This Week In Finance: Federal Budget Edition
Welcome to a special Federal Budget edition of This Week in Finance, Jacaranda Finance’s weekly wrap of all the top personal finance news affecting everyday Australians.
As you may have heard, the Australian Government’s 2022-23 Federal Budget was released last night (25/10), outlining estimated revenues and expenditures of the Australian Treasury for the next financial year.
This has been the first budget from a Labor Government in 10 years and has come at a time of economic deterioration.
The cost of living was a major theme throughout the Budget, delivered by Treasurer Jim Chalmers. Mr Chalmers outlined a cost of living relief plan, with key benefits including cheaper childcare, extended paid parental leave and a push for more affordable housing.
The Budget also outlined the energy crisis and further strategies the Government will implement to help ease costs and make energy-efficient products more affordable and available.
Budget aside, this news wrap also goes into the latest CPI quarterly report, with the jumping of inflation and cost of essentials, as well as petrol prices beginning to feel the effects of the fuel excise restoration.
Read more on all these top money stories from the past week below.
Federal Budget 2022-23: Economic highlights
It’s no secret that both the global and domestic economies took some hits this year in the form of inflation.
“The global economy teeters again, on the edge – with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing – some of them already in reverse,” Mr Chalmers said in his budget speech.
Mr Chalmers announced inflation will continue to increase in the next few years, peaking at 7.75% later in 2022, before calming to 3.5% through 2023-2024 and returning to the Reserve Bank of Australia’s target range of 2 - 3% by 2024-25.
Despite forecasting a further increase of 75 basis points to the cash rate in 2023, the Treasurer remained optimistic about economic growth.
“Our economy is expected to grow solidly this financial year, by 3.25% – before slowing to 1.5% growth for 2023–24, a full percentage point lower than what was forecast in March,” he said.
“The hit to growth will have an effect on employment, but jobs will continue to be created, and unemployment is expected to stay low by historical standards – at 4 ½ per cent in 2023–24 and 2024–25.”
Budget 2022-23: 5-point plan for cost of living relief
One of the main priorities of Labor’s Budget was to relieve cost of living pressures for Australians.
With this in mind, the Government announced a $7.5 billion package to help relieve pressures across 5 key points:
- Cheaper child care
- Expanding paid parental leave
- Cheaper medicines
- More affordable housing
- Getting wages moving again
“This…helps put some money back in people’s pockets, boosts productivity, and grows the economy – but it’s carefully targeted and carefully timed, so that it avoids placing additional pressure on inflation,” Mr Chalmers said.
1. Cheaper childcare
From July 2023, child care will be more affordable for 1.2 million eligible Australian families who will benefit from higher subsidies to the tune of $4.6 billion, with Child Care Subsidy rates being lifted from 85% to 90% for families earning less than $80,000.
This initiative, according to the government, will also increase paid hours worked by women with young children by up to 1.4 million hours a week in the first year alone.
2. Expanding paid parental leave
The Budget will invest more than $531 million to scale up paid parental leave to six months by 2026, the biggest expansion of the scheme since its inception.
The income tests to qualify for the scheme will also be lifted to $350,000 for families.
3. Cheaper medicines
From 1st January 2023, the Pharmaceutical Benefits Scheme maximum general co-payment will be slashed to $30 a script. According to Treasurer Chalmers, almost 3.6 million Australians will benefit from this move and save up to $12.50 per script.
4. More affordable housing
Labor’s 2022-23 Budget plans to:
- Build 30,000 new social and affordable homes in five years (Housing Australia Future Fund)
- Allow up to 40,000 eligible Australians to own their home with lower deposits and smaller mortgages (Help to Buy Scheme)
- Support another 10,000 new homeowners moving to regional locations each year (Regional First Home Buyer’s Grant)
- Help older Australians to downsize by expanding access to make downsizer contributions to superannuation for people aged 55 to 59
Mr Chalmers also announced a new national Housing Accord had been struck between governments, investors and industry to help achieve these goals.:
“The ambition of this Accord is big and it’s bold – an aspiration to build one million new, well-located homes over five years from 2024.”
5. Action to increase wages
To get wages moving again and increase in real terms, the government will support a pay rise for about 2.7 million workers on a minimum wage, with specific targets to women and aged care workers.
Budget 2022-23: Energy and electricity
In explaining its economic outlook in the budget, Treasury estimates that electricity prices will rise by an average of 20% in late 2022 and a further 30% in 2023-24.
To combat this, Labor’s Budget outlined a plan for cleaner, cheaper energy by delivering investments in renewable energy and thousands of new jobs in the energy sector.
This includes the implementation of the Powering Australia Plan, an $800 million project invested in:
- Cutting taxes on electric cars;
- Building a national electric vehicle charging network and hydrogen refuelling stations on highways;
- Providing solar battery storage for up to 100,000 homes;
- Ensuring renters and apartment owners can benefit from cheaper energy
The government will provide $224.3 million for the deployment of 400 community solar batteries in an effort to lower energy bills, cut emissions and reduce pressure on the electricity grid.
The Budget, however, does not account for direct relief for household and electricity bills.
What else happened this week in finance?
With the year’s second Federal Budget dominating most of the headlines, you’d be forgiven for thinking not much else was making news this week. But there were still plenty of updates that could affect your bank account, with the familiar stories of cost of living increases continuing.
Here’s a short summary of everything else that happened this week in finance:
Inflation hits 7.3%
The Consumer Price Index (CPI), aka inflation, rose 1.8% in the September 2022 quarter and 7.3% annually.
The most significant contributors to the new inflation figures were new dwellings (+3.7%), gas (+10.9%) and furniture (+6.6%).
According to the Australian Bureau of Statistics (ABS), this quarter’s results once again exceed any other since the introduction of the Goods and Services Tax (GST) in the year 2000.
Cost of essentials jumps 19% in 12 months
Money management app Frollo reported this week that the cost of ‘essentials’ has increased by a whopping 19% in the past 12 months.
According to Frollo:
- Monthly medical expenditure (not including insurance) increased the most at 40%, from $207 in Q3 2021 to $290 in Q3 2022
- Fuel spending increased by 38%, from $100 to $138 per month
- Grocery spending went up 24%, from $656 to $815 per month
- Monthly spending on water and energy increased by 18%, from $170 to $200
Grocery comparison site Frugl also revealed that 12 out of 14 supermarket categories cost more compared to one year ago, with dairy and eggs (+13.7%), household and cleaning items (+16.1%), and beef (+14.4%) seeing the largest increases.
Petrol prices hit $2.10
New data from Compare the Market this week found fuel prices are as high as $2.10 per litre across major capital cities, with motorists urged to fill up now following the end of the fuel excise cut.
Record number of Aussies refinance loans
Australian Associated Press (AAP) reported that Australian homeowners are refinancing their mortgages in record numbers, as they look for better deals following more than 200 basis points worth of increases in the cash rate in 2022.
According to Australian Bureau of Statistics data, $14 billion worth of home loans were refinanced to a new lender in August alone, 20% more than the same period last year.
As a result of the six rate rises since May 2022, borrowers with a standard $500,000 mortgage could have seen their monthly mortgage bill surge by $735.
RBA says property prices could drop by up to 20%
Speaking of higher interest rates, RBA documents released under Freedom of Information by the Australian Financial Review (AFR) reveal that the Reserve Bank predicts home values will plummet by 20% in just two years.
As reported by the AFR, RBA internal papers forecast prices to fall nationally by 11% by mid-2023 and could drop even further to 20% by the end of 2024.
Tasmania the best-performing state economy
Looking to take flight and move to a different state? You might want to consider Tasmania, which has topped CommSec’s latest quarterly State of the States report.
Tasmania leads the economic rankings, benefitting from improved rankings on retail spending and housing finance, followed closely by Queensland.
The full rankings are:
Check back next week for another wrap on the week’s biggest finance stories.
Written by Jemima Kelly and William Jolly