Federal Budget 2022-23 Analysis

This year’s budget builds on the Government’s focus on building economic resilience, national security and maintaining living standards against the backdrop of a higher inflation environment as the most significant impacts of the COVID-19 pandemic appear to have receded. Built on significant spending measures, the Government will incur a deficit of $78 billion for 2022-23, representing 3.4% of GDP and net debt is expected to peak at 33.1 during FY26 (significantly more than previous “redlines”).

The Government measures aimed at dealing with rising costs of living appear to be targeted and will involve a $1500 tax offset (an increase of $420 over the previous offset of $1080) and payments of $250 for those on the pension or disability payments.

The Government will also immediately halve the fuel excise (I.e. a reduction of about 22 cents per litre) for a period of 6 months which should assist businesses and households in the short-term.

The Budget has included important announcements relevant to the private capital industry which will help the sector and the businesses backed by investment. These include:

  • Foreign investment: streamlining approvals by certain investors with the details yet to be published.
  • Global Business/Talent: The Government will provide $19.5 million over 2 years from 2022-23 to continue the Global Business, Talent and Investment Taskforce, as the renamed Global Australia Taskforce, to attract talented individuals and international investment to Australia
  • Skills and Talent: The government has broad range of measures to support employment participation and building Australia’s workforce including a National Skills Agreement with the States and Territories promising $3.7 billion over 5 years. The Government has also announced substantial funding for apprentices of over $1.3 billion over 5 years.
  • Extension of the Patent Box Regimes: The government has broad range of measures to support employment participation and building Australia’s workforce including a National Skills Agreement with the States and Territories promising $3.7 billion over 5 years. The Government has also announced substantial funding for apprentices of over $1.3 billion over 5 years.
  • REDSPICE (Resilience, Effects, Defence, Space, Intelligence, Cyber and Enablers) package: $9.9 billion has been committed in the Federal Budget to double the Australian Signals Directorate capability.
  • Small business digital capability: The Government has announced a range of tax incentives to encourage small businesses (ie with a turnover of less than $50 million) to enhance their digital capability and training.
  • University Research Commercialisation: The Government will provide $988.2 million over 5 years from 2021-22 (and around $325.1 million per year ongoing) to deliver reform package that will drive university-industry collaboration, workforce mobility and research translation and commercialisation. Most of these measures have previously been announced and include $295.2 million over 5 years from 2021-22 tp establish new research training pathways through new Industry PhDs and Fellowships, and deliver reforms to the Australian Research Council’s Linkage Program. The measures also include $37.4 million over 4 years from 2022-23 to establish CSIRO’s Research Translation Start program to take research from the lab into the market by building the entrepreneurial capacity of the research workforce with a focus on the National Manufacturing Priorities
  • Employee Share Schemes: An overhaul of employee share schemes (ESS), to remove the regulatory cap on the value of shares issued to non-sophisticated investors and non-senior employees and replace it with a fixed cap that allows employees to acquire shares of a value of up $30,000 per annum rolled up to $150,000 over a 5 year period. We await the detail to be released as the Council has been constructively engaged over many months with Treasury. We would hope the valuable feedback that we have provided will be reflected in the legislation to be introduced as part of the Budget sittings as the Government intends for the measures to commence on 1 July 2022.

What is not in the Budget

The Council has reviewed the Budget Papers and disappointingly, many of the Council’s priorities which were not specifically addressed in the budget. The Council will continue to advocate for the introduction of a Limited Partnership Collective Investment Vehicle (CIV) and to ensure that that Venture Capital Limited Partnerships (VCLPs) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes generally remain globally competitive and that the outstanding technical and interpretive measures are addressed.

Further detail on these and other announcements in the 2022-23 Federal Budget which are relevant to the private capital industry and the business sector are detailed below.

The budget announced a number of measures to address the cost of living for many Australians. Low and middle income earners will receive an additional $420 tax offset, whilst pensioners and disability payment recipients will receive a one-off cash payment of $250 to assist with higher living costs.

Households and businesses will be provided with some relief from soaring fuel prices with a six-month halving to the 44.2 cents per litre fuel excise. This should be reflected in reduced fuel prices at the bowser for ordinary Australians and represent a significant decrease in costs for transport businesses which will impact weekly budgets for consumers.

In recognition that cyber-security breaches are continuing to increase across all spheres of government, business and society, government has committed $9.9 billion in the Federal Budget to boost Australia’s resilience against cyber-attacks under the REDSPICE initiative to double the Australian Signal Directorate’s capacity.

In accordance with previous announcements, employee share schemes will be subject to a new regulatory regime in the Corporations Law to allow a broader range of employees to be offered shares and options.

Under the previous measures, generally only sophisticated investors and senior managers were able to access these arrangements without undertaking a complex company prospectus process. It is now proposed that employees will also now be able to obtain shares or options valued at no more than $30,000 per annum. Where an option is given and the shares are paid for at a point in the future, the employee will be able to accrue their annual $30,000 cap for a maximum of five years, or $150,000.

The monetary cap will not apply where an employee can profit from the sale of a business or an initial public offering (IPO). In these situations, an employee can pay any amount for shares under an ESS so long as those shares will then be sold for a realised profit shortly afterwards.

We await the details to ensure it meets the needs of industry.

The Council has been constructively engaged over many months with Treasury and we would hope the valuable feedback that we have provided to make it through to any legislation introduced as part of the Budget sittings given the Government intends for the measures to commence on 1 July 2022.

These measures are expected to be included in the Budget Measures Bill and will be expected to be legislated before the federal election is called and Parliament prorogues in order to ensure that the measures apply from 1 July 2022.

The 10 per cent uplift rate normally applied to small businesses who use the GST and pay-as-you-go (PAYG) instalment option with the Australian Tax Office will be reduced to 2 per cent during the 2022-23 Financial Year. This is estimated to free up $185 million in cashflow for 2.3 million small businesses. This initiative will require legislative change.

Tax reporting for small businesses will be streamlined so they will only need to report once to meet their state and federal tax obligations by enabling sharing of OneTouch payroll information with States and Territories. The government has committed $6.5 million to build IT which will remove state and federal reporting duplications for small businesses and data will be shared between state tax offices and the Australian Tax Office. This will allow state tax returns for small businesses to be pre-filled.

The administration of trusts is also set to be streamlined with the digitising of income reporting aligned with modern technology and business practices.

Regional Australia will be given an infrastructure boost with $480 million allocated to upgrade telecommunications infrastructure to help improve connectivity in rural areas.

The investment will support a $750 million upgrade to improve the speed and range of NBN fixed wireless services which will also increase the data limits available through the Sky Muster satellite service. NBN Co will provide the other $270 million, with the work expected to take around two years.

Funding will be provided to address critical supply chain vulnerabilities in the Modern Manufacturing Strategy and National Manufacturing priorities including $250 million over two years to deliver high impact projects, $53.9 million over four years to support technology adoption and $6.9 million over two years to develop manufacturing investment plans to guide investment into priority industries. Details of the projects has not been provided as they are identified as commercial in confidence.

As part of the modern manufacturing strategy, the Federal Government will invest $1.2 billion in building Australia’s space manufacturing industry.

Australia will have a domestic manufacturing facility for mRNA vaccines by 2024. The manufacturing hub will have the capability to manufacture 100 million doses each year for Covid-19 and flus. A ten year, multi-billion dollar agreement for the facility has been signed between Moderna, Inc and the Commonwealth and Victorian governments. Moderna will also be collaborating with local researchers and institutions on therapeutic development projects.

The Medical Research Future Fund will receive an additional $1.3 billion over ten years to support translational research, increased investment and research collaboration and to fund clinical trials, advanced health care and medical technology to improve patient outcomes.

The Government will also extend the Biomedical Translation Fund’s (BTF) investment period by a further three years.

Government will commit $2.2 billion fund early-stage research for commercialisation in priority areas of critical minerals, food and beverages, recycling and clean energy, defence and space. This will include an economic accelerator worth $1.6bn which will be a three-stage competitive process for funding through providing evidence of the project's viability and commercial potential in order to get them to market.

The government will provide $267.1 million over four years (from FY23) to modernise and improve Australia’s trade system and to support Australian Exporters. This includes expanding the Digital Services to Take Farmers to Marketing initiative to transform the delivery of government agricultural export systems; providing additional support for SME export businesses through the Export Market Development Grants Program, Modernising Australia’s trade system through reducing red tape, expanding the Trade Information Service to give exporters a single source of online information to facilitate access to international markets.

The First Home Guarantee scheme will be expanded from 10,000 to 35,000 guarantees each year to assist eligible home buyers, including non-first home buyers and permanent residents, to purchase or build a new home with a 5 per cent deposit.