5 Posts

2017 Budget Edition

Posted on May 10, 2017 by GeersSullivan

Getting the right balance

Treasurer Scott Morrison’s first budget of the Coalition’s second term in office marked a significant shift in tone from the tough stance of its three previous budgets. Gone is the mantra of debt and deficit. Instead the Treasurer has balanced the government’s resolve to live within its means with promises to tackle the cost of living and provide the services people need to get ahead.

The centrepiece of the budget is the use of ‘good debt’ to fund $75 billion worth of infrastructure projects to create jobs and promote economic growth. To achieve this along with a commitment to returning the budget to surplus it has also introduced measures to cut everyday spending on universities and welfare.

In line with the new distinction between ‘good debt’ and ‘bad debt’, the Treasurer announced that from 2018-19 the government will no longer borrow to pay for everyday expenses.

The Big Picture

The government forecasts an underlying budget deficit of $26.1 billion this financial year, which is lower than the $28.7 billion forecast in the Mid-Year Economic and Fiscal Outlook. The deficit is projected to rise to $29.4 billion in 2018-19. Treasurer Morrison chose not to promise a return to budget surplus, instead saying the budget is ‘projected’ to be back in the black in 2021.

The Government’s estimates are based on economic growth ‘rebounding’ from 2.5 per cent to 2.75 per cent next year and 3 per cent beyond that. Inflation is expected to hover around 2 per cent while unemployment will reduce slightly from 5.75 per cent this financial year to 5.5 per cent next year.

Housing affordability

The news is better for younger Australians on the housing front. While the Treasurer says there are no ‘silver bullets’ to improve housing affordability, he unveiled a number of measures to help first home buyers and increase housing supply.

The government will help first home buyers build a deposit with the introduction of a superannuation-style salary sacrifice savings account. From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation account to purchase a first home.

At the other end of the housing market, people over 65 will be encouraged to sell their large family homes, downsize to something smaller and put up to $300,000 into superannuation as a non-concessional (after tax) contribution.

The ‘good debt’ infrastructure philosophy will be extended to housing with the introduction of a UK-style ‘bond aggregator’ as an intermediary to attract more private sector investment in affordable community housing. In another sweetener, the capital gains tax discount on the sale of investment property will increase from 50 per cent to 60 per cent for investments in affordable housing.

The government will also boost the supply of land for housing construction with the release of surplus Commonwealth land beginning with Defence land in Maribyrnong, Melbourne.

Business and banking

The government is seeking to raise $6.2 billion over the next four years by imposing a six-basis point levy on the five major banks. This new tax won’t be imposed on superannuation funds or insurance companies.

The government also plans to introduce a suite of measures to improve competition and transparency in the banking system. It will set up a one-stop shop for dispute resolution for consumers, small business and investors to be known as the Australian Financial Complaints Authority. This will replace three existing regulators.

After initial success by the Tax Office in its crackdown on multinational corporations not paying their fair share of tax, the program will be extended to include foreign partnerships and trusts.

Small business owners with turnover of up to $10 million will be able to write off up to $20,000 on assets purchased for their business for another year. The measure was due to end on June 30.

Roads, rail and runways

The government announced a multi-billion dollar infrastructure program, including the previously announced $5.3 billion second Sydney airport at Badgerys Creek. The government will form a new Commonwealth company to build the project over the next 10 years.

A further $10 billion will go to a National Rail Program to fund urban and regional rail projects over the next 10 years. $8.4 billion, meanwhile, will be spent on a Melbourne to Brisbane inland rail to allow freight to travel between the two cities in under 24 hours.

The government will also fund State infrastructure projects. These include $1.6 billion to West Australia for road and rail projects, $844 million towards Queensland’s Bruce Highway and $1 billion for regional rail upgrades in Victoria with a further $30 million for Tullamarine Airport rail planning.

More funds for education

Schools, early childhood education and skill training are also in for a boost in funding. Schools will get a $18.6 billion boost over the next decade. Under the plan dubbed ‘Gonski 2.0’, most schools will receive more money while some wealthier schools will lose some funding.

Early childhood education will receive an additional $428 million over two years while $1.5 billion will go to the States and Territories over four years for a new Skilling Australia Fund for apprenticeships and traineeships.

Offsetting this are revenue producing changes to university funding. Students will pay more for their bachelor degrees and will have to start repaying their student loans earlier once they enter the workforce.

Health

In a surprise move, the Medicare Levy will be increased from 2 per cent to 2.5 per cent of taxable income from 1 July 2019. The proceeds will be used to ensure the National Disability Insurance Scheme is fully funded in two years’ time.

The government will encourage doctors to prescribe cheaper generic medicines rather than name brands. The saving will allow $1.2 billion to be used to fund the listing of new medicines on the taxpayer-funded Pharmaceutical Benefits Scheme.

As a sweetener for doctors, the freeze on Medicare rebates that GPs are paid for bulk-billed patients will be lifted from July 1 instead of 2020 as previously planned.

The government has also allocated $347.4 million to Veterans’ Affairs for programs including mental health and suicide prevention.

Welfare carrots and sticks

Younger Australians and families will face the brunt of cuts to welfare spending, with penalties including reduced or cancelled payments for not turning up for job interviews or accepting suitable work.

To balance this tough approach, programs to help young parents find jobs, childcare and training will be extended, while aged pensioners and disability pensioners will get a one-off payment to help with rising energy bills this winter.

Immigration and border protection

In a revamp of the heavily criticised 457 visa system, $1.2 million will be raised from a levy on foreign workers to help fund training for local apprentices.

Defence spending will increase to 2 per cent of GDP by 2021, three years ahead of schedule.

Looking ahead

The lift in infrastructure spending is welcome news for the construction industry in the short to medium term but it should also have long term social and economic benefits for the nation.

It needs to be remembered though that the budget announcements are just proposals at this stage. They need to be passed by both houses of Parliament before they become law.

The Turnbull government will be hoping a budget that balances productive spending on infrastructure, schools and health with cuts to everyday spending and help for people struggling with the cost of living will give it a fresh start with voters.

Special 2016 Budget Edition

Posted on May 4, 2016 by GeersSullivan

1605_AI_SS_A_Federal-budgetBringing the Budget into tax focus

Although personal tax is largely untouched in the 2016/17 Budget, there are major changes to the tax arrangements for superannuation and business with delivery of a 10-year plan for business tax.

Small business the big winner

Small and medium enterprises (SMEs) are the major beneficiaries from this year’s Budget, with the announcement that the small business tax rate will drop 1 per cent to 27.5 per cent in 2016/17. This rate will apply until 2024/25, when it will decrease to 27 per cent, before dropping to 26 per cent in 2025/26 and finally to a flat 25 per cent from 2026/27 onwards.

More SMEs will also qualify for the tax cut, with the change applying to businesses with an annual turnover of less than $10 million, five times the current $2 million threshold.

The centrepiece of last year’s Budget, the instant asset write-off, has also been expanded so SMEs with an annual turnover of up to $10 million can use the tax benefit.

Benefits for small business

Small businesses such as sole traders, partnerships and trusts will also benefit from an increase in their tax discount.

Unincorporated entities with an annual turnover of less than $5 million (up from $2 million) will qualify for an 8 per cent tax discount (up from 5 per cent) for the period 2016/17 to 2023/24.

In line with changes to company tax, this discount will increase in stages over the next 10 years, reaching 16 per cent from 2026/27 onwards.

Company tax rate flattens to 25 per cent

While SMEs will enjoy a tax cut now, large companies will have to wait a little longer. The Budget includes a planned phasing in of company tax cuts so by 2023-24 all companies will be taxed at 27.5 per cent.

By 2026-27, the rate for all businesses will drop to 25 per cent to make local firms more competitive internationally.

Multinationals hit by new tax

Following the UK’s lead, the Government announced a new 40 per cent diverted profits tax for any profits multi-nationals attempt to shift offshore.

This move will apply to global companies with a turnover of $1 billion or more and is designed to target artificial tax arrangements.

Tax cuts we aren’t having

This year’s Budget saw only minor changes to personal taxation and changes to the tax benefits surrounding negative gearing were firmly ruled out.

To address concerns about more taxpayers moving onto higher tax rates (so-called ‘bracket creep’), the Government announced from 1 July 2016, the bottom threshold for the second top tax bracket will rise from $80,000 to $87,000. This will ensure taxpayers on ‘average wages’ remain on the middle tax bracket of 32.5 cents per dollar. While the change will benefit the top 25 per cent of working Australians, other taxpayers were left empty-handed.

Smokers will feel real pain, however, with the Government announcing four more annual 12.5 per cent increases in tobacco excise from 1 September 2017.

Super gets a makeover

The Treasurer also made some bold – and unexpected – changes to the superannuation system, many of which will limit the benefits of this savings vehicle for those on higher incomes.

Pension Accounts capped at $1.6 million

One of the biggest changes and challenges will be the introduction of a $1.6 million cap on the total amount of superannuation that can be used to commence a pension.  This is to be introduced from 1 July 2017.  For those entering retirement after 1 July 2017, any superannuation in excess of the cap can remain in accumulation where earnings are taxed at 15%.  Those with existing pensions as at 1 July 2017 in excess of the cap will need to roll back amounts into accumulation taxed at 15% or withdraw funds.

Lifetime cap for non-concessional super contributions

Superannuation savers also face a new lifetime cap of $500,000 (indexed) on their non-concessional (or after-tax) contributions. The cap will apply to all non-concessional contributions with immediate effect from 7.30pm (AEST) 3 May 2016. The cap will apply to individuals aged up to 75 and will be indexed in $50,000 increments.

The cap takes into consideration all non-concessional contributions made since 1 July 2007. If you have exceeded your cap prior to commencement of the new rules, you will be taken to have used your lifetime cap but you will not be required to take the excess out.  However where the excess occurs after 3 May 2016, you will be notified by the Australian Taxation Office to withdraw the excess from your super account or be subject to the penalty arrangements.

The lifetime non-concessional cap will replace the existing non-concessional contributions cap which allows you to contribute up to $180,000 per year or $540,000 under the bring-forward provisions for those age under 65 years.

Transition to Retirement Income Streams

From 1 July 2017 the tax exempt status of income from assets supporting transition to retirement (TTR) pensions will be removed making TTR strategies less attractive.

Reduction in concessional contributions cap

From 1 July 2017, the annual cap for concessional (or pre-tax) contributions into superannuation will fall to $25,000 for everyone up to age 74 years.  Currently the concessional contributions cap is $30,000 if under age 50 and $35,000 if aged 50 and over.

More tax on contributions for more high earners

From 1 July 2017 the ‘division 293’ threshold will reduce from $300,000 to $250,000 per year meaning individuals earning over this amount will have to pay an additional 15% tax on concessional contributions.

Super benefits for average taxpayers

While wealthier Australians may be unhappy, there are some superannuation benefits for older workers and those on lower incomes.

The contributions work test will be abolished from 1 July 2017, allowing everyone under age 75 to make personal contributions to superannuation, or to have a spouse contribute on their behalf without needing to pass a ‘work test’.

Everyone will also be able to claim a deduction for any personal contributions made to superannuation, regardless of their employment status. Currently, this tax deduction is limited to the self-employed or those ‘substantially self-employed’.

Playing super catch-up

The Budget also introduced changes for low-income earners and those with low super balances. The Low Income Superannuation Tax Offset (LISTO) of up to $500 will help reduce the effective tax rates on concessional contributions for taxpayers earning under $37,000.

Catch-up contributions for those with balances under $500,000 will be encouraged. People who do not fully utilise their annual concessional contributions cap will be able to carry forward their unused cap on a rolling five-year basis.

More taxpayers may also be able to access the18% tax offset up to $540 if they make a contribution on behalf of their low-income spouse following a lift in the current $10,800 spouse income threshold to $37,000.

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