Our annual review of the 2018-19 Federal Budget helps you to quickly see how the changes are going to affect you without all the media hype you normally get online. In the below summary we’ve extracted the changes most relevant to our clients and given you a high level run down so you can get quickly up to speed on what’s important.
While there is always a lot of media attention around the Budget, one of the key differences this year is that the news is mostly positive. The government is forecasting a faster return to surplus and government revenue is up substantially on previous years. Even forecasts that were done six months ago have been left behind as a stronger economy and larger profits bolster the government’s bank balance.
The 2018-19 Budget is more tweaking of the figures rather than major changes. The GST still remains the last time there was a fundamental shift in how government revenue is earned. With an election coming up in the not too distant future, the government isn’t in a position to do anything radical and any serious reform is still potentially a long way away. Furthermore, the added spending measures producing more economic activity will give additional room for the Reserve Bank to consider increasing interest rates.
As expected, the Budget will run a deficit this year with projections of $14.5 billion and a forecast to return to surplus in 2019-20 being a modest $2.2 billion. The government is getting excited about 2020-21 with a $16 billion surplus forecast. This is the first budget since the GFC that has brought the estimate of a surplus forward.
While the Senate has not traditionally been cooperative during this term of government, we’ll likely see more of the measures get through than previous years. This budget is in stark difference to some of the Liberal Government’s previous budgets and is likely to be much better received.
The government is forecasting economic growth for the upcoming financial year of 2.75%. This is increasing to 3% for the 2018-19 financial year and is up from previous forecasts, signifying a material improvement in the speed at which the economy is growing. As a result, the Budget is expected to turn around to surplus by 2019-20 and start producing material surpluses the following year. This has also resulted in the forecast gross government debt dropping from a previously expected high of $684 billion by 2028 in the last budget update, to $532 billion over the same period.
Other positive news is an expectation of a modest decrease in unemployment, down to 5.25%. This still doesn’t have the economy reaching full employment, but does spell well for a very modest pick up in wage growth to 2.25%.
In bringing more transparency to the industry, superannuation exit fees will be abolished, making it easier for people to consolidate their superannuation. Administration and investment fees will be capped at 3% for accounts with low balances of less than $6,000. Young people under 25 will no longer be automatically paying for life insurance as part of their superannuation.
The ATO will be empowered to use its data matching technology to proactively assist people to find their lost super funds. To put the need for this into perspective, there is currently $18 billion in lost super!
Pensions and older Australians
This Budget has been kind to older Australians, with a number of measures designed to ease the pressure on household budgets. The Expanded Pension Work Bonus will allow pensioners to earn up to an extra $1,300 per year without it affecting their pension. Wage subsidies of up to $10,000 will be given to employers who employ older workers in effort to encourage them to employ more senior staff.
To help with the demand for aged care space, an additional 14,000 home aged care places will be created over four years to allow the elderly to stay in their own home whilst accessing care services. $146 million has been pledged to boost aged care services in rural, remote and regional areas, plus $83 million in additional funding for mental health services in aged care facilities. A national online register will be created for enduring powers of attorney.
For the asset rich and income poor, the government would like to introduce its own reverse mortgage scheme. Retirees can mortgage their house to the government for regular fortnightly payments up to the pension limit. Strict rules will apply such as no lump sum payments and a maximum fortnightly payment, regardless of the property value.
There has been a lot of talk about income tax cuts, and this budget has met the hype. Interestingly, the biggest differences are part of a ‘7 year plan’, so don’t come in until 2024.
The government has addressed bracket creep by moving the income band for the 32.5% bracket from $87,000 to $90,000. This means that 94% of Australians will not pay any more than 32.5% tax.
Australians on low incomes of $37,000 or less will save up to $200 per year through a higher Low Income Tax Offset. This will now also apply to people earning between $37,001 and $90,000 who will save up to $530 in tax.
Income tax rates for the 2018-19 financial year will be:
Income tax rate (%)
|Current tax thresholds income range ($)||New tax thresholds
from 1 July 2018 income range ($)
|New tax thresholds
from 1 July 2022 income range ($)
|New tax thresholds
from 1 July 2024 income range ($)
|Tax free||0 – 18,200||0 – 18,200||0 – 18,200||
0 – 18,200
|18,201 – 37,000||18,201 – 37,000||18,201 – 41,000||18,201 – 41,000|
|32.5||37,001 – 87,000||37,001 – 90,000||41,001 – 120,000||
41,001 – 200,000
|87,001 – 180,000||90,001 – 180,000||120,001 – 180,000||–|
Low and Middle Income Tax Offset
|–||Up to 530||–||
|Low Income Tax Offset||Up to 445||Up to 445||Up to 645||
Up to 645
Small business and investment
The small business instant asset write off of $20,000 will be extended for a further 12 months.
New anti-phoenix laws will come into place to protect small businesses from losing money to those that liquidate their businesses to avoid paying bills.
Investors claiming interest on vacant land (non-rural) will no longer be able to claim deductions on the interest costs until they start construction of an income producing dwelling.
A new five-year agreement between the Federal government and States and Territories will provide an additional $30 billion in funding for hospitals.
There will also be an additional $1.4 billion for listings on the Pharmaceutical Benefit Scheme, including treatments for breast cancer, muscular atrophy, multiple sclerosis, and multiple myeloma.
The Royal Flying Doctors Service will receive a boost in funding for dental and medical care.
There will be no increase to the Medicare Levy.
Children and education
Funding of $440 million will be provided to continue universal access to preschool for an additional year.
In further moves to increase vaccination rates, $40 million has been allocated for a free whooping cough vaccine for expectant mothers
The new Parental Income Test threshold will be increased to $160,000, with a further $10,000 increase for each additional child.
It’s quiet on the environment front this year, with $535.9 million allocated to a Great Barrier Reef Fund to help restore and protect the reef.
$20 million will help the National Forestry Industry Plan to drive growth in renewable timber and wood.
There are no changes to the renewable energy targets as the government is concerned about rising energy costs. Further in his speech, Scott Morrison stated that any new energy technology has to support itself and will not receive any subsidies from the government.
Craft beer is likely to be cheaper, with the axing of a tax on breweries which use small kegs (typically smaller craft breweries).
Cash payments of over $10,000 for business transactions will be illegal in an effort to cut down on the cash economy.
Finally, the big-ticket items leaked in advance that we all knew were coming include $75 billion dollars for a range of transport projects around the country, including $971 million to upgrade the Pacific Highway. This spending, on top of an already heavy infrastructure spend, will help to further drive employment around the country. It’s worth noting however that many of the projects attracting government funding also require a contribution from the relevant state governments to go ahead.