The annual Federal Budget is an important announcement as it can indicate the direction for the Australian economy over the coming year or years. It outlines how the Government intends to spend in different areas such as infrastructure, health, defence and innovation and how where it will cut back or save. For individuals it can often mean a little extra by way of tax cuts or concessions with the costs of some goods and services.
After a massive spend to support individuals and business through COVID, the Government has racked up a very sizeable deficit. Many wondered whether this budget would address that deficit or specifically, was it time to start repaying the debt.
In the Budget Papers it is noted that the strength of the economy is repairing the budget. The higher commodity prices, the positive impacts on the labour market have driven an upward revision of tax receipts and reduction in unemployment payments. Noted is that the cash balance has improved since the mid-year economic fiscal outlook (MYEFO) was issued. The Budget 2022/23 projects that the deficit will halve to 1.6% of GDP by 2025/26.
Touted as a ‘cost of living’ budget, the 2022/23 Federal Budget was headlined with a number of key measures to assist the rising costs faced by households and businesses. With an election looming, it was probably not surprising that the Treasurer included a lot spending in the measures.
What the Budget and in fact the Government does not have responsibility for is the official cash rate, aka interest rates. The cash rate is the responsibility of the Reserve Bank of Australia. We address the highlights of this year’s Budget and if, and if so how, the measures have an impact on boat loans and lending interest rates.
Overview: Federal Budget 2022/23
The 2022/23 Federal Budget was announced 6 weeks earlier than usual due to the election to be held in May. Once the election is called, Governments go into caretaker mode and delivering a budget would not be feasible.
While a number of the measures were leaked prior to the official announcement, as is the tradition, Treasurer Frydenberg delivered the official statement to Federal Parliament on Tuesday 29 March. He opened his speech by referring to the negative impacts being felt both globally and in Australia by the invasion of Ukraine and ongoing pandemic and domestically the disastrous floods. Also noted in the Budget Papers was the recent COVID-19 outbreak in China which is adding to the supply chain issues in many sectors.
But on a more positive note, he said that Australia’s recovery was exceeding that of many other leading nations such as UK, Canada, Japan, US and Germany. Mr Frydenberg noted that unemployment was at the lowest rate in 48 years – at just 4% and expected to go lower as a result of measures in the Budget. The focus of the budget was on the rising costs of living with immediate relief and an economic plan to create more jobs.
Key Budget Measures
The one big budget measure which will be welcomed by many Australians is the cut of 22c per litre in the fuel excise rate for the next 6 months. The sharp rise in fuel recently is driven by global issues and exacerbated by the Ukraine invasion. Any relief at the pump will be no doubt be welcomed.
In regard to individual incomes, a key gain for low to middle income earners (up to $126,000) is an increase in the tax offset LMITO by $420 to add to the existing $1080 maximum. This has been place over the past few years, introduced as a stimulus measure. The amount received varies according to income. This is not a cash handout. The benefit will be realised when the personal income tax return is submitted, by way of a tax refund. For those with a boat loan, they may consider using any refund received to pay down their loan. A Secured Boat Loan allows for this type of extra payments to be made. It will reduce the loan term which means break fees will apply, but these are minimal.
As the LMITO would not be received for a few months, those wanting to purchase a boat now while interest rates are at the current low rates, may like to earmark the tax refund to go towards their loan down the track. Akin somewhat to paying a deposit after rather than before purchase.
Small business receive a number of key benefits including a reduction in the tax rate from 30% to 25%. There are also additional tax benefits to be realised from spending on training and digital technologies.
Training and apprenticeship support is including in the budget.
Home ownership assistance is included by way of changes to the Home Guarantee Scheme and the First Home Super Saver Scheme.
Specific industry support is included. Those interested can read the full Budget Papers for details of measures in particular sectors or industries.
Impact on Loans and Marine Finance Interest Rates
Interest rates are key to boat loans and setting the cash rate or interest rate is the responsibility of the RBA not the Federal Government. So the Federal Budget does not address interest rates directly.
But inflation and unemployment are the economic data that the RBA considers in regards to rate changes and these are addressed in the Budget. So by driving unemployment down, it could be said that Budget, or fiscal measures, do have an effect on interest rates.
With inflation rising and unemployment falling, the conditions are approaching the target situation for the RBA to lift the cash rate. When this happens, the rise will flow through to lending rates. Buyers requiring finance are strongly encouraged to arrange their marine finance while rates are low and before an increase. The RBA meets on Tuesday 5 April to decide on rates.
Some of the Budget measures such as the fuel excise come into effect immediately. But some will require the Budget Bill to pass both Houses of Parliament before coming into effect.
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DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MISPRESENTED DATA AND DETAILS HEREIN.
