Episode 2: Unpacking the Federal Budget [FPA Podcast]

16 July 2021

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

In this episode of the FPA Podcast, Nick Hannan joins Dante De Gori and Ben Marshan from the FPA to discuss the recent federal budget and outline some of the key components included within it.

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Episode Transcript:

Dante De Gori:

Hi, Nick and Ben, thanks for joining me. We’re going to have a bit of a chat about the recent federal budget and obviously presents some of the key components of the budget. But also some of the things that are relevant for our members in respect to the advice they give to their clients. But before I kick off, Let’s have a bit of a discussion about how the lockup, what happened this year in lockup? How was it different than maybe past years of what your experience was like?

Nick Hannan:

Sure, thanks Dante. Good to be here. Lockup for those who don’t know is, a few hours before a budget is released on the Tuesday of budget in which journalists, media, and other stakeholders get put into a room. We get access to the budget documents and we get to go through and see what’s in the budget ahead of everybody. But we can’t leave and we’re not allowed to have any communication with the outside world. So it just gives us a chance to get ahead of what’s coming in the budget and then coming up on Tuesday nights, and report to the public what we think.

Nick Hannan:

So we’d go to budget lockup every year so that we can put out our budget rapper, promptly on Tuesday nights. I have to say it was a fairly subdued affair this week. It’s normally full of excitement and energy. I think largely a lot of the big money items in the budget had been released and talked about in the weeks leading up to budget. So there wasn’t a lot of big surprises. Certainly there were some lots of little interesting measures that our members will be interested in, but I think in the broad strokes of the budget were well known before Tuesday night. And so it was a fairly quiet evening.

Dante De Gori:

Yes. But obviously giving access to those papers. If those of you haven’t seen, there are plenty of books, budget books, isn’t there? That are given to you as well as a whole bunch of press releases possibly as well.

Nick Hannan:

Yeah. Sorry, they give you a big pack of the budget documents and get through as much as you can in the time.

Dante De Gori:

And again, just to give a bit of perspective for our members here, I mean where do you dive into first? How do you sort of set yourself up in terms of what you’re looking for and how do you go about finding it? And starting the process of putting it in sort of a summary brief for the rest of us to be able to consume and read.

Nick Hannan:

I like skimming through the treasurer speech because at the very least, it gives you a sense of what the treasurer thinks the priorities are and what the important things are for the government. So I’ll spend a few minutes just going through there and highlighting anything that stands out. Budget papers wanted to aware the most of the detail of the measures are. It gives you the economic outlook and the budget outlook, all the assumptions that governments use to come up with their budget numbers. Budget paper two is where all the new measures are that we might be interested in. And their most of the financial advice area is covered by the treasury portfolio, so looking at the treasury portfolio budget statement is often an interesting rate as well.

Nick Hannan:

So I’ll just go through and spend the first hour essentially identifying the key issues and measures. And then I’ll go back and start getting into those in some detail, pulling out the information that we think is relevant for members, and I’m writing some notes. And then the team back at FBI headquarters starts putting that into a slightly more user-friendly document for members to get lighter that night.

Dante De Gori:

Excellent. Yeah. And a big thank you to you, and Ben, and the team. There’s a group of people that stay up late and anticipate your notes, and of course put together the budget wrapping. So for those of you listening to this, I’m sure you’re familiar with the FPA budget wrapping. So I think now we’ll just have a bit of a chat about what maybe some of the key parts of the budget that we identified and that we thought were of interest to members. So Ben, I’m bringing you here. For you, what were the sort of standout items for you from the budget that you think are worth noting?

Ben Marshan:

Hi everyone. Thanks for bringing me in Dante and I think, unfortunately there’s not a lot in the budget this year for members and for their clients. Most of the measures that were talked about in the budget are things that are more likely to come into place in from 1 July, 2022, rather than from 1 July, 2021. So there was an extension of the low and middle income tax offset, which is something that you can sort of talk to clients about in the context of being tax financial advisors at this point in time.

Ben Marshan:

And there was a little bit of change around the pension loan scheme, which I think is something interesting and something that certainly, there’s a lot of value that can be given to maybe lower net worth clients who are sort of age pension that sometimes gets missed or not thought about, in terms of advice being provided. But everything else in terms of financial planning, related budget measures, particularly around superannuation and more things that are going to come in from the financial year after in 2022. The one thing I would really like to highlight though is actually not really to do with financial planning, but is more to do with the Consumer Data Right.

Ben Marshan:

And I think if members haven’t been paying attention to the Consumer Data Right, that’s probably something that would gain some momentum this year. In that there’s a lot of money being thrown at the Consumer Data Right to make it more functional and broader across the financial services industry, more quickly. And what that will do is allow our clients to provide us authority to suck in data from their financial institutions, and put that straight into [inaudible 00:08:13] so I think it’s actually a great opportunity through the budget process and the money that’s being put towards the CDR. That members are going to be able to take advantage of in their process, the way they provide financial advice, and even the way that they share information with their clients over the year. And track how clients are doing against their financial plan. Which is probably a little bit more interesting than the actual measures that were in the budget around superannuation, which I’m sure we’ll talk about shortly.

Dante De Gori:

Thanks, Ben. And Nick. Was there anything that was a standout for you from the budget that you think is worth highlighting?

Nick Hannan:

I think just generally the context of this budget has been quite unusual. The rhetoric we’ve put up with for 10 years now around budget time has always been about debt and deficit. And just seeing the coalition become much more comfortable with deficit spending in a good cause has been very interesting. It’s very much now about spending money or providing tax relief and support to the economy to drive economic growth, to drive employment. And the treasurer has been pretty unapologetic in having some ambitious goals around unemployment that this budget is focused on. So that’s been a very quick and abrupt change, I think in the rhetoric around budget from two years ago, pre-pandemic to now.

Dante De Gori:

Yeah, very much so. I think it was very clear from the media and in the discussions, post budget about how I think as a nation, as Australians we’ve become a lot more accepting of the need to be in a deficit in order to spend, to continue to have economic stability. As well as ensuring that we are safe in respect to COVID, and there isn’t as much emphasis I think being placed on getting back into surplus, as they once was only a few years ago. So in light of that and if we could sort of hone it down a little bit into the soup into superannuation changes first. As been mentioned above, you mentioned there hasn’t been really any significant major announcements. And we obviously have championed for a while now that we aren’t necessarily in favor of continuing tinkering of the superannuation system. But in terms of the announcements made changes to the caps, for example, and some other measures around downsizing contributions and removing the work test. Why don’t you just go through some of those and just highlight for our members what those changes are.

Dante De Gori:

So Ben, don’t want to go through some of those actual changes?

Ben Marshan:

Yeah. No worries, Dante. And as I said, most of the changes that were announced are actually more coming in from 1 July, 2022. It’s what wasn’t announced that is probably far more interesting and has far more impact on the advice that you’ll be providing your clients. So we’ve been waiting for a while, but this actually indexation year, next year. For those of you who’ve been following along. The transfer balance cap, the concessional contribution cap and non-concessional contribution caps have been fairly static or pain reducing, the last decade or so, but with hidden indexation point. So what wasn’t announced in the budget, but is something that you need to start thinking about with your clients is the indexation of those. So we’ve got the transfer balance cap, for example, going up to $1.7 million from one July, we have the concessional contribution cap going up to 27,500.

Ben Marshan:

We’ve got the non-concessional cap going up to 110,000 or $330,000 over three years. So these are the sort of things that are coming through that offer opportunities for you to talk to your clients about, and change their plans and strategies if you haven’t done so already. The other thing that there was a lot of conversation about in the lead up to the budget, and then obviously it didn’t happen was a change to the superannuation guarantee. And whether or not the government would look to freeze the superannuation guarantee at 9.5% or whether they would look to make anything above that. Be voluntary, so you could choose, you could opt in or opt out of receiving it. The government actually made no announcement around the superannuation guarantee. So we’re sort of on track for that to move to the 10% from one July and then transition up to 12% over the next few years.

Ben Marshan:

So those are the main things that are going to affect your financial planning, immediately and across next financial year. The sort of measures that we saw introduced for 1 July, 2022 is reducing the contribution age for the downsizer contributions. So currently you have to be over 65, if you’re downsizing your home and can put up to $300,000 into super, that’s going to drop to 60. There is a proposal to remove the work test for individuals between age 67 and 74, which will allow people between those ages to make non-concessional or salary sacrifice contributions into their superannuation without having to meet the 40 hours and 30 day work test. In saying that if they want to make personal deductible contribution. So if they’re self-employed, they’re still going to need to make that 40 hours in 30 day work test. And then the other measures are probably a little bit outside of… What we’re usually providing advice on, the superannuation guarantee threshold is going to be removed. The first home super saver scheme, which is a mouthful is going to allow to take $50,000 instead of 30.

Ben Marshan:

So those were two of the other changes and I guess the other two are sort of more structural. In that they affect how superannuation products and self-managed super funds work in that the government is going to allow legacy retirement products to be converted into account-based pension or modern types of pension products. So you might have some clients who are stuck in fixed term pensions or market linked pensions that they’ve had for long periods of time.

Ben Marshan:

So most of these were in place before September 20, 2007. So we’re talking, what’s that 14, 15 years, these things have been in places. A minimum members of those products are going to be able to commute those and move them into other retirement type products with no penalty. And then the self-managed super fund residency requirements are going to be extended from two years to five years. So members of self-managed super funds can go overseas, and work overseas for up to five years without having to give up control of that self-managed super fund. To bring it more in line with ACRA regulated schemes and how they work. So a lot there, but nothing that will necessarily affect the way we’re providing advice next financial year.

Dante De Gori:

Thanks, Ben. Yeah. So just to mention… Again, not any major changes in superannuation, but just hearing you go through that. There’s obviously a lot of different measures that have either been increased or expanded on. And of course the caps, as you mentioned, those indexation comes into play. So that’s very important for advisors to be aware of those and potential impacts on salary, sacrificing strategies, et cetera. There were also areas in terms of social security in aged care, that renounced team restrict to the pension loan scheme. Is there anything there that is of note for advisors around the pension loan scheme that we should be aware of?

Ben Marshan:

Yeah. I think two main changes announced there. The first is that to date with the pension loan scheme, you’d only be able to take a single lump sum. The government is going to allow that to be split into two separate lump sums going forward. So rather than one payment in year, you can take two payments a year, which just provides a little bit more flexibility. And then the government has had some criticism of the fact that, they’re able to take a right over your primary residence. Which is higher than the value of your primary residence, so put you in a negative equity position. So the government’s going to introduce a no negative equity guarantee on the pension loan scheme, irrespective of what your house becomes worth over time and what the sell price is.

Ben Marshan:

The government won’t put you in a negative equity position or leave your state in a negative equity position when it’s time to sell it up, so I think that’s a positive. And I think the main thing to be aware of is that the government intends to spend a bit of money advertising and raising awareness of the pension loan scheme. So you’ll potentially have clients coming to you and asking about the pension loan scheme. And access to it because there is this awareness raising exercise that’s going to go on. And one of the important things to know is your… As financial planners, as members, we’re probably not going to say it. They’re going to be targeting that raising awareness to publications and media that age pensioners are looking at. And communications they’re receiving directly rather than going through AFR or the trade media that we usually have a look at. So just be aware that you may have more clients asking you about it and it’s because the government is going to try and make more people aware of it.

Dante De Gori:

Great! Thanks, Ben. And then obviously there was a lot made about the Aged Care Royal Commission. And an announcement of a large amount of about $17.7 billion towards the aged care system. Is there anything there of notes for members at this stage about that? Apart from the funding. Would there be likely to be some implications as a result of strategy and advice in aged care that will flow out of this? Any thoughts on that at this stage?

Ben Marshan:

Not hugely. So most of the changes are actually to support the operation of the aged care sector in response to the recommendations made by the Royal Commission rather than necessarily the way funding of the system works from the perspective of the person going into aged care. In the big highlights that are probably worth knowing about is that there will be more home care spots made available. So an additional 80,000 home care packages over the next two financial years will be released on top of what was already budgeted for. So that means more people can stay in their own home and get access to care in their own house. And then the other area that will affect from a funding basis is that the government is going to provide a $10 per person, per day supplement on the basic daily fee.

Ben Marshan:

So that means effectively that it’ll cost $70 less a week in terms of funding aged care places. But fundamentally doesn’t have that massive effect on the strategies or things we’re talking to clients about. Everything else was really in relation to improving the quality and safety, improving the workforce or having more skilled people working in aged care facilities. And improving the governance around aged care facilities to improve the protection of residents and the functioning of aged care facilities, and homes, and things like that. So it’s more about the structure of it. So not too much affecting clients directly, more improving the quality of aged care and the options that are available.

Dante De Gori:

Yeah. And very much long overdue, I think as well. I think we’ve all been saying through the Royal Commission as well. Nick, I just turned to you. I think there was some interest for our members and for us in particular about what the budget has to say about our regulators. And so some announcements there about some funding and staffing issues. Don’t you want to walk us through? In particular, treasury are seeking and FASEA, and what’s happening in that might be of note from members of [inaudible 00:22:32] as a point of interest.

Nick Hannan:

Sure. So the budget provides what you might call top-line figures for most of the agencies in the government. And it’s always interesting to keep an eye on what’s going on. Sometimes what you see, it’s not easy to understand exactly why the numbers are moving the way they are. We’ll need to dig further to really uncover what’s going on. But if you take treasury, for example, the treasury has budgets going up by about 150 million over the next year. And the staffing is increasing by, I think just shy of 200. So that’s pretty a substantial increase for treasury. Part of that will be because treasury is accepting functions from other agencies. For example, the infrastructure and project financing agency is moving into treasury from the infrastructure department. And that will have some staff and some budget coming with it.

Nick Hannan:

But treasury is barely one of the winners in the budget. ASIC’s budget has actually dropped, fairly substantially. And again, the staffing number has dropped as well. Now part of that move will be because the business registry function that ASIC has is moving to the ITO next year. And that’ll be of interest to us because one of the registers will be the financial advisor register, so that we move into the ITO. Now there has been some talk about a review that has some money under the government’s deregulation agenda. There’s been $3.9 million set aside for a review of cost recovery mechanisms in the government. Now, obviously we’re pushing for the last couple of months for a review with the asset industry levy given the substantial increases that have been going on there. This deregulation measure is not directly at the ASIC industry levy.

Nick Hannan:

It is a more general review of the government’s broad framework for cost recovery. So there is a cost recovery policy that applies across government and it applies to industry funding in a whole range of different areas, ASIC being just one of those. So it is positive that the government is recognizing that costs to business are a significant issue. And there is a sort of a broad brush review of how cost recovery works, but it is still not the review of the asset industry levy that we’ve been calling for.

Nick Hannan:

And obviously we’ll keep pushing the government to do that because it’s something that’s very important for us and our members. The other major agency that we’re interested in for SOFIA. The budget confirms that FASEA will be wrapped up at the end of the calendar year. If they allocated a portion of funding, $2.5 million to get it through the half year after this financial year. To say it was originally funded through an industry funding deal with the major institutions that expires on the 30th of June. So there’s been given a bit of extra cash to tide them over to the end of the period on the 31st of December. And then we assume there will be a new model, which the government’s consulting on at the moment. And that will involve treasury supporting the minister to perform any of the FASEA’s functions.

Dante De Gori:

Yes. And so that brings an end to the FASEA as an organization, as an entity and the acronym FASEA, no doubt. We’ll probably start being removed from a vocabulary post one January. All right, thank you very much, Nick and Ben, that was great to get your insights from budget lockup to the details of the budget across a number of different areas. Obviously, as this progresses, much of this has to be legislated and we’ll keep members posted throughout regular communications via a weekly newsletter on FPA today, on our website.

Dante De Gori:

As well as through FPA community, encouraging members [inaudible 00:26:56] already to please log on to FPA community and join the conversation. But also great source of information as well and updates. But until next time I really appreciate your company, Nick and Ben. And we’re looking to talk to our members again in due course. There’s always a number of issues that popping up from time-to-time, that would be worth a conversation on. So we’ll no doubt be back here again and thank you for those of you who have joined in to listen to this edition of the podcast. And hope to get your company again, next time. Bye for now.

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