The budget delivered by Federal Treasurer Wayne Swan could be reasonably described as anti-climactic in many respects. It comes as no surprise therefore that the budget was devoid of any attempt to genuinely work towards true reform of the overall tax system (rather than periodic band-aid measures) to adequately meet the challenges facing Australia.

Many key announcements were made pre-budget and confirmed by the government in the budget papers, including:

• wide-ranging changes to superannuation such as the 15% tax on certain earnings in pension phase, the increase in the concessional contribution cap to $35,000 for older Australians and the changes to the excess contributions tax regime;
• the deferral of tax cuts due for the 2015-16 year which were to be funded out of carbon tax receipts;
• an increase in the Medicare levy of 0.5% to contribute to the cost of the proposed National Disability Insurance (NDIS) scheme.*

Announcements which were unexpected and which will have a significant impact on middle-Australia were:

• the removal of the Baby Bonus, to be replaced by a significantly reduced payment which will only be available to taxpayers who qualify for Family Tax Benefit Part A; and
• the phase out of the Net Medical Expense Offset (which will in fact be immediate for some taxpayers).

An announcement of interest from the Assistant Treasurer was titled “ATO taskforce to target trust misuse”. It is to be hoped that the activity undertaken by the taskforce is targeted

at what would be considered by a reasonable person as “misuse” (which should not be tolerated) and not merely the use of trusts as part of ordinary family or commercial dealings.

* Note that for all other taxation imposts that are tied to the Medicare levy, the costs of that impost will also increase by 0.5%.

Individuals, families

Carbon tax-funded tax cuts “deferred”

Changes to the personal tax-free threshold announced in the 2012-13 budget as part of the carbon tax compensation package will not proceed (see table on page 2). As a result, the proposed 2015-16 increase in the tax-free threshold from $18,200 to $19,400 has been deferred. The tax-free threshold, which was raised from $6,000 to $18,200 from July 1, 2012 as part of the carbon tax compensation package, is not affected by the government’s announcement. This measure is part of the variations to the Clean Energy Future package due to the lower than projected carbon price estimates.

Personal income tax rates

The 2013-14 budget confirmed the income tax cuts for the 2012-13 income year, however the government has decided to defer the subsequent tax rate changes contained in this legislation that were to commence on July 1, 2015. A summary of how the resident personal rates will apply is set out in the table below.

Baby Bonus abolished, family payment boost abandoned and “work test” under the Paid Parental Leave scheme extended

The Baby Bonus will be abolished from March 1, 2014 in favour of new support for families of newborns through the Family Tax Benefit Part A (FTB Part A).

The government will increase these payments by $2,000, to be paid in the year following the birth or adoption of a first child or each child in multiple births, and $1,000 for second or subsequent children. The additional FTB Part A will be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments.

The measure will save $1.1 billion over five years, in addition to the $1.8 billion generated by the decision not to proceed with the increase in FTB Part A. The increase to the FTB Part A was to be funded by the mining tax and was detailed in the 2012-13 budget. The payment increase would have gone to 1.5 million families, with families with one child receiving the maximum rate of FTB Part A, an extra $300 a year, and those with two or more children to receive $600.

The Baby Bonus currently cuts out at an earnings threshold of $150,000, but the earnings cut-off for FTB Part A is $94,316 so the government’s move effectively limits a high proportion of top earners’ access to the financial assistance for newborns.

Families accessing the government’s Paid Parental Leave (PPL) scheme, which remains unchanged, will not be eligible for the additional FTB Part A component. However, the work test under the PPL scheme will be extended so that parents will be able to count periods of government PPL as “work”, just like employer-funded PPL.

Investments to improve childcare quality

Although the maximum amount of the Child Care Rebate will be frozen at $7,500 a year until June 30, 2017 – saving the government $105.8 million – the government will provide up to $300 million in a two-year program to allow day care centres to pay workers with Certificate III qualifications an extra $3 an hour. The government will also provide $12.9 million over three years to trial flexible child care arrangements for families who require care outside standard operating hours.

Price of cigarettes to rise

The indexation of excise and excise-equivalent customs duty for tobacco and tobacco products will be charged to average weekly ordinary time earnings (AWOTE), instead of the consumer price index (CPI). The duty rates will be indexed bi-annually, on March 1 and September 1 each year. This measure will apply from March 1, 2014.

Based on the average historical difference between annual AWOTE and CPI movements, this measure would result in the cost of a typical packet of 25 cigarettes increasing by an additional 7 cents in the first half of 2014. Indexing tobacco excise and excise-equivalent customs duty to wages will ensure that tobacco excise keeps pace with incomes.

Work concessions for Newstart Allowance recipients

From July 1, 2015, people on Parenting Payment Partnered, Newstart Allowance and Widow, Sickness or Partner Allowance will be able to earn $100 a fortnight, up from $62, before their income support starts to fall. The government said about 150,000 people on income support who are earning more than $62 a fortnight are expected to benefit immediately, with an average increase of $19 a fortnight to their payments.

The benefit is available to a further 650,000 people on income support if they take up work. The income-free area will be indexed by annual percentage changes in the consumer price index from July 1, 2015.

From January 1, 2014, single parents studying while on the Newstart Allowance will also receive up to $62.40 a fortnight or $31.20 a fortnight for a concessional study load under the Pensioner Education Supplement (PES), to help with the costs of study while they gain an additional qualification to assist them to re-enter the workforce.

Single parents who are no longer eligible for the Parenting Payment because their youngest child has turned eight nor qualify for income support due to their earnings will have their eligibility for the Pensioner Concession Card extended from two to 12 weeks.

Exempting certain disaster payments from income tax

Disaster Income Recovery Subsidy (DIRS) payments provided between January 3, 2013 and September 30, 2013 are to be exempted from income tax. The DIRS provides financial assistance to employees, small business persons and farmers who experience a loss of income as a direct consequence of a natural disaster occurring in Australia. This measure is estimated to have no revenue impact over the forward estimates period.

Ex-gratia payments to New Zealand non-protected Special Category Visa holders affected by natural disasters that occurred in 2012-13 will also be exempted from income tax. These ex-gratia payments are equivalent to the tax-exempt Australian Government Disaster Recovery Payment (AGDRP) and assist New Zealanders who would otherwise have been eligible for the AGDRP if it were not for their visa status.

Help for seniors

The government will invest another $127 million in supporting senior Australians to continue their active engagement in society – including $9.9 million to extend their broadband support, $4.6 million for a new ageing policy institute, and a $112 million pilot program to assist them to downsize their home without affecting their pension From July 1, 2014, pensioners who have owned their family home for at least 25 years and who decide to downsize

will have the option to invest surplus funds (up to $200,000) in an account. The funds invested in the account and earned interest will be exempt from the Age Pension means test for up to 10 years. Also a new seniors’ Work Bonus is intended to ensure pensioners keep more of their pension while working.

Road and rail infrastructure projects

The government will spend $24 billion in road and rail infrastructure projects from 2014-15 to 2018-19, including $4.1 billion for the Bruce Highway, $715 million for Brisbane’s Cross River Rail bridge, $1.8 billion towards Sydney’s M4 and M5, $718 million on the Gateway Motorway, $525 million on the M80 ring road in outer Melbourne, $500 million on Perth public transport, $500 million for Tasmania’s Midlands Highway, and $448 million on the South Road upgrade in Adelaide.

The government will also continue its investments in the Swan Valley Bypass in WA, the Bruce Highway in Queensland, the Pacific Highway in NSW, the Midlands Highway in Tasmania and the Tiger Brennan Drive in the Northern Territory.

Indexation pauses

Other than the Child Care Rebate, the following items will also be subject to a pause on their indexation:

• FTB end of year supplements
• the higher income tests for family payments, and
• the income threshold for the dependency tax offsets

These will be extended for a further three years.

 

 

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