BUDGET 2018

On 8th May 2018 Treasurer, Scott Morrison handed down his 3rd Budget.

With business conditions – with some suggesting the economy running as well as it has in decade,  and the subsequent increased government revenues (up by $35 billion) creating the environment and opportunity for the government to invest back into the Australian community, Scott Morrison has delivered a Budget that promises $140 billion in tax cuts over the next 10 years – funded by increased company tax receipts, more people in the workforce and wages growth, tax cuts for low- and middle-income earners, a boost for older Australians and a multi-billion dollar nationwide infrastructure plan.

The Treasurer told Parliament the Budget was designed to allow Australians to “plan for their future with confidence”, that we have “reached a turning point” on debt and promised a Budget that delivers a strong economy, more jobs, essential services and the government “living within its means”.

The budget focused on 5 key areas;

1. Provide tax relief to encourage and reward working Australians
2. Keep backing business to invest and create more jobs – particularly small to medium enterprises
3. Guarantee essential services Australian rely on
4. Keeping Australians safe
5. Ensure the government lives within its means. Keep spending and taxation under control

In addition;

• The treasurer promised a return to surplus in two years. The budget deficit this financial year will be $18.2 billion, down from $33.2 billion last year. Morrison projected it to fall to $14.5 billion in 2018-19 before a modest surplus of $2.2 billion in 2019-20.
• The government says it will begin paying down the national debt, which will come in at $341 billion this financial year. Even though that’s projected to increase to $349.85 billion in 2018-19, because the economy is growing, it will “peak” at 18.6 per cent of gross domestic product this year. Net debt is projected to fall $319.27 billion by 2021-22.

We provide an overview of the broader budget impacts and measures below noting that before any announcements can be implemented, they require passage of legislation and may be subject to change.

Highlights

The numbers that matter

• Budget deficit of $14.5 billion in 2018/19 with a small surplus of $2.2 billion forecast for 2019/20.
• Economic growth (GDP) of 3.0 per cent through to 2021/22.
• Inflation of 2.25 per cent rising to 2.5 per cent in 2019/20 and beyond.
• Unemployment rate of 5.25 per cent falling to 5.0 per cent in 2021/22.
• Government spending to dip to 24.7 per cent of GDP by 2021/22.
• Taxes to GDP ratio to remain under the self-imposed limit of 23.9 per cent.
• Net debt to peak at 18.6 per cent of GDP.

Personal income tax

• Multi-year plan to make personal income tax lower, fairer and simpler. Income tax cuts will be delivered over a six-year period from 1 July 2018., through a combination of tax rate threshold changes and tax offsets.
• Tax changes to cost $13.4 billion.
• The 32.5 per cent tax threshold will increase from $87,000 to $90,000 from 1 July 2018. This means 94% of Australians will pay no more than 32.5 cents in the dollar.
  • Those earning $37,000 or less will save up to $200 on tax.
  • Those earning more than $37,000 up to $90,000 will save up to $530 on tax.
  • This reduces the tax liability of those earning $90,000 or more by $135.
• A further increase in this threshold to $120,000 is proposed from 1 July 2022.
• In addition;
  • The 19 per cent upper threshold will increase from $37,000 to $41,000 from 1 July 2022.
  • From 1 July 2024, the Government will extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognise inflation and wage growth impacts. Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.
• Relaxing the Parental Income Tax for access to Youth Allowance by $10,000 per annum per child.
• Tax deductions denied for expenses associated with holding vacant land. Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward. Such expenses for land that was previously vacant will only become deductible when:
  • construction is complete, approval for occupancy has been granted and the property is available for rent, or
  • the land is used in carrying on a business.
• Minor beneficiaries of a testamentary trust will be taxed under general minor tax rates. Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust. This new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate.
• Additional funding will be provided to the ATO to assist its compliance activities around taxpayers that over-claim deductions or entitlements.

Superannuation

• The maximum number of members allowable in self-managed superannuation funds (SMSFs) and small APRA funds will increase from four to six from 1 July 2019.
• SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.
• Work test exemption for those with balances of less than $300,000. From 1 July 2019 those aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year following the year they last met the work test.
• Individuals with multiple employers able to opt out of Superannuation Guarantee.
•  From 1 July 2019, the Government proposes to amend the default insurance arrangement in superannuation funds, which currently requires members to opt-out of cover, to be on an opt-in basis. This change will apply to members:
  • With a balance of less than $6,000
  • Under the age of 25 years, or
  • Whose account has been inactive (ie hasn’t received a contribution) for 13 months or more.
• Passive fees, exit fees and inactive super. From 1 July 2019, a three per cent annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts. Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.

Social Security

• Expansion of the Pension Loan Scheme. From 1 July 2019:
  • All Australians of age pension age will be eligible, including full rate age pensioners (currently excluded from the scheme)
  • The maximum loan amount will increase from 100 per cent to 150 per cent of age pension.
  • The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent on the outstanding balance.
  • The bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test.
  • Eligibility will be extended to the self-employed, subject to a ‘personal exertion’ test, reflecting the intention that the bonus not apply to investment income. Extension of the Pension Work Bonus, From 1 July 2019:
• New means testing rules for lifetime retirement income products. From 1 July 2019;
  • A fixed 60 per cent of all pooled lifetime product payments will be assessed as income.
  • 60 per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.

Business

• Instant asset write off for business with a turnover up to $10 million extended to purchases up to $20,000.
• From 1 July 2019, any payments for goods or services to businesses that exceed $10,000 will no longer be allowed to be paid with cash.  They can only be paid electronically or via cheque. Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.
• New anti-phoenixing measures to make sure small businesses don’t get ripped off by those trying to avoid paying bills.
• Extra $250 million for the Skilling Australians Fund.
• Changing the tax treatment of stapled structures to remove loophole that gives foreign companies a tax break over Australian companies.
• Tightening thin cap rules to stop multinationals from fiddling with debt to reduce their tax liabilities.
• Discussion paper to come that will explore options for taxing digital business in Australia.
• Black Economy Taskforce recommendations will bring in $5.3 billion over the next four years by targeting sectors that under report income.

Infrastructure

• In addition to the 10-year $75 billion infrastructure projects already announced, the government will create a $1 billion Urban Congestion Fund to improve traffic flow and safety at state level.
• And a $3.5 billion for a Roads of Strategic Importance initiative upgrading key freight routes.
• $550 million will be spent to address remote housing needs in the Northern Territory.

Aged Care

• Improving access to residential and home care.
• Increase in the number of home care places by 14,000 over four years at a cost of $1.6 billion from 2018/19 and 13,500 residential aged care places in 2018/19.
• $146 million to improve access to aged care services in rural, regional and remote areas.
• $83 million for mental health services in residential aged care facilities to help combat depression.
• Creation of a national online register for enduring powers of attorney.
• Government to fund targeted programs run by local sporting organisations and community groups to encourage older Australians to remain physically active.

Medical and Health

• The new five-year hospitals agreement with States and Territories will deliver $30 billion in additional funding.
• 21st century medical industry plan to create more jobs in the sector.
• $500 million over 10 years for the Medical Research Fund.
• Extra $1.4 billion for listings on the PBS, including treatments for HIV, spinal muscular atrophy, breast cancer, refractory multiple myeloma, and relapsing- remitting multiple sclerosis.
• $125 million over 10 years from the Medical Research Future Fund for Lifeline Australia and Mental Health Research.
• $20.9 million for tests to ensure that debilitating conditions are picked up early.
• $154 million to promote healthy living, including $83 million for existing community sport facilities and to expand local and school sporting programs.
• Increased financial support for the Royal Flying Doctor Service.

Technology

• $2.4 billion to be invested in public technology infrastructure including super computers and satellite technology.
• Refocusing the R&D (research and development) tax incentive to support companies that invest in R&D.
• Additional funding to protect farmers from pests, disease and weeds.

Energy

• National energy guarantee to see annual power bills fall by an average of $400 a year from 2020.
• Emission reduction target to remain at 26-28 per cent.

Education

• Needs based funding for schools to deliver $24.5 billion more over the next 10 years.
• Schools to receive $18.7 billion, with a legislated rise to around $30 billion in 2027.
• National Schools Chaplaincy program extended with a focus on anti-bullying.
• Universal access to early childhood education extended for a year costing $440 million.

Border Control

• $50 million to upgrade security infrastructure at 64 regional airports.
• $122 million to enhance screening of inbound air cargo and international mail.
• $122 million to increase border force capability at nine domestic and international airports.
• $160 million to help agencies fight crime and prevent terrorism, including $68.6 million to prevent child exploitation and abuse.

Source: Commonwealth of Australia Budget papers 2018

Source: Macqurie Budget Report

Anthony Landahl | Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.