Last year when I wrote about the Federal Budget I compared it to a 17th birthday, not a sweet 16th focused on heading to adult hood, not an 18th where you are an adult and start to gain responsibilities but also the presents to go with it, and not a 21st where it is all about being an adult. It goes to suggest that this year should be an 18th with all of the big presents and given there will be an election soon (logically some time before the 18th of May to allow a joint election of the house and half the senate) there is no doubt the delivery of this year’s budget is the launch of the government’s re-election campaign.
The battle lines from the opposition have been set for some time now focusing on some major changes to tax policy, including:
- 1. A roll back of the second and third stages of the personal income tax cuts that are legislated to come into force in 2022 and 2024. The current tax rates are not scheduled to change.
- 2. A change to the way franking credits are used for people in a zero tax environment. Currently individual or superannuation funds that have no tax liability are entitled to a refund of the imputation credits. The opposition is proposing to change the tax rules back to where they were prior to 2001 that franking credits can be used to reduce tax but shareholders will not receive cash refunds from the government. The policy change would apply from July 1, 2019.
- 3. A change in the way discretionary trusts are taxed, where a minimum tax rate of 30% will be applied for all distributions to members over the age of 18 (there are already high tax rates on distributions to minors). This may have an impact on the ability of small business owners to income split between members, most often spouses.
- 4. The most discussed opposition tax policy is a change to negative gearing for property. All existing arrangements will not be affected but from the 1st of January 2020 only new properties, not existing properties, will be eligible for negative gearing.
Most recently announced is a change to capital gains tax. Currently when you sell an asset for a profit and have held it for more than 12 months you get a discount of 50% of the gain against your income tax. It has been proposed that the discount be reduced to 25%.
Last night Josh Frydenberg delivered the “plan for a stronger economy”. Central to the budget is a return to surplus that some economists believe could have happened this year but if the projected surplus of $7.1B comes to fore this will be the first budget surplus since the GFC in 2008 and our government debt will start to reduce and is forecast to be back to zero within a decade.
So, what are the 18th birthday presents that have been delivered this year?
Tax cuts for individuals
The government has committed to putting in place phase 2 and 3 of the personal income tax rate cuts that will deliver a simpler income tax system. But for now, there is a doubling of the Low Income Tax Offset that will see anyone earning up to $126,000 getting a reduction in income tax now.
|Up to $21,885||No tax to pay|
|Up to $37,000||Up to $255|
|Up to $48,000||Between $255 and $1,080|
|Up to $90,000||$1,080|
|Up to $126,000||Gradually reduces to zero|
Tax cuts for small and medium business
The small business instant tax write off (allowing for businesses to claim an instant tax deduction rather than claiming the depreciation over a number of years) has been increased from an asset valued at $25,000 to $30,000 and will be extended to businesses with turnover of up to $50,000,000. It is also proposed that the company tax rate for small and medium businesses will be reduced from 27.5% to 25% by 2021-2022.
An easier commute
The major infrastructure spending announced last night is all around easing congestion with almost $100B slated to be invested in fast rail from Melbourne to Geelong and a feasibility study in linking Sydney, Melbourne and Brisbane to major regional centres. Major spending has been promised for major road upgrades across the country including the M1 in NSW, the Bruce Highway in QLD and in Victoria it is all about regional roads. To make train travel easier there is a $500M commuter carpark investment making it easier to travel by public transport.
The elderly, the young and the sick
After being largely ignored in last year’s budget there is a lot for those who need it most in this year’s budget. Additional funding to allow for older Australians who choose to stay in their home longer with an additional 10,000 home care places as an alternative to aged care facilities. For the young, greater access to pre-school programs and a big investment in vocational education including an additional 80,000 apprentices. The sick will see some target programs such as increased funding for medical imaging and a $100M children’s cancer centre at Sydney Children’s Hospital.
For the second year in a row the superannuation system has largely been left alone with only a small number of changes announced, including increasing the age at which someone can make voluntary contributions up from 65 to 67.
With this year’s budget being just weeks away from the election we don’t know what the Australian budget will look like in 2 months’ time. Remember these are just proposals and are yet to be legislated so before you buy your ticket on the 200 kph train to Geelong or spend your tax cuts just wait and see which party is in control of the nation’s purse strings on the 1st of July.
If you want more detail on how the budget affects you the technical team from BT you can download a comprehensive briefing document here.
If you want to know how any of these announcements could affect you simply reach out to your financial adviser.