Glossary of federal budget terms you may not know
The Federal Budget is packed with headlines, promises, and policy announcements, but it also comes with a whole lot of jargon. From fiscal deficits and bracket creep to offsets, surpluses, and super changes, it can sometimes feel like you need a finance degree just to follow along. That’s why we’ve put together this simple glossary of common Federal Budget terms to help break down the language, cut through the confusion, and make it easier to understand what the Budget actually means for Australians and their money.
Tax offset
A reduction in the amount of tax you pay. Unlike a deduction, it reduces your tax bill directly, dollar for dollar. Tax offsets are sometimes income-tested and may only apply to certain groups, such as low-income earners, seniors, or people with private health insurance.
Tax deduction
An expense you can claim to reduce your taxable income. Common deductions include work-related expenses, charitable donations, and investment costs. The lower your taxable income, the less tax you may need to pay.
Bracket creep
When inflation or wage increases push someone into paying a higher average rate of tax over time, even if their purchasing power hasn’t improved much. This happens because Australia’s income tax system uses tax brackets, meaning higher portions of income are taxed at higher rates.
Negative gearing
When the costs of owning an investment property are higher than the income it generates. Investors may be able to use these losses to reduce their taxable income, which can lower the amount of tax they pay.
Capital gains tax (CGT)
Tax paid on profits made when selling an investment asset for more than you originally paid. CGT can apply to assets like shares, investment properties, and cryptocurrency.
Medicare levy
An additional tax most Australians pay to help fund the public healthcare system. It’s generally calculated as a percentage of taxable income, although some low-income earners and exemptions may apply.
FBT (Fringe Benefits Tax)
A tax applied to certain benefits employers provide employees, such as company cars, entertainment, or salary-packaged expenses. Employers usually pay the tax, not employees directly.
Salary packaging
An arrangement where part of your salary is taken as benefits or expenses instead of cash wages. Depending on the setup, salary packaging can sometimes reduce taxable income and improve take-home pay.
Inflation
The increase in prices over time, which reduces purchasing power. This means the same amount of money buys fewer goods and services than it did previously. Inflation is closely monitored by governments and central banks because it affects the cost of living, wages, and interest rates.
Compounding
When investment returns start generating returns themselves over time, helping investments potentially grow faster long term. Often described as “earning returns on your returns,” compounding is one of the key principles behind long-term investing.
Superannuation (Super)
Australia’s retirement savings system, where employers contribute a percentage of an employee’s earnings into a super fund. Super is designed to help Australians save for retirement and generally can’t be accessed until reaching preservation age.
HECS-HELP / Student debt
A government loan program that helps eligible Australians pay for university or higher education fees. Repayments are generally made automatically through the tax system once income reaches a certain threshold.
Stage 3 tax cuts
Changes to Australia’s income tax brackets and rates designed to reduce personal income tax for many workers. The term became widely used during Federal Budget discussions and tax reform debates.
Cost of living relief
Government measures designed to help households manage rising expenses. This can include energy bill rebates, rent assistance, tax cuts, childcare subsidies, or other support payments which are generally announced in the Budget.
Bulk billing
When a doctor bills Medicare directly for a medical service, meaning the patient usually pays no out-of-pocket cost for that appointment.
Surplus
When the government collects more money in revenue than it spends during a financial year. Governments often highlight a surplus as a sign of strong budget management.
Deficit
When government spending is higher than the revenue it collects. Governments may run deficits to fund services, infrastructure, or economic support measures.
GDP (Gross Domestic Product)
A measure of the total value of goods and services produced in a country over a specific period. GDP is commonly used as an indicator of economic growth and overall economic health.
Cash rate
The interest rate set by the Reserve Bank of Australia (RBA), which influences borrowing costs, mortgage rates, savings rates, and overall economic activity.
Means testing
A process used to determine eligibility for certain government payments or benefits based on income and assets. The higher your income or assets, the less support you may receive.
Indexation
The automatic adjustment of payments, tax thresholds, or debts to account for inflation. For example, student debts and some government benefits may increase each year through indexation.
Disposable income
The amount of money left after tax that households can spend or save. Rising living costs can reduce disposable income even if wages increase.
Revenue
Money collected by the government, mainly through taxes, fees, and other sources. Revenue is used to fund public services and government spending.
Fiscal policy
How the government uses spending and taxation to influence the economy. Federal Budgets are one of the main tools used to implement fiscal policy.
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This blog has been issued by Instreet Investment Limited (ACN 128 813 016 AFSL 434776) as Responsible Entity of the Raiz Invest Australia Fund (ARSN 607 533 022) and has been prepared without taking into account your objectives, financial situation or needs. Before acting on such information, you should conduct your own review or consult a financial advisor before making a decision to invest. Please read the relevant Product Disclosure Statement and any associated reference documents before making an investment decision. In accordance with the Design and Distributions Obligations, we maintain Target Market Determinations for our Funds. All documents can be found on the Raiz website www.raizinvest.com.au, or calling the Customer Support team on 1300 754 748.
