2014 Federal Budget

Written by Published in News

The Federal Budget.  There have been many strong opinions shared as to whether or not it is good for the economy and every day Australians.  In Summary, the good out weighs the bad.

There has been much hype and spin about what this year’s Federal Budget was and wasn’t going to contain and how measures were going to work.  Our view has been that, as is normal, much of what had been reported in the buildup has nothing more than various groups trying to create fear to garner support for their causes rather than raising genuine concerns and issues based on fact.

As we see it, the budget is overall going to have a positive effect on the nation’s economy and the government’s balance sheet with many of the initiatives having a lead time to allow for further debate and for us to get used to them.

We have taken a look at the budget and summarized what we see as being The Good, The Bad and The Unsure.  The Unsure are measures we aren’t confident whether they overall will be good or bad or are a mix of both.

The Good

  • Budget deficit to be reduced from $49.9b currently to $29.8b next year
  • $20billion fund for medical research.  This will be similar to the future fund currently in place to fund future government superannuation entitlements.
  • $50billion over 7 years to deliver transport infrastructure
  • $13.4billion into Qld for major projects.  Includes
    • $6.7b for Bruce Highway,
    • a second range crossing at Toowoomba and;
    • upgrading the Ipswich Motorway from Rocklea to Darra to be in line with upgrades carried out by the previous Governemnt
    • Funding for Business Enterprise Centres extended to 2017.  These centres support small and startup businesses to get off the ground.
    • Reduction of ATO staff by 1,600 to be brought forward.  Part of planned 4,700 cuts due to efficiency dividends and decisions made by previous government
    • Individuals to be given the option of withdrawing super contributions in-excess of Non-concessional cap made from 1 July 2013 along with associated earnings to be taxed at marginal rate.  If they choose to leave the excess in the fund, it will continue to be taxed at top marginal rate.
    • New Restart Programme to provide up to $10,000 incentives over 2 years for employers hiring works over age 50.
    • First home saver accounts to be abolished from 1 July 2015.  A well-meaning initiative of the previous Government which was designed to fail from the start which will free up funds to be spent elsewhere.
    • Students at TAFE and private colleges to get access to HELP.  This is to be funded by changes to University funding and HELP repayment incomes
    • 1.5% reduction in company tax rate from 30% to 28.5% from 1 July 2015.  This is estimated to benefit 800,000 businesses, the majority of whom are small businesses. This measure should encourage more spending on innovation, upgrading equipment, staff training etc. However, this will not assist those who operate their business using a non-corporate structure.
    • Low income single parents with children between the ages of 6 and 12 to receive extra $750 payment per year
    • People aged 22 to 24 will be switched to Youth Allowance instead of Newstart Allowance from 1 January 2015.  With Youth Allowance being paid at a lower rate than Newstart Allowance, hopefully this will encourage younger Australians to seek out and/or accepting work rather than accept a life on social security benefits.
    • HELP repayment thresholds to be lowered from 1 July 2016.   This will mean students will begin repaying their debts sooner.   Not good news for students but, if the Government is able to recoup funds sooner, it will be available to support a greater number of people and/or support greater spending in other areas.  However, is it fair that higher-education students are required to repay the cost of their education yet our sport stars are not required to make similar repayments for public money put into their careers?
    • Tax-free threshold for resident individuals to be increased to $19,400 from $18,200 from 1 July 2015
    • Age pension age to be raised to 70 from 2035.  This will be a gradual increase like previous increases to age pension age.  As the population ages, so too does the amount of pension payments expected to be paid by government.  Younger generations should already know we need to change our thinking and need to do to more plan for our own retirements.   Long-term, unless changes are made, there won’t be enough taxpayers and tax revenue to pay all of the pensions.

The Unsure

  • Deficit levy of 2% for earnings above $180,000 for the 2014/15, 2015/16 and 2016/17 financial years.  This is in effect; increasing the top marginal tax rate from 45% to 47% for three years.  The view is that those in the top tax bracket can afford to pay extra.  The counter argument is that it will encourage wealthier individuals to leave Australia and/or not come here in the first place reducing investment and therefore, jobs etc.
  • The Fringe Benefits Tax rate to be increased by 2% in-line with the deficit levy to stop higher income earners from using this as a mean to avoid the tax.  However, this will result in more tax being paid on benefits provided to workers earning less than $180,000 per year
  • Fuel excise to increase with inflation. Excise to be indexed twice per year starting 1 August 2014.  This measure has previously existed and was stopped due to public feedback when the GST was introduced.  Indexation of fuel excise was original introduced by Paul Keating
  • Mature age worker tax offset to be abolished from 1 July 2014 to help fund Restart Programme offering incentive to employers to hire those over 50 years of age.  The offset of up to $500 has been very much welcomed by our clients and no doubt its abolition will not be popular. However, at least the funding is going to be used to encourage more employment of older Australians.
  • 36 government bodies are to be abolished or merged.  It would appear this is mostly going to affect tribunals whereby government decisions are challenged.  There could be efficiency gains meaning cost savings; however, it could also lead to greater bureaucracy.
  • The schedule for increasing SG rate to 12% will be changed.  This means rather than minimum superannuation support for employees reaching this mark from 1 July 2019 it will now be 1 July 2022.  Good news for employers, particularly small businesses who are already struggling, but does mean smaller retirement nest eggs for employees.
  • Family Tax Benefit Part B to be cut if higher earner earns over $100K or once youngest child turns 6.  This will reduce government payments and encourage more parents to enter or re-enter the workforce, but does this just remove choice?  Are there going to be jobs for these parents?  It also brings into question fairness across families with 1 main income earner paying much greater income tax compared to a family where both parents work.
  • 1.5% levy on companies with taxable incomes in excess of $5 million to fund the new Paid Parental Leave will offset reduction in corporate tax rate.  In other words, these companies will not get the tax reduction of less profitable companies.
  • GP co-payments.  $7 when bulk billed for GP or pathology or imaging services.  Capped at 10 visits for children under 16 or concession card holders (such as pensioners and the unemployed).  $5 co-payment when not bulk billed.  Hopefully this will act as encouragement for people to only visit their GP when it is really necessary taking pressure off the health system.  The concern is whether or not, people will not make and/or delay necessary visits to the doctor to avoid paying the fee.  This measure should ultimately reduce the income of GPs.
  • State Governments to be asked to introduce a co-payment for non-emergency visits to Emergency Rooms to avoid people simply switching from visiting a GP to Public Hospitals

The Bad

  • Deregulation of Uni and TAFE fees from 1 January 2016.  This will effectively remove fee caps allowing Universities and TAFEs to charge as much as they like.
  • At the same time Government University funding to be reduced by 20%.  The cost of higher education will go up.
  • Indexation of HELP debts to be increased.  Currently HELP is indexed with nflation but this will change to be the rate of 10-year government bonds (up to maximum 6%).  The long-term cost of higher education will be greater.
  • No indexing of Family Tax Benefits for the next 2 years.  This will apply to both Part A and Part B
  • Pension payments are to be indexed to CPI rather than wage growth from 2017.  If wages grow quicker than CPI this could reduce the standard of living for pensioners.  This begs the question however, why does wage inflation need to be greater than CPI?  Is wage inflation being driven by factors other than the needs of workers?
  • Dependent spouse offset to be totally abolished from 1 July 2014.  This extends measures implemented by the previous government which reduced access to this offset except for those over 60 years of age.  There will be some exemptions for taxpayers with a dependent who is genuinely unable to work due to a carer obligation or disability

Troy Pearce

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