ASIC) has been allocated $10 million over four years, along with $1.9 million annually, to investigate and take enforcement actions against market participants engaging in greenwashing and other sustainability-related financial misconduct.

Green Bonds: Starting from 2024-25, $5.3 million over four years and $1.2 million annually have been allocated to the Treasury and the Australian Prudential Regulation Authority (APRA) to implement the sustainable finance framework. This includes issuing green bonds, enhancing data quality, and participating in the development of international regulatory regimes related to sustainable finance.

Labelling Regime: ASIC and the Treasury have been provided with $1.2 million to consult on designing a labelling regime. This regime aims to regulate the use of sustainability labels on retail investment products.

Other

Women’s budget statement

This year, the Government unveiled Australia’s first national strategy explicitly focused on achieving gender equality. "Working for Women: A Strategy for Gender Equality" (Working for Women) represents a decade-long commitment to advancing gender equality.

The Women’s Budget Statement now serves as a reporting mechanism for Working for Women. Starting with this Budget, it will detail the Government’s investments in implementing the strategy.

The 2024–25 Women’s Budget Statement highlights five key priorities, aligning with the focus areas of Working for Women:

1. Gender-based violence
2. Unpaid and paid care
3. Economic equality and security
4. Health
5. Leadership, representation, and decision-making

Key measures announced in the Federal Budget include:

• Urgent actions under the National Plan to End Violence against Women and Children 2022–2032, addressing the epidemic of violence in Australia.
• Permanent financial support for victim-survivors leaving violent intimate partner relationships through the Leaving Violence Program.
• Increased funding for crisis and transitional accommodation for women and children fleeing domestic violence.
• Cost-of-living relief for all women taxpayers and reduced workforce participation disincentives via legislated tax cuts.
• Additional energy bill relief and increased maximum rates of Commonwealth Rent Assistance.
• Investment in women’s health to address higher health costs faced by women, ensuring greater choice, access, and support.
• Reform of HELP debt indexation and introduction of a new Commonwealth Prac Payment.
• Introduction of a superannuation guarantee equivalent payment on Government-funded Paid Parental Leave starting 1 July 2025.
• Funding for wage increases for aged care workers and early childhood educators.
• Launch of the Building Women’s Careers programme to boost women’s participation in construction, clean energy, advanced manufacturing industries, and the technology and digital sectors, under the Future Made in Australia initiative to reduce industry gender segregation.

Safe and Responsible AI

Over the next five years starting from 2023-24, a total of $39.9 million will be allocated to develop policies and capabilities that ensure the safe and responsible adoption of artificial intelligence (AI) technology. This funding includes:

• $21.6 million over four years from 2024-25 to establish a revamped National AI Centre (NAIC) and an AI advisory body within the Department of Industry, Science and Resources.
• $15.7 million over two years from 2024-25 to enhance industry analytical capabilities and coordinate AI policy development, regulation, and engagement activities across the government. This includes a review and strengthening of existing regulations in health care, consumer protection, and copyright law.
• $2.6 million over three years from 2024-25 to address and mitigate national security risks associated with AI.

Additionally, the Digital Transformation Agency will formulate and implement policies to position the government as a leading example in the use of AI, utilising existing resources to cover costs.

Development of Quantum Computing Capabilities

Export Finance Australia has allocated $466.4 million in equity and loans from the National Interest Account to PsiQuantum Pty Ltd. This funding aims to support the construction and operation of quantum computing facilities, along with associated investments in industry and research development in Brisbane. This initiative is part of a collaborative investment with the Queensland Government.

Additionally, $27.7 million over 11 years from 2023–24 will be provided to the Department of Finance, the Department of Foreign Affairs and Trade, the Department of Industry, Science and Resources, and the Department of the Treasury to manage and oversee this investment. Due to commercial sensitivities, the financial details of this financing package are not for publication (nfp).

2023-24 Measures Pending Implementation

Several previously announced tax and superannuation policy decisions are currently pending approval in Parliament, including:

• Instant asset write-off: A proposal to raise the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year. Senate amendments suggest increasing the threshold further to $30,000 and extending the measure to medium-sized entities.
• Small business energy incentive: A plan to offer small and medium businesses a bonus deduction equal to 20% of the cost of eligible assets or improvements that support electrification or more efficient energy use.
• Petroleum resource rent tax (PRRT) deductions cap: Proposed amendments to cap the deductible expenditure allowable for a petroleum project within a tax year.
• Federal Administrative Review Body: A proposal to abolish the Administrative Appeals Tribunal (AAT) and establish the Administrative Review Tribunal.
• Strengthen the integrity of the tax system: Proposed reforms aimed at enhancing the integrity of the tax system, which include increasing regulatory powers and strengthening regulatory arrangements.
• Better targeted superannuation concessions: Proposed amendments to reduce tax concessions for individuals with Total Super Balances exceeding $3 million.
• Non-arm’s length expenditure for superannuation entities: Proposed changes to the non-arm’s length expense rules for complying superannuation entities, restricting their operation and application.
• Objective of superannuation: A proposal to legislate the objective of superannuation.

Policy decisions currently in the consultation phase include:

• International tax: Country-by-country reporting and global and domestic minimum tax.
• Investment in housing: Tax concessions for build-to-rent projects.
• Medicare and lump sum payments: Exempting lump sum payments in arrears from the Medicare levy.
• Strengthening tax system integrity: Reviewing tax regulator information gathering powers and regulating accounting, auditing, and consulting firms in Australia.
• Payday super: Consultation on the process for payday superannuation.
• Transfer balance credit provisions: Amendments to the transfer balance credit provisions for successor fund transfers.

Additionally, the Government has announced the discontinuation of the Modernising Business Registers Program.

The team 

The Trekk Advisory team is here for you, ready to help you make the most of the Budget's opportunities or to navigate any risks. Remember, the details matter, so don't hesitate to reach out if you need our support.

Timeline of initiatives

Measures and start date at a glance

Disclaimer

This document is provided with the understanding that it does not constitute advice, nor does it imply that the authors or distributors are offering legal or professional guidance. Despite the careful preparation of the information, individuals should not base their actions solely on its contents. Should you need assistance, it is advisable to seek professional counsel.

The information provided in the Budget 2024-25 Updates is intended to serve as a resource, to be used alongside professional expertise and judgement. Responsibility for the application of the Budget 2024-25 Update, including any direct or indirect outcomes resulting from decisions made based on this update, falls to the user. Trekk Advisory Services Pty Ltd, its directors, authors, and anyone else involved in creating and distributing this guide, categorically deny any liability for losses or damages of any kind, whether from contract, tort, or otherwise, arising from the use of the Budget 2024-25 Update or reliance on any information contained within this guide.