Federal Budget: Car owners, buyers and car loan perspective

With mounting cost of living pressures especially rising fuel prices, many Australians would have likely paid more attention than usual to the Federal Budget announcement this year. Billed by the Government as a ‘cost of living’ Budget, many would be hoping for relief on day to day expenses. For those considering purchasing a new vehicle we highlight the key points of the Federal Budget for individuals and businesses in regard to the significance of buying new vehicles with a car loan and motor vehicle finance.

Federal Budget Announcement

The Federal Treasurer Josh Frydenberg brought down the 2022-23 Federal Budget on the evening of 29 March in Federal Parliament. Normally the annual budget would be announced in May, but due to the timing of the timing of the Federal Election, the date was brought forward.

In opening his Budget Speech, the Treasurer noted the uncertain times with war in Europe, the global pandemic still continuing and the devastating flood situation. He said the past two year had been tough but that Australia remained resilient. Mr Frydenberg noted that the recovery from the pandemic in Australia was world-leading, noted it was stronger and faster than many other countries including the US, UK, Japan, Canada and Germany.

The Treasurer said the Budget would see the unemployment rate decrease further, while it currently sat at the lowest rate in 48 years, at 4%.

Understandably the budget covers many figures and areas and those interested can refer to the full detail at the Budget website.

Budget: Key Takeouts

For car owners, the temporary reduction of the fuel excise will be most welcomed. The excise will be cut by 22 cents per litre for the next 6 months. This will flow through to reductions at the bowser.

For individuals

  • The major item for individuals in the low and middle income brackets which covers those earning up to $126,000 per year is the increase of $420 tax break as part of the LMITO (low and middle income tax offset). This is a one-off tax break and will bring the offset maximum up to $1500 for this financial year. This can be realised when the tax return is submitted.
  • $250 one off payment for pensioners and welfare payment recipients.
  • Reduction in some medicines may assist weekly budget for those impacted.
  • Doubling of the places in the Deposit Guarantee Scheme to assist those seeking to purchase a home.
  • First Home Super Saver Scheme increased to $50,000 from $30,000

For businesses

The benefits of the Budget for businesses will partially depend on the industry or sector. Some of the inclusions to benefit general business including streamlining interaction with Government with new tech to automate reporting and as such reduce costs and this improve cash flow.

  • A key inclusion from our perspective is the extension of the instant asset write-off through to 30 June 2023. For business vehicle buyers, this means that vehicle purchase could yield significant tax benefits.
  • The $17b infrastructure spending in road, renewable tech and rail could mean more work for those in the trades operating in this sector.
  • Tax cuts for small business to 25% from the current 30%
  • Small business training tax deduction: $120 deduction for evet $100 spent.
  • An additional $1b for the Modern Manufacturing Strategy.
  • Apprenticeship subsidies and wage subsidies to hire trainees.

Be mindful

Budgets are Bills and need to be passed by Parliament in order to come into effect. While some measures such as the reduction in the fuel excise came into effect immediately, some measures won’t come into effect until the Bill is passed.

This is the 22/23 Budget and some initiatives may not come into effect until after 1 July or even later. Another complicating issue is the upcoming Federal Election. The Opposition Leader, Anthony Albanese has said that his party won’t block the cost of living measures in the budget.

But if there is a change of Government at the election, another budget may be announced post-election.

The $420 tax offset is not a cash hand-out. It is an amount which is deducted from taxable income when the tax return is submitted. For many in the eligible category it does mean money back but only as a tax return. So you’ll have to wait. Good incentive to get that tax return in asap after 1 July.

Motor Vehicle Finance Impacts

For those considering purchasing a new vehicle, some of the budget measures could be seen as incentives to proceed:-

  • Continuation of IAWO through to EOFY next year is a key driver for business buyers. For those considering utilising this measure, Car Chattel Mortgage is the most appropriate form of finance.
  • More work opportunities on the horizon.
  • Wage subsidies could reduce expenses and free up funds for motor vehicle repayments. Refer to our Car Loan Commercial Calculator to see how that may work out for your business.
  • Recent hikes in fuel prices and the volatility due to the global scenario could be reason to invest in more fuel efficient vehicles, possibly EVs.
  • LMITO means dollars on the way which could go towards the car loan repayments. With our Secured Car Loan, additional payments are permitted. Any tax return received could be paid towards the car loan. Additional payments can be used to reduce the commitment or against future payments.

Car Loan Interest Rate Impacts

The Government doesn’t set the interest rates or more specifically the cash rate. That is the responsibility of the RBA. So the Federal Budget announcement will not in itself change car loan interest rates. But the outcomes of fiscal policy (the Government’s remit) are put in place to influence economic conditions which in turn influence the RBA’s decision on interest rates.

The Budget Papers note that the higher prices for oil, food and gas on a global level as a result of Russia invading Ukraine have added inflationary pressures. The forecast of GDP on a world scale has been downgraded and the forecast is for inflation to increase. The notes also see a further reduction in unemployment.

With inflation increasing and unemployment decreasing, it is highly likely that interest rates will be increased in 2022. The RBA Governor, Philip Lowe recently stated it was probable that this could occur. When the RBA moves on rates, the decision flows through the lending sector and that typically means higher rates on car loans.

So the Federal Budget announcement does include benefits for both individuals and businesses which could be incentives to proceed with new car purchases. If the forecasts are on track and inflation rises and unemployment drops, there is a high likelihood that interest rates will increase.

Contact Jade Car Loans on 1300 000 003 for a quote on personal or business vehicle finance. 

DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.