Federal Treasurer Wayne Swan has handed down his fifth Budget promising to deliver a surplus of $1.5 billion in the 2012/13 Financial Year. Provided the Government’s somewhat optimistic growth forecasts come to fruition, this will be the first surplus since Labor came to power in 2007.
The Budget provides cash payments and tax breaks mainly targeted at low income families. The big losers from this year’s Budget are high income earners, and those who are seeking to aggressively ‘top-up’ their superannuation savings via salary sacrifice.
The rapid return to Budget surplus has been typified as ‘sound’ economics by the Labor Government. Among other things, we have been told that it will permit more interest rate cuts than would otherwise occur. While there may be some truth to this at the margin, monetary policy (e.g. interest rates) and fiscal policy (e.g. government spending) are not perfectly interchangeable.
With relatively slow economic growth this year and a ‘clouded’ global outlook, most economists would argue that fiscal policy should counter the business cycle. Very few economists would argue that fiscal policy should be tightening in such circumstances – however it seems the Gillard/Swan political message of ‘returning the budget to surplus in 2012/13’ will reign supreme.
Noted below is a summary of the relevant Budget announcements and how they may affect you.
Key Points on Taxation
New Personal Tax Income Tax Rates
The Government has confirmed previously announced changes to the personal income tax rates from 1 July 2012. These changes are aimed at delivering tax cuts to the low and middle income earners and have already been legislated.
The most significant tax savings are for low income earners with the tax free threshold being increased from $6,000 to $18,200 from 1 July 2012.
Key Points on Superannuation
Higher tax on concessional contributions (e.g. salary sacrifice and employer contributions) for high income earners from 1 July 2012
The Government proposes that individuals with income greater than $300,000 will have the tax rate on their concessional contributions doubled. This means that higher income earners will be subject to a 30% rate of tax on concessional contributions rather than the 15% rate.
The overall impact of this measure will be to increase the tax burden by up to $3,750 (i.e. 15% of $25,000) on concessional contributions made by high income earners.
Deferral of higher concessional contributions cap from 1 July 2012
In an unexpected move, the Government proposal to provide a higher concessional cap for individuals age 50 (and over with super balances below $500,000) will be deferred until 1 July 2014. Therefore, the general $25,000 concessional cap will apply to all individuals from 1 July 2012 to 30 June 2014.
The concessional cap applies to salary sacrifice and employer super payments.
Key Points on Family Benefits
Family Tax Benefit Part A rate increased from 1 July 2013
The maximum rate of Family Tax Benefit Part A will be increased by $300 per year for families with one child and $600 per year for families with two or more children. Single child families on the base rate will receive $100 per year, those with two or more children will receive $200 per year.
To qualify for Family Tax Benefit Part A, you generally must have family income of less than $94,316 per financial year.
Schoolkids bonus from 1 July 2011
The Government will replace the Education Tax Refund (ETR) with a new Schoolkids Bonus. Eligibility for the payment will remain open to families with children enrolled and attending school who are in receipt of Family Tax Benefit Part A
As a transitional arrangement, a one-off lump sum payment to eligible families will be paid in June 2012 to replace the ETR for the 2011/12 Financial Year. From January 2013, these payments will be automatic and every family with a child at school will be guaranteed $410 per annum for each primary school student and $820 per annum for each secondary school student.
The proposed Schoolkids Bonus amount is greater than the maximum allowable refund previously available under the ETR scheme. Eligible families will no longer need to keep receipts to prove the education expenses incurred and will not be restricted to claiming only 50% of these expenses.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.