What this budget is not.
It isn’t the “significant overhaul of Australia’s tax system” that Mr. Turnbull and Mr. Morrison called for in November last year. Total expenditure will return to the record level of 26.2% of GDP only seen once before, and that was in the aftermath of the 2009 global financial crisis. That’s probably a good thing though, as the economy is struggling to adjust to life after the mining boom. It’s certainly not the right time for an austerity budget.
For obvious reasons though, it also isn’t the pre-election “cash splash” that Australians have become used to.
So what is it?
Overall this is a cautiously crafted election budget, with some important changes for superannuation and business taxes.
For the first time, the objective of superannuation will be enshrined in legislation: ‘to provide income in retirement to substitute or supplement the Age Pension’.
The wealthiest 4% of superannuants face new and tightened caps on their ability to use superannuation to avoid tax.
Low income earners, those with a taxable income of $37,000 or less will receive the Low Income Superannuation Tax Offset – an effective refund of the tax paid on their concessional contributions, up to a cap of $500.
Older workers – up to age 75 – will be able to claim an income tax deduction for personal superannuation contributions, and will be able to receive contributions from their spouse.
Self employed workers and non employed individuals will be allowed to claim an income tax deduction for personal superannuation contributions. The work test will be abandoned.
Multinational businesses will face a “diverted profits tax” (which most of us will call the ‘Google tax’). A higher tax rate of 40 per cent will apply to profits which multinationals attempt to shift offshore. Penalties for disclosure failures will increase, and whistleblowers who bring these practices to light will get greater protections (from July 1 2018).
Small businesses will get a tax cut from July 1 this year, reducing the rate to 27.5%, and the threshold for this rate will rise from $2 million in annual turnover to $10 million. The threshold will also apply to other small business concessions including; simplified rules for depreciation, trading stock, PAYG, and (from April next year) Fringe Benefits Tax concessions. The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%.
All companies will see the company tax rate reduced to 25% over the next ten years. The lower 27.5% rate will be extended to progressively larger companies, then it will step down for all companies.
Upper middle income earners will receive a small benefit from the increased upper limit for the middle income tax bracket (taxed at 32.5%) from $80,000 to the new level of $87,000.
Smokers will pay more with four annual rises of 12.5 per cent in the tobacco excise. By 2020 almost 70 per cent of the cost of cigarettes will be government excise.
Young job seekers should benefit from the Youth Jobs ‘Path’ program. This provides $752 million to get people under 25 and currently on employment benefits trained to enter the workforce. An internship program, (from July 1 next year) will give job seekers hands-on work experience. About 30,000 places will be available each year, and each intern will work 15 to 25 hours per week and receive $200 a fortnight on top of their regular welfare benefits. Prospective interns will need to have been looking for a job for at least six months.
The Government will also expand the New Enterprise Incentive Scheme (NEIS) to encourage self-employment and entrepreneurship, including by providing mentors and workshops on “being my own boss”. The number of NEIS places will rise, and will be made available to recently retrenched workers.
What are your thoughts?
Do you think you are more likely or less likely to re-elect this Government as a result of this Budget?
Join the conversation — leave a comment below and let us know what you’re thoughts are.