Last night the Federal Treasurer, The Hon Joe Hockey MP, handed down his second Federal Budget – a responsible budget about fairness, families and small business that encourages Australia to ‘get out there and have a go’.
Budget Headline Figures
- Forecast budget deficit to fall each and every year from $35.1 billion in 2015-16 (2.1% GDP) to $6.9 billion in 2018-19 (0.4% GDP), despite losing $90 billion in revenue.
- Net debt is estimated to be $285.8 billion in 2015-16 (17.3% GDP) and peak as a share of GDP at $313.4 billion (18% of GDP) in 2016-17.
- Real GDP growth forecast to increase from 2.5% in 2014-15, to 2.75% in 2015-16, and 3.25% in 2016-17.
- Unemployment is expected to drift up from 5.9% in 2013-14, to 6.25% in 2014-15, and 6.5% in 2015-16, before forecasting to fall in 2016-17.
- CPI inflation is expected to remain around the middle of the RBA’s target band at 2.5% through the year to June quarter 2015 and 2016.
- Total cost to government of the super tax concessions forecast to rise to more than $50 billion by 2018-19.
Key Superannuation & Pension Measures
Age pension asset test changes
From 1 January 2017, the assets test threshold for those eligible to receive the full age pension will increase from $286,500 to $375,000 for couples (and from $202,000 to $250,000 for singles). This means more Australians will be eligible for the full age pension.
However, the upper threshold for those eligible to receive a part age pension will decrease from $1,151,500 to $823,000 for couples (and from $775,500 to $547,000 for singles). This means that some retirees who were once able to receive a part age pension may no longer be eligible to receive the age pension from the Government. On a positive note, those who lose their age pension will be guaranteed eligibility for the Commonwealth Seniors Health Card (CSHC).
Easing criteria for release of super for terminal medical condition
Currently, a patient must have two medical practitioners, including a specialist, certify that the person is likely to die within 1 year in order to gain unrestricted access to their super. The Government will change this period to 2 years, as this will give those people who are terminally ill earlier access to their super. (Cost approx $0.3 million over the forward estimates period).
Increased portion of a defined benefit income included in the social security income test
The Budget is seeking to achieve a saving of $465.5 million over 5 years by ensuring that a larger proportion of a superannuant’s actual defined benefit income is taken into account when applying the relevant social security income test. Under this measure, the proportion of income that can be excluded from any income test (the deductible amount) will be capped at 10% from 1 January 2016. Recipients of Veteran Affairs pensions or defined benefit income streams paid by military super funds are exempt from this measure. This measure mainly affects former public sector employees and around two-thirds of those involved in these schemes will be unaffected.
Other Key Measures
Tax cuts for small business, no change to franking credit rate
As expected, the government has announced a 1.5% reduction in the tax rate for small companies (those with aggregated annual turnover under $2 million), from 30% to 28.5%.
Importantly, the Budget papers confirm that the current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies, maintaining the existing arrangements for investors, including superannuation funds and self-funded retirees.
The government has also announced a 5% tax discount on income from unincorporated small business activity. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity, capped at $1,000 per individual for each income year, and delivered as a tax offset.
The tax cut and tax discount will take effect from the 2015-16 income year, and are estimated to have a cost to revenue of $3.3 billion over the forward estimates period.
Child Care Subsidy
The Government proposes to make early childhood care simpler, more affordable, accessible and flexible, especially for families in need.
The first proposal is to remove the Child Care Benefit and Child Care Rebate and introduce a single means tested Child Care Subsidy for all families.
The Child Care Subsidy will be 85% of the child care fee (or a benchmark price, whichever is lower) per child. If your family has an income of over $170,710, the subsidy will be 50% of the actual fee or benchmark price.
The good news for higher income families is that a cap of $10,000 per child will be established for incomes over $185,710.
To give families and service providers time to adjust to the new model, the introduction of the new arrangements will start in July 2017.
New arrangements for parental leave schemes
The Government has introduced new criteria for Parental Leave Schemes from 1 July 2016. Concerns have been raised that some employers currently providing a PPL scheme with super will review these arrangements, and revert to the Government scheme which currently does not pay super. This could potentially exacerbate women’s retirement savings gap.
Funding of a Serious Crime Taskforce
The Government has announced a co-ordinated national solution to counteract serious financial crime risks to our financial markets, regulatory frameworks and our tax revenue base by establishing a Serious Financial Crime Taskforce. This will cost $127.6 million over 4 years, and will address super and investment fraud, and will identify crime and tax evasion. The Taskforce includes the ATO, Australian Crime Commission, the AFP, AG, ASIC, Cw Director DPP, Australian Transactions Report and Analysis Centre, and Custom.
Older worker incentives
In a minor change to the Government’s Restart Subsidy Program (which aims to help business receive Government support when they employ older workers), the subsidy amount of $10,000 will be given progressively over 1 year rather than the current 2 years. To date, the take-up rate of this program has been disappointing.
Increase the medicare levy low income thresholds
The Government will increase the medical levy for low income thresholds for singles, families and single seniors and pensioners from the 2014-15 income so that low income taxpayers will generally continue to be exempt from paying the medicare levy.
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