Cost of living was a hot topic in the budget measures introduced in the Federal Budget 2022-23 overnight. A temporary reduction in fuel excise to address cost of living pressures, along with cost of living tax offsets and payments to millions of Australians were forefront in the Budget speech.
For all the rhetoric and excitement with which the Honourable Josh Frydenberg MP delivered these boons to ordinary Australians, the Government appears to have missed the mark by giving us temporary solutions which appears to grab at votes for the soon-to-be announced election, rather than providing real and lasting benefits for a large number of voting constituents.
The temporary reduction in fuel excise will come into effect today and is intended to benefit households and small businesses by halving the excise duty rate that applies to petrol and diesel for six months, from 44.2 cents per litre to 22.1 cents per litre.
The Government has indicated that the fuel prices subsequently faced by consumers are expected to be reduced by more than just the 22.1 cents per litre in excise, because the GST levied on the sale at the pump will be charged on the basis of the lower excise, and that the lower excise rate will be fully passed on by retailers due to ACCC monitoring.
However, the measures are fleeting and will not be felt immediately even with their introduction today. The reduction will be legislated to end on 28 September 2022 and there are no guarantees that fuel prices will decline in any significant manner after this date to provide ongoing cost of living benefits to households and small businesses.
The Government also announced an increase of the low and middle income tax offset for the 2021-22 income year whereby existing recipients who do not require the full offset to reduce their tax liability to zero will benefit from a $420 increase. This measure will not benefit any taxpayers with incomes of $126,000 or more, so is limited in its application as a cost of living support.
In addition, the Government will make a tax exempt $250 economic support payment in April 2022 to eligible Australian resident recipients at a cost of $1.5 billion. Recipients will include pensioners, carers, veterans, job seekers and concession cardholders. This cash handout is also intended to help its recipients with the current cost of living pressures in Australia.
These measures seem little more than promises from a Government on the verge of announcing an election, and none of them will do anything substantial in terms of alleviating the cost of living pressures being experienced by the population.
It is noteworthy that this Budget included no significant announcements in relation to GST measures. Rather than spruiking short term cost of living support measures for votes, this Budget missed the opportunity to deliver systemic changes that provide actual lasting reductions in the cost of living for everyday Australians.
The GST system is premised on end consumers bearing the cost of GST, while providing that certain essential goods and services are GST-free. This currently includes categories such as food, health and medical services, education and childcare.
Maybe it is time for changes to the existing GST system that support long term cost of living reductions for those in need of relief. If the pub test was applied in determining what are essential goods or services, I suspect that luxury items currently subject to GST such as electricity, gas, petrol and public transport might just be considered as essential by the populace.
Such changes would impact consolidated revenue certainly, but it is proposed that expanding the base of GST-free essential goods and services to include some or all of the current luxury items identified above would provide far greater cost of living support to Australians than any of the temporary or short-term Budget measures announced.
Leveraging the GST system to provide cost of living support to those who contribute to it seems far more equitable than the currently proposed short term measures. All this might be possible before even turning to the GST can of worms embedded in Australia’s cost of new housing.
Check out the full coverage from the Federal Budget 2022-23, which will continue to develop throughout the week as new insights and video content are published.