2014 Budget summary
In every decade there is one budget that ends up being a game-changer in Australia. The Budgets of 1988 (return to surplus), 1996 (spending reductions), 2000 (GST) were strategies that permanently altered the economic dynamics of the Australian economy.
This years Budget is likely to join this list, as it facilitates the move to smaller government, more infrastructure investment and less household dependency on government payments in the out-years.
However, don’t expect all the Budget changes to become law…
Given this Budget has many contentious spending cuts and tax increases, the path of the plan through the Australian Parliament won’t be as easy as it was in the Howard years or even for Gillard Government.
Indeed, at no time in the next three years will the Coalition have control of the Senate and given the unusually large, and split, cross bench the Budget is unlikely to get through the legislature unscathed. In the current Senate the Coalition has 34 seats and needs 39 to pass legislation. The ALP has 31and the Greens have 9 and there is one independent and democratic labour party member.
Supply bills will pass automatically, which is the standard operating procedures today, but changes in programs cuts or tax increases through the Senate is likely to be somewhat problematic, especially the deficit levy, fuel excise increase, pension growth decreases and healthcare copayments. The situation won’t improve with the new Senate in July either.
James’s 17 top areas of focus in Budget 2014
1. High income earners levy
A 2% levy will apply to those earning an income above $180,000. The impost is for three years only from 1 July 2014 to 30 June 2017 and means that those earning above $180,000 will pay the extra 2% levy on all income in excess of $180,000.
That is if you are earning $200,000 you will be faced with an additional 2% on $20,000 – a total levy of $400, or if you are earning $300,000 you will be paying a 2% impost on $120,000 – or $2400.
2. Healthcare to cost more
From 1 July 2015, previously bulk-billed patients can expect a charge of $7 per visit towards the cost of standard GP consultations and out-of-hospital pathology and imaging services.
For concessional patients and children under 16 years, the contribution will be limited to the first 10 visits each calendar year.
3. Age pension age to increase to 70 by 2035
The Budget confirmed the Treasurer’s earlier announcement that the age pension age will increase to age 70 by the year 2035. This means that those born on or after 1 January 1966 (currently 48 years of age or younger) will have to wait until they are 70 before they are eligible for the age pension.
4. Paid parental leave to commence
The government will proceed with the paid parental leave scheme from 1 July 2015. Under the scheme mothers will receive up to 26 weeks of salary up to a cap of $100,000 per annum.
This translates into a maximum payment of $50,000 over the 26 week period. Women earning over $100,000 a year will receive paid parental leave but it will be capped at an equivalent of $100,000 per annum. This scheme will be funded via a 1.5% levy on companies earning taxable income over $5 million.
5. Simplifying Medicare safety net arrangement
From 1 January 2016, a new Medicare Safety Net will replace the existing Original Medicare Safety Net, Extended Medicare Safety Net and Greatest Permissible Gap.
The new Medicare Safety Net will contribute towards out-of-pocket costs for Medicare eligible out-of-hospital services.
Once the annual thresholds have been met in a calendar year Medicare will pay 80% of any subsequent out-of-pocket costs, capped at 150% of the Medicare Benefit Schedule (MBS) fee.
The annual thresholds are:
- $400 for concessional singles and concessional families
- $700 for non-concessional FTB-A families and non-concessional singles
- $1,000 for everyone else.
6. Fuel excise to rise (except for aviation fuels) – indexation to be re-established
The government will secure funding for additional road infrastructure projects by re-introducing biannual indexation by the CPI of excise and excise-equivalent customs duty for all fuels except aviation fuels.
This will commence from 1 August 2014. The diesel fuel rebate is unchanged, meaning it will continue to apply to excise, including the excise increase.
7. Impact on Equity Markets
The sectors that will benefit most are in the transport and superannuation sectors.
Transport will benefit from the promise for funding to build or complete various road and rail infrastructure. This will be positive in the short and long term for construction companies (including Leighton LEI), and in the longer term for toll road operators (including TCL) and road and rail companies in general (TOL, Asciano AIO) when existing traffic bottlenecks are improved.
Significant opportunities from Government downsizing (outsourcing) and the sales of government departments. Banks like Macquarie Group will benefit from this activity via involvement of the sales.
Mining services companies are expected to be impacted from the forecast significant decline in resource related spending over the next few years (except for LNG projects, which are projected to remain strong).
Some negative impacts on consumer discretionary spending affecting companies like JB Hi Fi.
8. Business gains and losses
The Government remains committed to cutting the company tax rate by 1.5% from 1 July 2015 to 28.5%.
For companies earning more than $5,000,000 in taxable income, this reduction will be offset by the 1.5% levy to fund the paid parental leave scheme which also commences from 1 July 2015.
For small to medium businesses, it will provide a boost to profits.
9. Focus on pensions
Pension payments will have the asset and income test thresholds frozen for 3 years from 1 July 2017. The Government will index pensions to inflation rather than wages from September 2017, this is expected to reduce pension increases.
10. We will be contributing more super
The Super Guarantee will increase from 1 July 2014 to 9.5% (from 9.25% currently). Itwill then remain frozen for 4 years, after which it will increase 0.5% a year until it reaches 12% in July 2022.
11. And when you have to keep working…
The Government will introduce a new wage subsidy, Restart, to encourage businesses to employ Australians who are aged 50 and over and have been on income support for at least six months. Employers may receive up to $10,000 over 24 months in Government assistance.
12. The Government economic outlook
The government forecasts inflation of 2.25 per cent, below the RBA’s forecast range in fiscal 2015 of 2.5 per cent to 3.5 per cent.
The unemployment rate is forecast to lift to 6.25 per cent by the end of fiscal 2015, and remain around that level in 2015-16.
Treasury has forecast a A$29.8 billion deficit for the 12 months through June 2015, down from A$49.9 billion this fiscal year, with shortfalls narrowing in the following three years
The government expects the deficit to shrink to $2.8bn by 2017-18, with a return to surplus tipped for the end of the decade. The government projects surpluses to build to over one per cent of GDP by 2024-25.
13. Family Tax Benefit changes: two-year freeze on rates and other changes
The government will freeze the current Family Tax Benefit (FTB) payment rates for two years from 1 July 2014.
Under this measure, indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B will be paused until 1 July 2016.
The Treasurer also announced other changes to FTB, including a reduction in the FTB Part B primary earner income limit from $150,000 per annum to $100,000 per annum, with effect from 1 July 2015.
14. Higher education – good and bad
The Government will reduce the minimum income threshold for repayment of Higher Education Loan Programme (HELP) debts from 1 July 2016. A new 2% repayment threshold will be set at 90% of the minimum 4% threshold that would otherwise have applied in 2016-17 (estimated to be $50,638). There will be no other change to current repayment rates.
Furthermore, the annual indexation method applied to HELP debts will be changed from the Consumer Price Index to a rate equivalent to the 10 year Australian Government bond yield (capped at 6.0% p.a.) from 1 June 2016.
On the other hand, from 1 July 2014, a tertiary loan system will be extended to TAFE students who will have access to 4-year concessional trade support loans tohelp them complete their trade course.
15. Option to withdraw excess non-concessional contributions
The government will give individuals the option of withdrawing excess non-concessional contributions made from 1 July 2013 and any associated earnings, with thoseearnings to be taxed at the individual’s marginal tax rate.
(Non-concessional contributions notably include non-deductible personal contributions made from a member’s after-tax income.)
Currently, superannuation contributions that exceed the non-concessional contributions cap are taxed punitively at 46.5%. The proposed new measure will bring the tax treatment of excess non-concessional contributions in line with that for excess concessional contributions, for which taxpayers already have a withdrawal option.
16. New assistance for small businesses
The government will establish the “Small Business and Family Enterprise Ombudsman” to act as a one-stop shop and a single entry point as a means for small businesses to find out about government services and programs.
A unit will also be setup in the Department of Finance to provide specialist advice on contracts and to ensure small businesses are not disadvantaged as part of Commonwealth departments’ tendering and procurement processes.
17. Reminder: Increase in the Medicare Levy from 1 July 2014
As per the 2013 Budget, the Medicare Levy will increase from 1.5% to 2.0% from 1 July 2014 to provide funding for Disability Care Australia. This measure has already been legislated