The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process.
What you need to know
- The Budget is forecast to return to surplus in 2019/20 with a positive balance of $2.2bn
- The economic outlook remains positive with a forecast surplus in 2020/21 of $11bn
- Income tax relief for low-income and middle- income earners – up to $530 per annum via a tax offset– for four years commencing 1 July 2018
- Addressed income tax bracket creep – as part of a seven- year plan to ultimately eliminate the 37% tax bracket
- A major crack down on tax cheats and the black economy
- The Medicare Levy will not be increased to 2.5% as proposed in the 2017/18 Federal Budget, instead it stays at 2%
- Superannuation – exit fees banned, a 3% passive fee cap for accounts with balances less than $6,000 and a voluntary contribution work test exemption for the financial year following the financial year people aged from 65 to 74 retire whose balance is less than $300,000
- Social security – the Pension Loans Scheme is to be extended to all older Australians including self-funded retirees, enabling retirement income to be boosted up to $17,800 per couple without losing the pension or other benefits
- Social security – an increase in the work bonus from 1 July 2019 to try and encourage more Australians into paid employment
- Child care – more than 85% of families will receive the full Child Care Subsidy from 2 July when the threshold increases to a combined income of $187,000 a.
- Aged care – seniors will be encouraged to continue living at home rather than going into care with the help of $1.6bn allocated to providing 14,000 home care places over the next four years
- Small business – the $20,000 instant asset tax write-off to be extended another year to 30 June 2019
- Education – schools to receive an extra $24.5bn over 10 years to fund needs-based education – an average increase of 50% per student
- Infrastructure – major spending on rail and road including a $1bn Urban Congestion Fund to improve traffic flow
- Energy costs – estimated to reduce by $400 per year on average for every Australian household from 2020, courtesy of the National Energy Guarantee
- Farmers and rural Australia – to benefit from $125m allocated to improve GPS technology and weather forecasting
The economic plan delivered by Treasurer Scott Morrison on Tuesday 8 May is centred on tax:
- Providing tax relief to low-income and middle-income earners
- Addressing bracket creep with a seven-year plan that will see the 37% tax bracket disappear entirely
- Maintaining the Medicare Levy at 2%
- Cracking down on tax cheats and the black market
Tax relief and radical reform
The tax relief promised by the tax offset will take effect from 1 July 2018:
- People earning up to $37,000 will receive a tax offset of up to $200
- People earning up to $90,000 will receive up to $530
- People earning from $90,000 to $125,333 will receive an offset that tapers to nil
The radical plan to eliminate the middle tax bracket of 37% is a long way off, both chronologically and politically – 7 years and two elections. All going well, it will be implemented in three phases culminating in a tax scale that, from 1 July 2024, will be as is shown in the below table.
Income tax bracket Tax on income
$0 – $18,200 0%
$18,201 – $41,000 19%
$41,001 – $200,000 32.5%
Medicare and health
In the 2017/18 Federal Budget, the Government proposed a substantial increase from 2% to 2.5% to help fund the National Disability Insurance Scheme (NDIS). This would have added the average family approximately $600 extra per year (1). The Treasurer announced that this will no longer be necessary and the Medicare Levy will stay at 2%.
The Budget also includes an agreement that will see public hospitals receive over $30bn in extra funding between 2020/21 and 2024/25
Crackdown on welfare cheats, tax cheats, and the black economy
The Government aims to save $229m over three years by intensifying its fraud detection and debt recovery. To stamp out money laundering and tax evasion, from 1 July 2019, cash payments over $10,000 will be illegal, they will have to be made by electronic transfer or cheque instead. Multinationals will also be targeted with a crackdown on stapled securities and tightened thin capitalisation rules.
Additional contributions opportunity for recent retirees.
From 1 July 2019, if you’re aged between 65 and 74 and your super balance is less than $300,000 you will be exempt from the work test that otherwise applies to voluntary super contributions. This applies only to the first year in which you fail to meet the work test requirements, but if you qualify you may be able to make substantial additional contributions to super.
New fee rules from 1 July 2019
- Exit fees on all superannuation accounts will be banned
- Funds on accounts with balances below $6,000 will see a 3% annual cap on passive fees, charged by superannuation
Insurance in Super
The Government’s ‘Protecting Your Super Package’ includes changes for insurance within superannuation to move from an opt-out basis to opt-in, for members who:
- have balances of less than $6,000
- are under the age of 25 years
- have an account that has not received a contribution in 13 months and are inactive.
These changes are intended to protect retirement savings from the costs of having premiums for unnecessary or duplicate insurance cover. The measures are proposed to start from 1 July 2019 and affected members will have 14 months to decide whether to opt-in to their existing cover or allow it to cease.
Your financial adviser can help you identify the appropriate options for you to protect the people who depend on you.
Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of the proposed changes.
If any of these proposals raise questions, concerns or new opportunities for you, speak with your financial adviser today.