On Tuesday night, Treasurer Scott Morrison presented his 3rd Federal Budget, widely perceived to be an election Budget, outlining the Coalition's plan to 'bring the Budget back to balance'. It showed a Budget deficit of $18.2 billion (less than half of what it was 2 years ago) and forecast a return to a surplus in 2019/20 (a year before previously expected and something not seen since Costello's budget in 2007/08).
Growth in wages, ahead of current trend, is a big factor in achieving this, which we will be watching closely. Pleasingly, real annual growth in government spending is just 1.9%, its lowest level in 50 years, with spending levels at just below the 30-year average of 24.8% of GDP.
The below table outlines some key numbers from the budget.
Mercifully, there were no significant changes made to superannuation or the existing company tax rate (reduction) plan. As pre-announced, the Medicare Levy increase from 2.0% to 2.5% from 1 July 2019 will not proceed. The Treasurer also explicitly said that they would ensure 'everyone who has invested in Australian companies that issue franked dividends, (gets) to keep their tax refunds'.
The cornerstone of the Budget provides for personal income tax cuts targeted at low and middle income Australians. While wary of the length (7 years) of the entire plan, from 1 July 2018 we expect (Labor has indicated supporting this measure) an increase to the 32.5% tax threshold (from $87,000 to $90,000). Of greater significance will be the introduction of a new Low and Middle Income Tax Offset that provides additional support (of up to $530 per annum) for those earning between $37,000 and $125,333.
The below table outlines the proposed changes to the personal tax rates.
There were some implications for superannuation that may have strategic benefits, including:
- High income earners (above $263,157 per annum) eligible to nominate certain employers to not subject their wages to the superannuation guarantee (currently 9.5%) giving flexibility to avoid unintentionally breaching the $25,000 annual concessional cap (from 1 July 2018).
- Limited (for those with superannuation amounts under $300,000) eligibility for those aged 65 to 74 to contribute to super in the financial year after last satisfying a work test (from 1 July 2019).
- Amending the Superannuation Industry (Supervision) Act 1993 to require the trustee to develop a strategy that would help members achieve their retirement income objectives. This would operate alongside the existing investment and insurance strategies.
- Increasing the maximum members of a SMSF from 4 to 6 (from 1 July 2019).
- Changing the annual audit requirement to a three-yearly requirement for SMSFs with a history of good record-keeping and compliance (from 1 July 2019).
- Requiring the transfer of inactive superannuation accounts where the balances are below $6,000 (from 1 July 2019).
There were a range of new measures announced to support older Australians. Examples include additional home care packages, additional residential aged care places and Age Pension means test changes. Perhaps this an attempt to buy votes leading into the next election expected in the coming 12 months.
For small businesses, the Government proposed to extend the instant asset write off for amounts up to $20,000 for a further 12 months finishing on 30 June 2019.
If you would like to discuss any measures announced in the Budget, please give us a call.
In the lead up to 30 June 2018 the Redwood team will be busy reviewing and implementing client strategies to incorporate any appropriate changes. If you have any questions please call the team to discuss.