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Analysis:
Analysis
04 May 2023
10 minute read

Federal Budget

2023-24

From headwinds to tailwinds

Introduction

On 9 May 2023 Treasurer Jim Chalmers handed down the 2023-24 Federal Budget aimed at addressing challenging headwinds including higher interest rates, inflation and cost of living pressures. A modest surplus of $4.2 billion – the first surplus in 15 years – is a welcome surprise built on tailwinds: favourable commodity prices, a strong labour market and higher migration in the short-term.

The long-term forecast position looks promising. Savings on interest costs and the NDIS are anticipated to help to improve the structural budget position over the next decade. Gross debt is estimated to peak 10.4 percentage points lower, and five years earlier compared to the October Budget.

The 2023-24 Budget includes a substantial improvement in the Federal Government’s fiscal position from the October Budget, largely due to much higher personal income tax and company tax receipts than previously assumed.

Snapshot

In summary, the key announcements were:

  • Assistance with cost of living: $14.6 billion package includes a range of payments for low- and middle-income families including energy bill savings, cheaper medicines, modest increases to JobSeeker and rent assistance
  • Dedicated women’s budget statement:Explores factors influencing women’s economic equality and outlines key measures to advance gender equality in Australia – focusing on achieving economic equality, ending violence against women, increasing women’s representation in leadership and decision-making and improving women’s health and wellbeing
  • Significant funds towards the climate transition: More funding was allocated towards climate action than originally expected. This includes $2.0 billion for the establishment of a new Hydrogen Headstart program and $1.3 billion in funding to establish the Household Energy Upgrades Fund to support home upgrades that improve energy performance and save energy
  • Defence funding to increase beyond the forward estimates: The cost of the Defence Strategic Review means an increase in spending over the medium term, with Defence spending expected to rise above 2.3% of GDP in 2032-33Stronger budget position: The structural budget deficit is expected to be 0.5% of GDP in 2032-33, compared to 2.0% in the October budget. Lower NDIS and interest costs mean there has been a very substantial improvement in the budget bottom line over the next decade

Deloitte’s Budget digest provides insights on nine major themes below.

01 Economic overview

A stronger-than-expected Australian economy has driven a surge in tax revenue and a $41.1 billion turnaround in the fiscal position that was forecast in the October Budget. An underlying cash surplus of $4.2 billion is now forecast for 2022-23.

Snapshot

  • The Australian economy outperformed Treasury’s forecasts from last October, adding an estimated $134.8 billion in revenue in 2022-23 and the following four years through a surge in both company tax and personal income tax
  • Government payments are forecast to be $26.7 billion higher over the five years from 2022-23. The Government announced $42.6 billion of spending on new policies over five years, including the $14.6 billion cost-of-living package
  • The surge in revenue and comparatively small increase in expenses delivered a $41.1 billion turnaround in the fiscal deficit that was forecast last October. An underlying cash surplus of $4.2 billion is now expected in 2022-23 and the cumulative underlying cash deficit has been revised down by $125.9 billion over the five years to 2026-27
  • The healthier bottom line means net debt is expected to be equal to 21.6% of GDP in 2022-23 and average less than 24% of GDP over the Budget estimates, down from the 26% forecast in October last year

Government spending has also increased, but much more moderately than revenue. The centrepiece of the Budget is a $14.6 billion cost-of-living package that includes a range of payments for low-and middle-income families from savings on energy bills and cheaper medicines to modest increases to JobSeeker and rent assistance.

The Budget is still projected to revert to a deficit over the forward estimates and beyond. However, the forecast long term position has improved significantly compared to what had been expected at the time of the October Budget. Savings on interest costs and the NDIS are now anticipated to help the structural Budget position move closer towards balance over the next decade.

Overview

The Australian economy outperformed Treasury’s forecasts from the 2022-23 October Budget. Nominal GDP growth has been revised up to 10.25% in 2022-23 and 1.25% in 2023-24. Rapid population growth and a defiant labour market have resulted in stronger employment growth and higher wages. Treasury has adjusted its approach to forecasting commodity prices, but the methodology remains conservative and is likely to mean the terms of trade (and hence company tax receipts) will be underestimated.

Stronger economic conditions have led to an increase in tax receipts (excluding policy changes and the GST) by $114.2 billion over five years to 2026-27.

Company tax revenue has been revised up by $52.7 billion over the five years to 2026-27on the back of near-record terms of trade and strong corporate profits for non-mining companies. Personal income tax has been revised up $74.1 billion thanks to Australia’s low unemployment rate and higher forecast wage growth.

The Government is returning 82% of the revenue upgrades to the Budget bottom line with spending forecast to be $26.7 billion higher over the five years to 2026-27. The $42.6 billion in new policy measures includes a $14.6 billion cost-of-living package. But those support payments are relatively modest – such as a $40 per fortnight increase in the JobSeeker allowance for all recipients and a 15% increase in rental assistance – as the Budget seeks to tread the line between providing much-needed relief to struggling households without stoking inflation.

The surge in tax revenue and comparatively small increase in spending has delivered a substantial fiscal turnaround from October’s forecast. The underlying cash deficit has been flipped into a forecast surplus of $4.2 billion in 2022-23. The Budget returns to the red beyond 2022-23, but the cumulative underlying cash deficit is now forecast to be $125.9 billion lower over the five years to 2026-27.

This Budget focused on balancing short-term cost-of-living relief while not making the RBA’s inflation challenge any harder. Eventually, the Government will have to turn to the more difficult task of restoring the Budget’s structural health and the finding the right fiscal settings for Australia’s long-term prosperity.

A stronger-than-expected economy

The main driver of the Government’s unexpected return to surplus is a large increase in Australia’s nominal GDP. The October Budget assumed that nominal GDP would grow just 8.0% in 2022-23 and fall 1.0% in 2023-24. Those forecasts have been revised up to 10.25% in 2022-23 and 1.25% in 2023-24 in the context of persistent price inflation, strong wage growth, a historically tight labour market and strong terms of trade.

Australia’s defiant labour market has pushed Treasury’s projections of a 4.5% unemployment rate (up from the current level of 3.5%) back, to 2024-25 rather than 2023-24. Higher receipts from taxes on individuals have added some $16.9 billion to the Budget in 2022-23 alone.

A surging economy, even if only in nominal terms, is one of the fastest ways to repair the Budget balance. That’s evident in the unexpected return to surplus in 2022-23. But as the RBA’s hiking cycle flows through to higher unemployment and softer wage and price growth, and as commodity prices fall back toward long run averages, the medium-term strain on the Budget will return. An underlying cash deficit of $13.9 billion in 2023-24 is forecast to worsen to $35.1 billion in 2024-25.

Banking most of the revenue windfall

One of the questions going into this Budget was whether the Government would spend or save the unexpected surge in tax revenue. The Government rightly opted for fiscal constraint and returned 82% of the revenue upgrades to the Budget bottom line.

There is no doubt that elevated inflation, negative real wage growth, and the RBA’s rapid tightening cycle are causing financial pain for many households. But it was critical to strike the balance between targeted cost-of-living relief and making sure fiscal policy is helping, rather than hindering, the work of the central bank. The Government’s $14.6 billion cost-of-living package largely strikes this balance, though the fact that policy decisions will add $13.8 billion to spending next financial year may make the RBA’s task slightly more difficult than it otherwise would have been.

A strong foundation for more significant reform

The unexpected return to surplus and improved medium-term outlook creates the risk of complacency and a delay in the big decisions that are needed to place the Budget on a stronger longer-term footing and increase productivity growth.

The Budget included some measures to slow the growth rate of spending. Cutting the growth rate of the NDIS from 13.8% to 8% by July 2026 is expected to save $59 billion over the seven years to 2033-34, while lower debt will materially reduce the cost of interest payments. The $19 billion of new Defence spending over the next four years has been offset by scaling back and delaying other projects.

But the Budget is thin on addressing Australia’s deteriorating productivity growth.

It’s clear that the size of Government will be larger in the future than it has been in the past. The seven areas of spending that are growing most rapidly are health, education, welfare payments, aged care, the NDIS, Defence and interest payments. Australians rightly want their Government to fund and deliver services in these critical areas.

This Budget included minor tinkering to the tax system – including an increase in the tobacco tax, a reduction in superannuation tax concessions, and a relatively constrained increase in the petroleum resource rent tax. But Australia needs loftier goals when it comes to tax reform, which has the potential to simultaneously fix the structural deficit, realign incentives and boost the productive capacity of the economy.

The unexpected improvement in the near-term fiscal position provides the perfect opportunity to fund more significant reform going forward.

02 Individuals

One of the centrepieces of this year’s Federal Budget is the $14.6 billion cost of living package, which comprises of the Energy Price Relief Plan together with increased support payments to many recipients of government payments.

Snapshot

  • The Energy Price Relief Plan will support approximately 5.5 million households and around 1 million small businesses
  • The base rate of working age (JobSeeker) and student payments will increase by $40 per fortnight from 20 September 2023
  • There was no announcement about any changes to personal income tax rates, including the Stage 3 changes which are legislated to apply from July 2024
  • The Government recommitted to its announced change to reduce the tax concessions available to individual superannuation account balances above $3 million.
  • There were also no further announcements on other matters such as the proposed individual residency test reforms.

Cost of living package

The Government has announced a $14.6 billion cost of living plan which packages up a number of announcements to provide help with power bills, bring down out-of-pocket health costs (by capping the price of medicines on the PBS), support vulnerable Australians, create more affordable housing and boost wages (aged care workers).

Energy Bill Relief Plan

The Government will provide $1.5 billion over two years from 2023–24 to establish the Energy Bill Relief Fund to support targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers. Eligible households that receive existing state and territory rebates will have this new rebate applied to their bill automatically from 1 July 2023.

Energy Price Relief Rebates will be available from 1 July 2023, co-funded by the Commonwealth, states and territories. A $250 Commonwealth rebate will be available to eligible households in New South Wales, Victoria, Queensland, South Australia and Tasmania delivering $500 in power bill relief in total (including state contributions).

A $175 Commonwealth rebate (generally $350 in total bill relief) will be available to eligible households in Western Australia, Northern Territory and the Australian Capital Territory.

A $325 Commonwealth rebate will be available to eligible small businesses in each state, which translates to a $650 benefit for small businesses in states that have matched the relief.

Support for vulnerable Australian households

The Government will increase support for people receiving working age payments including the JobSeeker Payment. This measure will increase the base rate of working age and student payments by $40 per fortnight. This increase applies to the JobSeeker Payment, Youth Allowance, Parenting Payment (Partnered), Austudy, ABSTUDY, Disability Support Pension (Youth), and Special Benefit, from 20 September 2023.

Eligibility for the existing higher single JobSeeker Payment rate for recipients aged 60 years and over will be extended to recipients aged 55 years and over who are on the payment for nine or more continuous months.

The Government will also extend eligibility for Parenting Payment (Single) to support single principal carers with a youngest child under 14 years of age (previously under 8 years of age).

Increased rent and housing assistance

The Government will increase the maximum rates of the Commonwealth Rent Assistance (CRA) allowances by 15% to help address rental affordability challenges for CRA recipients.

The Government will also introduce a number of housing measures to increase support for social and affordable housing across the country and improve access for home buyers, including:

  • Expanding the criteria for eligibility for the Home Guarantee Scheme – see announcement here.
  • Extending the deadline for all existing Homebuilder applicants to submit supporting documentation from 30 April 2023 to 30 June 2025 – see announcement here.

Personal Taxation

Passenger Movement Charge increase

The Passenger Movement Charge will be increased from its current level of $60 to $70 per departure from Australia, effective from 1 July 2024. Subject to limited exceptions, the charge is applicable to both citizens and non-citizens, 12 years and older, and is normally collected by carriers on behalf of the government when tickets are sold to passengers. It is estimated that this measure will increase passenger movement charge receipts by $520 million over the five years from 2022-23.

Exempting lump sum payments in arrears from the Medicare levy

The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. Eligibility requirements will ensure that relief is targeted to taxpayers who are genuinely low-income and should be eligible for a reduced Medicare levy.

Superannuation

Government updates on superannuation tax rate for large balances

The Government recommitted to its announced changes to reduce the tax concessions available to individual superannuation account balances above $3 million.

From 1 July 2025, the tax rate applied to earnings attributable to superannuation account balances above $3 million will be 30%. These measures will not impact individuals with total superannuation balances of less than $3 million nor will this change affect that portion of an individual’s balance below the $3 million threshold.

The Government has confirmed that interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests. This will ensure commensurate treatment.

The introduction of this measure is estimated to affect around 80,000 people and increase receipts by $2.3 billion in the first full year of receipts collection (2027-28). Over the five years from 2022–23, it is estimated to increase receipts by $950 million and increase payments by $47.6 million. This includes $50 million in receipts associated with updating the notional contribution calculation methodology, applicable to all defined benefit members.

03 Business taxes

Australia has confirmed the implementation timeline for the OECD/G20 Pillar Two global minimum tax rules starting from 2024. The most significant revenue impact in the Budget is $7.6 billion, comprising of GST and other tax receipts expected to be collected from an expanded GST compliance program. In addition, the ATO has received significant other funding to continue other compliance activities.

Snapshot

  • Australia has announced the implementation timeline and costings for the OECD/G20 Pillar Two global minimum tax
  • The Government will expand and strengthen Part IVA (the general anti-avoidance rule)
  • As previously announced, the Government will collect an additional $2.4 billion over the forward estimates from modifications to the Petroleum Resource Rent Tax
  • The patent box initiatives announced by the Coalition Government will not proceed
  • Small and medium businesses will benefit from an additional deduction for spending on electrification and more efficient use of energy
  • There will be a one-year temporary increase to the Instant Asset Write-off to $20,000 for small businessSuperannuation contributions to be paid on payday from 1 July 2026
  • Significant additional funding for the ATO

Cross-border taxation developments

Implementation of a global minimum tax and a domestic minimum tax

Australia has announced the implementation of the OECD/G20 Pillar Two global minimum tax. Pillar Two will establish a global minimum tax rate of at least 15% under a globally agreed set of rules that will require groups to undertake annual calculations on a country by country basis. The Government has confirmed Australia’s intention to implement Pillar Two in line with the OECD timeline, consistent with the United Kingdom and European Union states.

Australia will implement a domestic minimum tax for income years beginning on or after 1 January 2024, to ensure that Australia retains taxing rights over undertaxed Australian profits.

Further, the following measures will also be introduced:

  • The Income Inclusion Rule (IIR) is to apply to income years beginning on or after 1 January 2024
  • The Undertaxed Profits Rule (UTPR) is to be effective 12 months later (income years beginning on or after 1 January 2025).

The measures will apply to multinational enterprises with a global turnover above €750 million (i.e. approximately $1.2 billion) and will apply to Australian headquartered multinational enterprises as well as Australian subsidiaries of foreign parents. These measures will greatly increase the compliance burden on in-scope Australian groups and Australian subsidiaries of multinationals.

The measure is forecast to increase revenue by $370 million and increase payments by $110 million over the five years from 2022-23.

Expanding the general anti-avoidance rule in the income tax law

The Government will expand and strengthen Part IVA (the general anti-avoidance rule) for income years commencing on or after 1 July 2024, regardless of when schemes were entered into. This measure appears to relate only to the general provisions of Part IVA, rather than other measures such as the Multinational Anti Avoidance Law or the Diverted Profits Tax.

Part IVA will be expanded so as to also include the following:

  • Schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents. It is expected that the measure is seeking to ensure that Part IVA can be applied in a case where the liability to withholding tax is reduced but not eliminated, as well as a case where the liability to withholding tax is eliminated (reduced to nil)
  • Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax. To date, the general provisions of Part IVA have been premised upon there being a sole or dominant purpose to obtain a relevant Australian tax benefit. This proposal seeks to ensure that Part IVA can apply where there is an Australian tax benefit even where the sole or dominant purpose was to obtain a foreign tax advantage. It is not yet clear what purpose threshold will apply to the Australian tax benefit.

Energy and resources

Proposed changes to the Petroleum Resource Rent Tax (PRRT)

On 7 May 2023, the Treasurer advised of significant changes to the design of the PRRT. The package of proposed changes, which include integrity reforms, is expected to increase tax receipts by $2.4 billion over the forward estimates. The key announcements are:

  • The Government has released the Petroleum Resource Rent Tax: Review of Gas Transfer Pricing Arrangements final report (GTP review) prepared by Treasury, together with the Government’s response. The Government will proceed with 8 of 11 recommendations by the GTP Review:
    • From 1 July 2023, the Government will limit deductible expenditure to the value of 90% of PRRT assessable receipts in respect of each project in the relevant income year (applied after mandatory transfers of exploration expenditure). The amounts that are unable to be deducted because of the cap will be carried forward and uplifted at the government long-term bond rate
    • From 1 July 2023, the Government will update the PRRT general anti-avoidance rule and the arm’s length rule to clarify their application to the Petroleum Resource Rent Tax Assessment Regulation 2015
    • From 1 July 2024, the Government will modernise the PRRT for emerging developments in LNG project structures, better reflect the contributions and risks of the notional entities that comprise the LNG value chain, align the regulations with current transfer pricing practices and provide appropriate integrity rules for the regime.
  • Further, the Labor Government’s response to the Callaghan Review, in respect to recommendations that were accepted but not implemented by the previous Government has been released. The Government will proceed with eight recommendations made by the Callaghan review.

The Government will consult on final design and implementation details for the deductions cap and on the draft GTP rules later this year. Consultation on other policy changes (recommendations from the Callaghan Review and anti‑avoidance rules) will occur in early 2024. The Petroleum Resource Rent Tax Assessment Regulation 2015 will not be remade until the legislation implementing the deductions cap has been enacted.

For more information on this measure, please see our analysis published 8 May 2023 here.

Clarifying the tax treatment of ‘exploration’ and ‘mining, quarrying and prospecting rights’

The Government will amend the PRRT legislation to clarify that ‘exploration for petroleum’ is limited to the ‘discovery and identification of the existence, extent and nature of the petroleum resource’ and does not extend to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’.

This measure is consistent with the Commissioner of Taxation’s administrative treatment and written binding advice as set out in TR 2014/9, which applies from 21 August 2013. The amendments will apply to all expenditure incurred from 21 August 2013.

This measure will also clarify that mining, quarrying and prospecting rights (MQPRs) cannot be depreciated for income tax purposes until they are used (not merely held) and will limit the circumstances in which the issue of new rights over areas covered by existing rights lead to tax adjustments. These amendments apply in respect of all MQPRs acquired or started to be used after the time of announcement (7.30 pm (AEST) on 9 May 2023 (Budget night).

The Government states that these amendments are designed to ensure the PRRT and income tax legislation operates as intended following the Full Federal Court’s decision in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2.

Innovation incentives

Patent box announcements will not proceed

The Government formally announced that the three separate patent box measures announced by the former Government will not proceed. These included a patent box regime for Australian medical and biotechnology patents together with a patent box regime for agricultural and low-emissions innovations sectors.

Screen production incentives

The Government will amend existing screen and production related tax incentives as follows:

  • Increase the Location Offset rebate rate to 30% whilst increasing the minimum Qualifying Australian Production Expenditure (QAPE) thresholds to $20 million for feature films and $1.5 million per hour for television series
  • Funding of $6.9 million over four years from 2023–24 (and $1.8 million per year ongoing) for Ausfilm to continue to market Australia as a destination for screen production
  • Funding of $0.5 million over three years from 2024–25 (and $0.2 million per year ongoing) for the Australia-India Audio-Visual Co-Production Agreement to enable eligible producers to access the Producer Offset, a refundable tax offset for approved Australian expenditure
  • With the Digital Games Tax Offset (DGTO) provisions currently before Parliament, additional funding of $12 million over four years from 2023-24 (and $3 million per year ongoing) for Screen Australia to support Australian interactive games businesses to grow operations and capitalise on emerging opportunities.

Reduce compliance

  • costs for general insurersThe insurance industry has been concerned to ensure the current tax legislation for insurance companies is updated to reflect changes under the new accounting standard, AASB17 Insurance Contracts, which applies for income years commencing on or after 1 January 2023. The new accounting standards apply to all insurance entities and aligns to the global accounting standard IFRS17.
  • The Government announced it will introduce legislation to amend the tax law under Division 321 to minimise the regulatory burden facing the general insurance industry, to ensure that the tax laws will align to the new accounting standards, and hence allow the continued use of audited financial reporting information under AASB17, as the basis for their tax returns.
  • The measure will have effect for income years commencing on or after 1 January 2023.
  • It is not yet clear as to the effect of this announcement for life insurance companies under Division 320, and whether any transitional measures will be introduced in respect of any tax impacts on transition from the current to the new accounting standard.

Small and medium business tax measures

Small business energy incentive
Temporary increase to the instant asset write-off threshold
Tax administration relief for small business
Small business PAYG and GST instalment relief
Small business lodgement penalty amnesty

Investment incentives

Tax incentives to increase the supply of rental housing
Extending the clean building managed investment trust withholding tax concession

Superannuation

Superannuation contributions to be paid on payday
Amendments in respect of superannuation NALI provisions
Additional funding for ATO

Indirect taxes

Road user charge to increase by 6% annually
Increased tobacco duty
Streamlining excise administration for fuel and alcohol: delayed start date for some measures
Introduction of cost recovery arrangements for clearance of low value imported cargo flagged

04 Climate action

The Federal Budget presents decarbonisation, electrification, adaptation and nature as underpinning Australia’s future growth and development. Across the funding announcements made, the Government has clearly linked energy and climate action to the re-industrialisation of the Australian economy.

Snapshot

  • A new $83.2 million Net Zero Authority will coordinate an orderly transition for Australia’s transition-exposed regions, working closely on the deployment of the $1.9 billion Powering the Regions fund
  • $1.6 billion for small business and household energy efficiency upgrades, divided between the Small Business Energy Incentive and Household Energy Upgrades fund
  • $2 billion Hydrogen Headstart program, which will provide revenue support to Australian hydrogen projects, managed by ARENA
  • Over $2.2 billion in a range of disaster preparedness, response and resilience measures including funding to rebuild post-disaster, enhance resilience, response and systems capability, and for human wellbeing
  • Australia has made good on its promise to deliver much needed reforms to our environmental laws by committing $214.1 million to implement the actions outlined in the Nature Positive Plan
  • Adaptation is back on the agenda with the development of Australia’s first National Adaptation Plan, guided by the nation’s first National Climate Risk and Opportunity Assessment

For example, this Budget sees funding for the development of a competitive hydrogen industry, a focus on scaling renewable energy, critical minerals and decarbonisation technology, and prioritisation of disaster resilience and reforms to protect Australia’s environment.

More detail is required on the specifics for some of the larger announcements such as Hydrogen Headstart and the Net Zero Authority, but overall this Budget positions Australia to benefit from decarbonisation and keep communities safer from increasingly damaging natural disasters, whilst protecting and restoring our natural environment.

The energy transition continues to accelerate
Beginning of the long response to the Inflation Reduction Act
Disaster preparedness, risk and resilience
Support for the implementation of environmental reforms
Reducing the impacts of climate change

05 Defence

There has been significant activity in the Defence Portfolio over the past two months, including the AUKUS announcement relating to nuclear-powered submarines in March and the long-awaited release of the Defence Strategic Review in April.

Snapshot

  • An increase in Departmental funding over the forward estimates of $736.6 million
  • The Government has committed to the establishment of the Australian Submarine Agency from 1 July 2023
  • In terms of its workforce, Defence has committed to converting over 1,000 external labour roles to ASL (Average Staffing Levels) in 2023-24
  • The Government has committed to continuing to build sovereign manufacturing capability to repair our supply chains and build on our national security
  • The Department of Veterans’ Affairs will accelerate the elimination of backlogged claims via investment in improved technology systems

The Government’s commitment of $19 billion across the forward estimates will require the Department of Defence (Defence) to generate savings elsewhere. This will include reprioritising its Integrated Investment Program to deliver on these required capability investments, including:

  • Nuclear-powered submarines
  • Long-range strike capabilities
  • Strengthened northern bases
  • Workforce growth and retention
  • Innovation
  • Regional partnerships

The pleasing outcome from the budget is that Defence funding will increase to above 2.3% of GDP in 2032-33.

An increase in Departmental funding over the forward estimates of $736.6 million

Despite the recent announcements, when eliminating the increase in funding associated with Operations and Foreign Exchange, the Defence budget has declined by $1.5 billion over the forward estimates. This reduction has predominately been driven by the transfer of funds to the Australian Signals Directorate which remains part of the Defence Portfolio (-$783.8 million) and savings associated with reductions in external labour, advertising, travel and legal expenses (-$631.9 million). The above-mentioned amounts do not include the impact of budget measures and adjustments that are “not for publication”.

The Government has committed to the establishment of the Australian Submarine Agency from 1 July 2023

The budget associated with the nuclear-powered submarines is $9 billion over the forward estimates. The allocation of this funding between Defence and the Australian Submarine Agency will be finalised ahead of the new Agency’s creation.

In terms of its workforce, Defence has committed to converting over 1,000 external labour roles to ASL (Average staffing Levels) in 2023-24

To retain military personnel, Defence will spend $397.4 million over the next two years. This includes $395.4 million to pilot a $50,000 continuation bonus to Australian Defence Force personnel who are nearing the end of their relevant initial period of service.

The Government has committed to continuing to build sovereign manufacturing capability to repair supply chains and build on our national security, including the
  • Establishment of the Advanced Strategic Capabilities Accelerator within Defence which will work in close partnership with Australian industry
  • Extension of the Defence Industry Pathways Program within the Western Australian shipbuilding sector
  • Equity injection into the Australian Naval Infrastructure Proprietary Limited to enhance our submarine capability in South Australia
The Department of Veterans’ Affairs will accelerate the elimination of backlogged claims via investment in improved technology systems

This is in response to the Royal Commission into Defence and Veteran Suicide, with investments focused on modernising and sustaining new and legacy ICT systems and accelerating the elimination of the backlog of claims.

06 Health

The health Budget headlines point to considerable investments to address the decline in GP bulk billing rates, via a tripling in the bulk billing incentive at a cost of $3.5 billion. Behind the headlines are important signposts of reform to provide team-based care, blended funding models, longer consults and digital technology. These comparatively small investments signal an important shift to a more modern health system.

Snapshot

  • The NDIS target growth rate will be cut from the current 13.8% to 8% by July 2026, saving more than $59 billion over the seven years from 2027-2034. This is offset by $733 million to expand NDIA capacity to deliver reforms and drive down costs
  • Historic investment to strengthen Medicare – $5.7 billion over 5 years from 2022–23 as part of a package of practical measures, including expanding workforce and operating hours, bulk-billing incentives and multidisciplinary models of care
  • The cost of delivering aged care services will increase from $26.9 billion in 2022-23 to $39.9 billion in 2026-27. $11.3 billion over the forward estimates is earmarked to implement the Fair Work Commission’s 15% increase in wages for direct care workers and senior food service employees
  • The government has identified $1.3 billion in Budget savings over four years by allowing two months’ worth of certain PBS medicines to be dispensed by pharmacies from 1 September 2023. This will be reinvested through $1.3 billion aimed at supporting community pharmacies to reduce patient costs and improve access to medicines and related services
  • The government will invest $1.9 billion over five years from 2022-23 to deliver sustained, practical actions to improve the lives and economic opportunities of Aboriginal and Torres Strait Islander people

Health as a share of total government expenditure is expected to decline from 15.6% in 2023-24 to 15.1% in 2026-27 – while it is not about what you spend but how it’s spent, this does reveal government’s funding priorities. In comparison, investments in aged care and the NDIS have increased from 9.9% to 12.4% over the same period, even with the targeted expenditure caps for the NDIS.

This Budget lays the necessary foundations to better integrate health with social care programs to benefit more Australians.

NDIS/disability
Medicare
Aged care
PBS and medicines
Hospitals
First Nations
Preventative care
Australian Center for Disease Control (ACDC)

Other

Compared to previous Budgets and given the rising cost of mental health as a share of total health costs, this Budget delivered relatively little for mental health. The only announcement related to $556.2 million over five years from 2022–23 (and $36.0 million ongoing) to strengthen Australia’s mental health and suicide prevention system.

07 Infrastructure

With a review of Australia’s Infrastructure Investment Program underway, the 2023-24 Federal Budget reflects the Government’s focus on managing inflationary pressure in a resource-constrained infrastructure market. New announcements on supporting future social and economic growth with investments in social and cultural infrastructure offer a more holistic approach to nation building.

Snapshot

Specific announcements are limited to social and cultural infrastructure initiatives such as:

  • $687.4 million for a national approach to sustainable urban development, seeking to improve the liveability of our cities and affordability of housing
  • $535.3 million to support the operations and long-term financial sustainability of nine National Collecting Institutions
  • $305 million in funding for the Macquarie Point Precinct and University of Tasmania Stadium

Spending will support the delivery of infrastructure solutions that will contribute towards the growth of our health and defence industries while introducing sustainable practices.

Australian Capital Territory to receive support for its National Institutions
New South Wales to receive funding to support productivity and jobs
Northern Australia to be supported with development funding
Tasmania to receive major funding for its Macquarie Point Precinct and University of Tasmania Stadium delivery
Queensland to receive funding to deliver venue infrastructure for the 2032 Brisbane Paralympic Games
South Australia will receive funding for local roads

In summary

Following its preliminary Budget in October last year, the 2023-24 Federal Budget demonstrates the Government’s current focus on reviewing the scale and value for money of the national infrastructure investment pipeline in the current inflationary environment. This Budget seeks to balance climate resilience and productivity improvements with affordability in the face of short-term resource and long-term fiscal constraints.

In advance of the Budget, the Government announced a review of Australia’s Infrastructure Investment Program covering $120 billion in land transport projects, which is due to conclude in August 2023. The review is a key influence on the Budget, with prudent investment and project delivery a key focus, reflecting challenges in managing both:

  • Current high inflationary and supply chain pressures in the construction industry
  • Challenges in existing major project investments, for example with significant cost increases and delays to the Snowy Hydro 2.0 and Inland Rail projects.

Accordingly, the Budget demonstrates a measured approach to transport infrastructure investment, with a movement away from significant expenditure on new and existing mega projects in favour of management and delivery of existing core programs, and targeted co-investment with states on smaller-scale transport, urban development and other social/cultural infrastructure projects.

Consequently, we see the Budget having the following potential impacts:

  • Contractors should not expect new multi-billion-dollar transport projects coming to market. Instead, they should prepare themselves for a more diverse range of infrastructure projects which aim to resolve energy and climate, health and defence needs
  • State Governments will likely need a renewed focus on demonstrating the nation building significance of their projects to receive Commonwealth support.

08 Gender lens

Economic equality, safety and protecting vulnerable cohorts feature strongly in this year’s Women’s Budget Statement. Some of the headline spending items include $11.3 billion towards the predominantly female aged care workforce, $1.9 billion to expand eligibility for the Parenting Payment (Single) and $2.7 billion towards increased Commonwealth Rent Assistance payments.

Snapshot

  • $11.3 billion to support the Fair Work Commission’s decision to provide an interim wage increase of 15% for the aged care sector, where women make up 70% of managers and 84% of non-managers
  • $2.7 billion over five years to support Commonwealth Rent Assistance participants, supporting single women who make up 49% of recipients, compared to 30% for single men
  • $1.9 billion over five years to expand payments to single parents whose youngest child is aged 14 years, up from the current cut-off of eight years, supporting the 37% of single mothers who live below the poverty line and abolishing the ParentsNext Program
  • $589 million on women’s safety to continue to underpin the National Plan to End Violence against Women and Children 2022–2032, including $194 million for the first dedicated Aboriginal and Torres Strait Islander Action Plan for family violence
  • Support for women in male-dominated trade apprenticeships to provide education, advice and support to create more culturally safe and inclusive workplaces, eliminate cultural and gendered barriers to women’s participation and support business to attract and retain women
  • Investment in research and data collection relating to women’s health, mental and reproductive health and women’s representation in sport. This includes funding for the Australian Longitudinal Study on Women’s Health and Woman centred care
  • Enhancing the gender perspective in government decision-making by embedding gender responsive budgeting system across the budget process and expanding the scope of gender impact assessment across Government proposals

The new measures meet four of the six urgent priority action areas put forward ahead of the Budget by the Women’s Economic Equality Taskforce (WEET). However, abolition of the Childcare Subsidy Activity Test and payment of superannuation for primary carers while they are on Paid Parental Leave – two of the more significant items on the WEET’s priority list – have not been included. Further, there is a notable absence of investment in women’s specific health initiatives.

Overall, the Budget signals a positive step for women. However, there are further opportunities to achieve a step change and strengthen the intersectional approach to entrenched disadvantage.

Women’s economic equality
Ending violence against women and children
Leadership and decision-making
Women’s health and wellbeing

09 Workforce, education & skills

While this Budget focused on incremental improvements to existing policies and prioritised support for those currently outside the workforce, this comes at the cost of truly modernising the workforce to prepare for the new digital economy.

Snapshot

  • Some new investments in education, in anticipation of the Universities Accord; a new National Skills Agreement, National Schools Reform Agreement and major reviews into early childhood education sector occurring this year
  • Investment in critical and emerging sectors to lift the skills base by broadening access to foundational skills programs for Australians aged over 15, encouraging more women into apprenticeships through a new Australian Skills Guarantee
  • Net overseas migration is forecast at 400,000 in 2022–23 and 315,000 in 2023–24 with strong focus from the Government on providing certainty for skilled migrants via pathways to permanent residence
  • Funding realigned to the Government’s industrial relations priorities, including commitment to industrial relations legislative reforms for the second half of 2023
  • $116 million investment over 5 years to support the development of emerging technologies, starting with AI and Quantum computing
  • A one-off funding boost for psychosocial health and safety, with the allocation of $2 million over two years to develop training packages for safety representatives in the Commonwealth jurisdiction
  • Policy measures to enhance workforce participation for older Australians through $4.9 billion in changes to JobSeeker and $3.7 million of pensioner incentives

To realise the Treasurer’s ambition for a modern economy, further initiatives to increase the productivity, capacity and efficiency of the Australian workforce are critical.

A modern economy needs a modern workforce. There are opportunities to further support education and skills development, increase skilled migration and embrace a holistic approach to the health and prosperity of the workforce - including prioritising psychological workplace health and safety to yield greater wellbeing, productivity, and capacity to perform complex work.

Workforce

The Treasurer has signalled a clear intent to create a modern economy, however this Budget introduces only a few new initiatives to accelerate the transition to a modern workforce. Investments in new and emerging technologies, measures to increase participation to improve inclusiveness and social inclusion are positive steps.

The transition to a modern workforce also requires a greater focus on initiatives to improve productivity and efficiency, enhance workplace health and create a workplace relations framework which promotes flexibility, productivity and growth at the enterprise level.

Investment in developing emergent technologies
Targeted measures to increase workforce participation for older Australians
Employment and workplace relations

Education

While there was no substantial new funding in the education sector, this Budget sets down a view of education as a growth engine and a way to improve social access and equity. During 2023 broad-based education reviews will be in progress in early childhood education and care, schooling and the university sector which are likely to establish a platform for more substantive reform in the future. In the short term, this Budget consolidates existing initiatives in areas of priority - namely support for child care, access to fee-free TAFE - and makes modest efforts to strengthen the education workforce in the face of major supply pressures.

Early childhood education and care
Tertiary education
Schooling

Deloitte comment

Education:

At first glance, this Budget doesn’t have a strong education and training focus, which is no surprise given the multiple reviews into early years, schooling and tertiary education currently under way. That said, there is a recognition in this Budget that education and training are the vehicles to drive the economic and social outcomes the Government is intending to deliver.
The Government’s view of education as a lever for workforce and economic growth is reflected in the investments in tertiary education, chiefly the $3.7 billion investment into the skills agreement with states and territories. 300,000 fee-free TAFE places for critical and emerging industries and a further 4,000 Commonwealth Grants Scheme-funded university places will also help to build capacity in the sector to produce the future workforce we will need. At the same time, the additional funding for student disability support services and women studying pre-degree courses in STEM support the Government’s access and equity goals. Nonetheless, forthcoming changes that are expected to arise out of the Accord process or new National Schools Reform Agreement leave much room to speculate about potential future reform.
Behind the scenes of the Government’s big election commitment – Cheaper Child Care – is the capacity of an already stretched ECEC workforce to deliver. As more families are able to save on out-of-pocket costs for child care, it’s yet unclear how many more will be looking to sign up for longer hours or more days. The inclusion of professional development support may go some way to helping staff provide high quality, as well as high quantity, services. The modest investments here will likely be bolstered by findings from the ACCC and Productivity Inquiry reviews announced in the previous Budget.

Immigration

The Government’s immigration focus is on creating certainty for skilled migrants to Australia and thus improving Australia’s attractiveness as a global destination, while generating revenue via significant increases to visa application charges.

Population and migration
Changes to visa types and charges
Targeted measures and humanitarian support

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