This year the federal budget was delivered six weeks early in what was clearly the start of a campaign for re-election. In the face of global uncertainty, the Australian economy has performed exceptionally well. And that’s what’s funding an almighty sugar hit for retirees, small businesses and certain parts of regional Australia.
First, the economics
The war in Ukraine and the ongoing Covid crisis are presenting the global economy with real challenges. But the Australian economy has performed even better than expected. Our economic output rebounded faster than any other advanced economy, and our unemployment rate is at near 50-year lows.
The strong workplace participation and positive business sentiment have led to a substantially better cash position, with the deficit now projected to halve by 2026.
Cost of living
Despite the outperformance of the Australian economy, there are still challenges. Covid and now the war in Ukraine are causing inflationary pressure, with the price of fuel and groceries rising fast. And wages growth remains stubbornly low. When we consider inflation, real wages are going backwards.
But it’s retirees who are most challenged by inflation. Of all the financial risks in retirement, inflation is the most misunderstood because we underestimate how long we’re going to live. But studies show that inflation is the number one cause of people running out of money in retirement.
To reduce the price pressure, the government is temporarily halving its tax on fuel for six months. This will reduce the price of petrol and diesel by 22.1 cents a litre. Retirees receiving the age pension will also receive a one-off tax-free benefit of $250 in April.
Workers don’t miss out either. Over 10 million people will receive a one-off $420 cost of living tax offset. Combined with the low and middle income tax offset, workers will receive up to $1,500 for a single income household, or up to $3,000 for a dual income household.
Small businesses will benefit from extra tax deductions when they invest in digital and invest in upskilling their employees.
The government is pledging almost $18 billion worth of additional infrastructure projects in regional Australia. Most of that money will be spent in the Northern Territory, Queensland and Western Australia. But the Hunter will benefit from $1 billion upgrade to the Newcastle to Sydney rail link.
Beyond the short-term
It’s nice to receive unexpected benefits from time to time, but the pleasant feelings don’t really last.
Temporary tax relief on petrol is welcome, but we can show you how to invest to hedge against inflation, so that you can afford to live comfortably and age well, with peace of mind and financial well-being over the long run.