Budget – 2014-2015
This year’s budget has been the talk of the media for the past few weeks, as the customary “leaks” have found their way into news stories to soften the blow of the Government “asking all Australians…to make a contribution to repair the budget”.
To paraphrase Paul Keating, the government is regarding this as “the budget we had to have”.
Overall, the budget is forecasting a deficit of $29.8 billion in the coming year, and deficits totalling $60 billion over the next four years, with claimed improvements to the estimates from a year ago of deficits totalling $123 billion over that same period.
The budget also introduces various initiatives and funding for infrastructure spending, as well as a $20 billion Medical Research Future Fund which is estimated to provide up to $1 billion to fund medical research by 2022-2023.
In reaching their forecasts, economic growth is forecast to be below the trend at 2.5% for 2014-2015 and growing to 3% in 2015-2016. Unemployment is forecast to rise to 6.25% by June 2015.
So in the face of these macro-economic factors, what has the Government got in store for you at a personal level?
And what are the impacts on a national level?
Read on to discover more!
Individuals and Families
This year’s budget has seen a significant number of changes to taxes, offsets and rebates, and social security and welfare payments.
Although the Temporary Budget Repair Levy of 2% only directly affects taxpayers with taxable incomes greater than $180,000, the flow on effect is that the top marginal rate is now 49% and every other rate that relies on the top marginal rate will also increase to 49%.
Examples include tax payable by trustees, and the Fringe Benefits Tax rate. As a consequence, any one who receives or salary packages fringe benefits will now see those taxed at a higher rate, which effectively could impact quite a number of taxpayers who aren’t earning anywhere near $180,000.
The moral of the story is to make sure you review your tax position thoroughly to minimise the impact of these changes.
These changes must also be considered together with changes from prior years, which have increased tax on superannuation contributions for those earning more than $300,000, reductions in the private health insurance rebate if earning over $88,000 for singles or $176,000 for couples (for the 2014 financial year), and increases in Medicare Levy Surcharge among other taxes.
The tax cuts from 2001-2007 seem a distant memory!
Personal taxpayers
- introduction of a Temporary Budget Repair Levy of 2% on the portion of an individual’s taxable income above $180,000. This will result in an individual with taxable income of $280,000 paying an extra $2,000 per year.
- Reintroduction of biannual indexation of the fuel excise by the rate of CPI, with the exception of aviation fuel.
- The superannuation guarantee rate will increase from 9.25% to 9.5% from 1 July 2014, as the Minerals Resource Rent Tax has not been repealed as yet. The rate will remain at this level until 30 June 2018, when it will increase by 0.5% per year until it reaches 12%.
- From 1 July 2014, the Dependent Spouse Tax Offset and Mature Worker Tax Offset will be abolished. This has begun being phased out since 1 July 2012 by restricting the offset to spouses born before 1 July 1952.
- The income threshold for repayment of Higher Education Loan Programme (HELP) debts will be reduced commencing in 2016-2017, and a new repayment rate of 2% applied to those whose income is over the new reduced threshold. Indexation of HELP debts from 1 June 2016 will be at the rate equivalent to yields on 10 year bonds, capped at 6% per annum. This is a change from the rate which is currently based on CPI (Consumer Price Index).
- Medicare Levy Surcharge and Private Health Insurance Rebate thresholds indexation paused so that they will remain static for 3 years from 1 July 2015 (and not indexed upwards with CPI).
- The Medicare Levy low-income thresholds will increase to $34,367 for couples with no children, and an additional amount of $3,156 for each dependent child or student.
- Paid Parental Leave paid for 6 months, with an income cap of $100,000 annual salary including superannuation, to start from 1 July 2015. In effect this will pay $50,000 to an eligible recipient.
- The government is not proceeding with Round 5 of National Rental Affordability Scheme (NRAS), and only currently tenanted properties will remain eligible.
- First Home Saver Accounts Scheme government co-contribution to cease from 1 July 2014, and tax concessions to cease from 1 July 2015.
Benefits and payments
- Pharmaceutical Benefits Scheme co-payments will increase from 1 January 2015 for general patients by $5.00, and for concessional patients by $0.80.
- Medicare Benefits Schedule rebates to be reduced from 1 July 2015 by $5 for standard general practitioner consultations, and allowing the providers of these services to collect a patient contribution of $7 per service. This includes visits to hospital emergency departments for general practitioner like attendances.
- For concession card holders and children under 16, the rebate will only be reduced for the first 10 services in each year, after which it will return to current benefit levels.
- Medical Benefits Schedule fees will have indexation paused for 2 years from 1 July 2014.
- PBS safety net thresholds will increase each year for four years with the general threshold to increase by 10% each year and concessional safety nets to increase by the cost of two prescriptions per year.
- Medicare safety net arrangements have been simplified by implementing a single safety net – $400 for concessional singles and concessional families, $700 for non-concessional Family Tax Benefit A families, and $1,000 for non-concessional families who do not receive Family Tax Benefit Part A.
Family Assistance and government allowances
- The age of eligibility for Newstart Allowance and Sickness Allowance will increase from 22 to 24 years of age.
- Pension and equivalent payments and Parenting Payment Single will be indexed by the Consumer Price Index from 1 July 2014, instead of the current arrangement which is the higher of CPI, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index.
- Eligibility thresholds for non-pension payments (such as Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance) will be maintained for 3 years from 1 July 2014 – i.e. not indexed or increased.
- Eligibility thresholds for pension and pension related payments will be maintained for 3 years from 1 July 2017. These payments include Aged Pension, Carer Payment, Disability Support Pension and the Veteran’s Service Pension.
- Ceasing the Seniors Supplement for holders of the Commonwealth Seniors Health Card from 20 September 2014.
- Family Tax Benefit Part B will have the primary earner income limit reduced from $150,000 to $100,0000 per annum from 1 July 2015.
- Family Tax Benefit Part B will further be limited to families whose youngest child is younger than six years of age, also from 1 July 2015. Families with a youngest child aged six and over on 30 June 2015 will remain eligible for 2 years.
- A new allowance will be paid to single parents on the maximum rate of FTB Part A whose child is aged between 6 and 12 when they become ineligible for FTB Part B. This will provide $750 for each child aged between 6 and 12 in an eligible family from 1 July 2015.
- Indexation of Family Tax Benefit payment rates paused for 2 years from 1 July 2014 until 1 July 2016
- The income threshold for FTB part A will have the per child add-on removed from the higher income free threshold for each additional child from 1 July 2015.
- FTB end of year supplements will be revised to the original values (down from $726 to $600) and indexation ceased from 1 July 2015.
- Pension qualifying age increased to 70 year by 1 July 2035. From 1 July 2025 the qualifying age will rise by six months every two years. Anyone born before 1 July 1958 will not be affected.
- Trade Support Loans Programme, which will provide apprentices with financial assistance of up to $20,000 over a 4 year apprenticeship. Must undertake Certificate III or IV qualification that leads to an occupation on the National Skills Needs List. Loans repaid when income gets above repayment threshold.
Business
Apart from announcing again that they are committed to cutting the corporate tax rate from 30% to 28.5% from 1 July 2015, there were not a lot of measures in the Budget which affected business.
- Paid Parental Leave Levy of 1.5% on large companies. Company tax rate to reduce from 30% to 28.5% from 1 July 2015.
- The Fringe Benefits Tax rate will also increase to 49% from 1 April 2015 to 31 March 2017, to prevent high income earners from salary sacrificing to try and avoid the levy.
- The annual FBT caps of public benevolent institutions and hospitals will be increased to protect the cash value of benefits received by employees of those entities.
- In a program called Restart, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 years and older who has been receiving income support for at least 6 months. Payments commence when the mature aged worker has been employed for at least 6 months and are paid in six-monthly instalments:
The Research and Development Tax Incentive will be reduced by 1.5% from 1 July 2014, on the basis that it will bring it into line with the reduction of the company tax rate. This is despite the fact that the company tax rate will not reduce until 1 July 2015.
Budget overview
Once the personal impact of the changes to tax and government payments are digested, where does this leave the nation’s financial position?
It is interesting to note some of the global numbers – both last year’s budget and this year’s budget (despite changes in governing parties), show that social security and welfare payments are equivalent to approximately 79% of the money collected from individuals in income tax – see graphs below taken from both last year’s and this year’s budget papers.
There are also a number of programs to facilitate infrastructure spending, including incentives such as the Asset Recycling Initiative, which will provide state governments funding to sell assets and reinvest into new infrastructure programs.
In light of the Queensland government’s recent media campaign providing assets sales as one option to fixing Queensland’s “debt problem”, it would seem a higher likelihood that we will see this course of action given there are now federal funds available to flow into state coffers.