What’s ahead for FY2025? Personal tax and superannuation policies, wage trends, interest rates, the cost of living, business confidence, and migration and labor dynamics will play critical roles in shaping the financial and economic environment. Evaluating these elements will provide insights into what we can expect moving forward.
Personal tax & super
As you might be aware, the reductions in the personal income tax took effect on 1 July 2024. In addition, the superannuation guarantee (SG) rate grew by 0.5% to 11.5%.
Organisations need to ensure that their payroll system, and every engagement with it, including agreements for salary sacrifice, is evaluated and updated. This will affect their PAYG withholding as well.
While we’re talking about responsibilities, the ATO just issued a warning to employers that should exercise caution with their super guarantee duties:
- Are the proper individuals receiving your super guarantee payments? The definition of an employee for SG purposes is broad. Temporary residents, backpackers, many firm directors working in the business, family members working in the business, as well as some contractors require SG payments. Check if your categorisations are correct for SG purposes.
- Ensure that the employee’s fund details are valid and that their tax file number has been sent to the superfund. Guaranteeing that the employee’s SG is directed to the correct super fund account is the employer’s responsibility.
- Pay the SG into the employee’s fund by the quarterly due date. The next SG payments are due by 28 July. If your business fails to meet the deadline, the super guarantee charge applies even if you pay the outstanding money swiftly after the deadline. Employers find the SG charge (SGC) painful because it is made up of the outstanding SG, 10% interest p.a. from the start of the quarter, plus an administration fee. Furthermore, unlike regular SG contributions, SGC amounts are not deductible.
Wages
On 1 July 2024, the national minimum wage increased by 3.75% to $24.10 per hour or $915.90 per week. The increase is effective from the first complete pay period beginning on or after 1 July 2024. Traditionally, there is no association between minimum wage increase and inflation.
Meanwhile, annual salary growth in the private sector declined from 4.2% in December 2023 to 4.1% in the March quarter of 2024. This is the first fall since September quarter 2020, indicating that wage growth is beginning to even out.
Interest rates and cost of living
Reserve Bank of Australia (RBA) Governor Michelle Bullock has emphasised multiple times that the core issue affecting the cost of living is inflation, not interest rates. She describes interest rates as the RBA’s “blunt instrument” for managing inflation. With inflation decreasing more slowly than expected, the RBA remains open to all options, as the direction of interest rates depends on the necessary measures to achieve the inflation target.
Inflation dropped from its peak of 7.8% in December 2022 to 3.6% in the March quarter, but it rose again to 4% in May, lowering hopes for an interest rate relief.
Business Confidence
The latest NAB business survey presents a bleak picture, showing that business confidence fell back into negative territory in May as conditions continued to gradually deteriorate. Businesses, having faced eight consecutive months of declining forward orders, are understandably cautious about the future. GDP saw only slight growth in the March quarter, and per capita consumption continued to decline.
However, the labor market remains robust, with unemployment at 4% in May.
Treasury forecasts suggest that economic growth (GDP) will slightly improve to 2% in 2024-25, which, while not thrilling, is considered credible.
Migration & labour
Always a contentious issue. Post-pandemic, Australia’s migration rates increased with the return of international students, working holiday makers, and an infusion of temporary skilled labour to meet shortages. In the year ending on 30 June 2023, overseas migration added a net gain of 518,000 people to Australia’s population, marking the highest net overseas migration estimate since records began
The 2024-25 Federal Budget projects that net migration will decrease to 260,000. While the demand pressures from migration, especially on housing, have been widely reported, the positive effect has been on supply. After COVID-19, Australia experienced severe labour shortages that hindered the recovery and growth of supply.
Starting 1 January 2025, the number of student visas will be capped. According to University of Melbourne Deputy Vice-Chancellor Professor Michael Wesley, student visa grants were already down by 34% in March 2024 compared to the same period in 2023.
The Government is prioritising skilled migration. Employer-sponsored places will increase by 7,175, while skilled independent visas will decrease by 13,475. Additionally, the minimum salary requirement to sponsor an employee, known as the Temporary Skilled Migration Income Threshold, will rise to $73,150 on 1 July 2024.
What now?
Businesses often struggle or fail due to various reasons, with a common issue being a lack of understanding and monitoring of internal operations. Strategically, business owners should track their performance key metrics to promptly identify and address issues. Knowing the main drivers of your business is crucial, and we can assist you in uncovering these.
Profit is essential, but insufficient cash flow can quickly bring a business to a halt. Many businesses falter because they fail to manage their cash flow effectively. It’s vital to plan, track, and measure your cash flow by closely monitoring debtor collections, inventory, and maintaining a rolling three-month cash flow forecast. This proactive approach provides early warnings of potential problems.
Effective business management involves overseeing cash flows, operating budgets, cost control, and debt management. The better your control, the lower your risk.
Additionally, many small businesses tend to absorb rising costs. Increasing prices during tough times isn’t a social betrayal. If your operating costs have risen, you should adjust your prices accordingly unless you’re willing to earn less for the same effort or are in a highly price-sensitive industry where following larger competitors is necessary.
Fullstack offers a team of experts to assist you in your business journey. We provide a full suite of accounting solutions from regular bookkeeping to VCFO services and more. Contact us to discuss your situation and how we can help you.
