What the Federal Budget might mean for South Australia
While we have yet to see much detail, the government has put enough out there that we can get a good idea of what we might see, writes Credit Union SA Chair of Economics at UniSA Susan Stone.
Leading up to the Budget announcement tomorrow, the government has been making, or just as importantly not making, almost daily announcements with respect to potential policy changes.
The Treasurer has characterised this budget as ‘bold’ and to include ‘… a productivity package … a tax reform package, and … a very substantial savings package’. And while we have yet to see much detail, the government has put enough out there that we can get a good idea of what we might see.
One of the earliest budgetary savings initiatives announced was the cuts to the National Disability Insurance Scheme (NDIS). While most people agree that growth in NDIS spending is unsustainable, how the cuts are actually implemented will be closely watched.
What we do know is that the government plans to cut some 160,000 participants across the entire scheme over the next four years. These cuts may have a disproportionate impact on South Australia, given South Australia has a disproportionate participation rate in the Scheme, i.e. accounting for 8.6 per cent of NDIS participants while only accounting for 7 per cent of the overall population. What this means for families across the state, as well as the state budget, remains to be seen.
Another much-discussed item is the budget’s anticipated tax reform package. This package is all but certain to include changes to the Capital Gains Tax (CGT) and potentially, negative gearing. Expectations are for the current flat 50 per cent discount rate for capital gains to be replaced by indexation. This means that gains on capital assets (e.g. investment shares or real estate) will be adjusted based on the actual rate of inflation (indexing) rather than a proxy for that (a flat 50 per cent). This move is a return to the original provisions of the capital gain tax discount whose purpose was the shield investors from being taxed on inflationary gains (i.e. value increases due simply to price increases). These changes are expected to be grandfathered in, so will not apply to existing assets held.
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A significant change in CGT may end up meaning no changes to negative gearing, to the extent that government reform of CGT addresses the misincentives arising from negative gearing. It is often the interaction between the two that has caused concern; reforming one precludes the need to reform the other.
Other potential changes that may be relatively more impactful for South Australians are the changes in the taxation of trusts. South Australia has the largest share of households earning most of their income from investments, including trusts. The government is said to be considering a minimum tax rate of 25 per cent or 30 per cent on trust distributions. This would effectively align the tax rate imposed on trust distributions with the rate that applies to companies.
In addition to a larger-than-average reliance on investment or trust income, South Australia has the highest share of earnings through business income, meaning any changes to provisions affecting business will be important to the state.
The Treasurer has stated that increasing productivity was a major goal of the budget. While details are scarce, the budget will supposedly cut regulatory costs by $10 billion a year for businesses. This will be done through quicker project approvals, improved tax system compliance, and streamlined international trade and building regulations.
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Energy rebates targeted at small businesses from last year’s budget are expected to be replaced with more general grants for energy upgrades and efficiency programs.
There have also been reports that the government will be lifting caps on R&D spending thresholds to try to stimulate more innovation in the business sector.
Finally, it has also been suggested that the budget may make instant write-offs permanent. These write-offs, which allow small businesses to instantly claim a tax deduction for eligible purchases of up to $20,000, are set to expire on June 30, 2026.
Another area to watch is a potential change to the Superannuation Performance Test. This is an annual test of Superannuation performance and is meant to hold portfolio managers accountable for investment decisions. However, the test has led managers to focus their investment dollars on certain benchmark indices and sectors, such as mining and certain technology stocks, and neglect investment in high-growth, future-oriented sectors like AI, housing and even agriculture. Such a change could prove to be good news for the many SA companies in growth areas like Tonsley or Lot Fourteen, who often struggle to find capital investors to fund growth.
Finally, there is speculation that an “earned income offset” of $200 to $300 for taxpayers will be included in the 2026-27 budget as a cost-of-living relief measure. However, after the RBA’s caution that any increases in government spending will make fighting inflation more difficult, it remains to be seen if it will be implemented. Such a measure certainly isn’t in keeping with a supply-side, savings-focused, responsible budget.
Susan Stone is the Credit Union SA Chair of Economics at UniSA.
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