The Labor Government’s first Federal Budget in nine years has foreshadowed tough times ahead for households and businesses with interest rates forecast to rise harder and faster and inflation to remain persistently higher for longer.

RSM Australia National Tax Director Liam Telford said the 2022-23 Federal Budget meticulously followed the Albanese Government’s pre-budget script, funding key election commitments and reducing government debt to “reset the government’s fiscal footing’’ and cement its “stable and sensible’’ economic and policy narrative.

Mr Telford said multinationals remained squarely in the Federal Government’s crosshairs with the Federal Budget benefiting from a $970 million revenue boost over four years from new multinational tax integrity measures slated to start from 1 July 2023.

“The Budget confirms that Australia’s thin capitalisation rules will be rewritten in arguably the most controversial change that appears to go even further than what was proposed or even anticipated by industry,’’ he said.

“This measure and the change to limit tax deductions for payments relating to intangibles and royalties have both featured in the Budget papers despite public consultation on both measures only concluding in early September.

“These changes are complex and their impact on industry, including large Australian multinational mining companies will likely be far-reaching, and potentially unanticipated. Additionally, for a country that wants to see more companies innovating, removing the self-assessment of intangibles may be a step in the wrong direction.’’The Labor Government’s first Federal Budget in nine years has foreshadowed tough times ahead for households and businesses with interest rates forecast to rise harder and faster and inflation to remain persistently higher for longer.

Mr Telford said the Budget papers also contained a “surprise revenue measure” to align the tax treatment of ‘’off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs”.

“Inflation figures out tomorrow (Wednesday) will likely add to the worry lines of business owners and further tightening of family budgets.  For the first time tomorrow the Australian Bureau of Statistics (ABS) will release a monthly CPI indicator – alongside the usual quarterly data - which could show monthly inflation has already hit or exceeded 7.0%,’’ he said.

“Annual inflation is expected to peak at about 7.75% in the December quarter according to the Budget papers, but is now expected to be more persistent, staying at elevated levels of about 3.5% in the June 2024 quarter before declining to 2.5% in 2024-25. This pattern is due to higher electricity and gas prices which are expected to rise sharply over the next two years.”

Mr Telford said Australians should also brace for further interest rate rises when the Reserve Bank Board meets on 1 November, particularly with the Federal Budget forecasting the cash rate will accelerate faster and higher than predicted, peaking at 3.35% in the first half of 2023.

“Based on the RBA’s own forecasts this meeting is likely to approve a further rate rise, despite Australia’s housing market already coming off the boil with new building activity slowing and house prices trending down since peaking earlier in the year.”

RSM Australia conducted a quick pulse survey of 100 small to large business owners ahead of the Federal Budget to pinpoint their cost pressures and priorities for the Federal Budget:

  • 92% of business respondents said they were experiencing cost pressures with the top three being labour, fuel/energy and financing
  • 25% of respondents were dealing with higher costs by accepting short-term profit impacts, 18% by increasing business efficiency through technology adoption, and 16% by decreasing overhead costs
  • 21% of respondents wanted government action on interest rates, followed by 16% who wanted support for SMEs and 16% looking for cost of living relief.