18 May 2019 Update: With the Federal Election victory now confirmed for the Liberal–National coalition, we no longer need to plan around changes to franking credits, negative gearing, reductions in CGT discounts, reintroducing a ban on borrowing in super and further restrictions on superannuation contributions that the ALP were proposing. Read our latest Economic Snapshot for more post-election market insights.
When Treasurer Josh Frydenberg presented the Coalition’s pre-election budget and headlined it “Back in Black,” we wondered if the Treasurer could be an AC/DC fan and if this was a reference to their famous 1980 comeback album, when Brian Johnson joined the band following the untimely death of Bon Scott. Which, by the way, went on to be one of the biggest selling albums of all time and made AC/DC a global sensation.
Of course, the real reference to “Back in Black” was because the Treasurer was announcing that the budget will reach a surplus, but not until next year, and not if the world economy doesn’t hold together. But why are we talking about music at all? Perhaps because there isn’t that much to talk about in this budget; it is probably one of the most ho-hum budgets in memory.
So will this budget result in a “Back in Black” style comeback for the Government in time for the “sometime in May” federal election as it did for AC/DC? Time will tell, but so far the pundits aren’t so sure.
Read on for our summary of the relevant changes and please speak to your FMD adviser if you have any questions about your personal circumstances.
Personal Income Tax Rates - reductions
The Government has proposed personal tax cuts in a three-step process over seven years:
- The maximum Low and Middle Income Tax Offset (LMITO) will increase from $530 to $1,080 per year until 2022.
This means taxpayers with income between $18,200 and $126,000 will receive some form of tax cut and those between $48,000 and $90,000 will receive the maximum amount. As this change is supported by the Labor Party, it will take effect from this financial year. So, good news for your 2019 tax returns!
- From 1 July 2022, the 19% marginal tax rate bracket will increase from $37,000 to $45,000 and the 32.5% marginal tax rate bracket from $90,000 to $120,000.
- From 1 July 2024, the 32.5% tax rate will reduce to 30% and will also be extended to $200,000 (effectively removing the 37% tax bracket completely). This means that the 45% tax bracket will then start from $200,000.
Medicare Levy for low income earners
From this year, the Medicare Levy low income threshold will increase for everyone to account for the rise in the cost of living.
Voluntary Contributions – increased scope
After 1 July 2020, people will be able to make voluntary super contributions until the age of 67 without having to meet the work test. Previously, the work test needed to be met for people over the age of 65.
Further, the age of people able to bring-forward three years of non-concessional (after-tax) contributions in a single financial year will increase from 65 to 67.
This improved ability to boost your super later in life will make retirement planning more flexible for people approaching retirement.
Spouse Contributions – increased age limit
There has been a slight change for couples looking to contribute to their spouse's super. The spouse contribution age requirement will increase from 69 to 74.
While we don't foresee much impact from this change, it does follow the theme of being able to make more contributions into super later in life, which is pleasing to see.
Energy Assistance Payment
A one-off payment of $75 for singles and $62.50 for each member of a couple (total of $125 per couple) will be made to anyone in receipt of one of the following payments as at 2 April 2019:
- Age Pension
- Disability Support Pension
- Carer Payment
- Parenting Payment Single
- Veterans' Service Payment
- Veterans' Income Support Supplement
- Veterans' Disability Payments
- War Widow(er)s Pension
- Permanent Impairment Payments
Employment Income Reporting
The Government expects to achieve savings by simplifying and automating the reporting of employment income through Single Touch Payroll (STP), meaning individuals will no longer need to manually report income to Centrelink.
This system, currently used by the Australian Tax Office, provides automated payroll data from businesses and is expected to be rolled out to all employers by July 2020.
Access to Aged Care
The budget included several announcements for aged care aimed at increasing access and quality of residential and home care packages.
The Government will provide an increase to the basic care subsidy for residential aged care recipients. In addition, the Government will trial a new “Aged Care Funding Instrument” which will allow for more accurate figures when determining the needs of aged care residents.
Home Care Packages
The Home Care Packages Program will receive funding to add 10,000 home care packages across all four package levels.
This funding will be provided over five years and will bring the total addition of home care packages since 2017-18 to 40,000.
Instant Asset Write-Off – increased and extended to medium sized businesses
There has been an increase in the instant asset writeoff for small businesses from $25,000 to $30,000 per eligible asset. Small businesses will be able to claim the deduction for every asset that is purchased under this cap on an annual basis. The write-off will also become permanent legislation to allow small businesses to plan their investments more strategically and with greater certainty, rather than an extension following each budget.
The aggregated turnover threshold was also increased from $10 million per annum to $50 million, which allows roughly 22,000 more medium-sized businesses access to this deduction. The deduction for these mediumsized businesses will be available from Budget night until 30 June 2020.
Capital city congestion is a priority in this year’s federal budget.
Spending on rail and roads is the focus with the aim to cut travel and commuting time in major cities to accommodate rapid population growth.
Fast rail is a key focus with the big-ticket item (welcomed by several of the FMD team) being the fast train between Melbourne and Geelong, which is expected to halve travel times.
Education & Training
The Government unveiled a package aimed at targeting the education and training sector and boosting the number of apprentices to address Australia’s skills shortages.
This includes investment into a skills package for apprenticeships in industries with skills shortages.
Aspiring apprentices are also being offered $2,000 to take up a trade.
Further, employers who take on apprentices in areas of need are being offered $8,000 per placement, which is double the amount they are currently offered.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.