In a ‘traditional’ Labor style budget, the 2012-13 Federal Budget contains a raft of handouts to those in need and savings measures targeted at corporate Australia and high income earners.
They are promoting this as measures designed to “spread the benefits of the mining boom” and an attempt to return to surplus in the next financial year.
Economically there has been a muted response, although with concerns that taking money out of the economy at a difficult time globally may cause additional unwanted headwinds.
Politically they are looking to return to a surplus so they can point to prudent economic management, although with some serious questions over whether they can deliver. There are also comments that the handouts are to offset the cost of their other policies, such as the carbon tax, and to try to appeal to core voters ahead of an election.
Theoretically the 2012-13 Budget will produce a cash surplus of $1.5 billion for 2012-13 – subject to a number of assumptions around reducing interest rates and increased taxes from an improving economy and the Mineral Resources Rent Tax.
The surplus is forecast to rise to $2 billion in 2013-14 and to $5.3 billion the following year.
The growth forecast is in line with that of the Reserve Bank which in its May monetary policy statement earlier this month revised down slightly its economic growth forecasts for 2012-13 to 3 to 3½ per cent for 2012-13.
Growth is expected to flatten to 3 per cent in 2013-14. The main drivers of economic growth are expected to be business investment and exports.
Underlying inflation is forecast to remain within the Reserve bank’s 2-3 per cent target range but headline inflation will kick higher to 3 ¾ per cent because of the impact of the carbon tax.
The Government announced a $3.9 billion package in support payments for parents, through additional family payments and the new School kids bonus that replaces the education tax rebate.
More generous payments under Family Tax Benefit Part A
The Government will provide $1.8 billion over four years by increasing the maximum payment rate of Family Tax Benefit Part A (FTB-A) by $300 per annum for families with one child and $600 per annum for families with two or more children.
For families receiving the base rate of FTB-A, the increase will be $100 per annum for families with one child and $200 per
Family Tax Benefit Part A – change to the age of eligibility
The Government will save $360.9 million over four years by limiting the eligibility for Family Tax Benefit (FTB) Part A.
The benefit will be limited to young people under 18 years-of-age or, where a young person remains in secondary school, the end of the calendar year in which they turn 19.
The School kids bonus
The Government will fund $2.1 billion over five years for a new School kids Bonus to provide $410 for primary school students and $820 for secondary school to help families with education costs.
Tax Relief for Small business
The Government will introduce a loss carry back scheme to provide immediate tax relief for businesses, which report a loss.
Currently businesses are able to carry forward losses to offset future profits and therefore reduce their tax bills. The new measure will allow businesses to ‘carry back’ their losses, applying them to their previous tax paid, and receive a refund on some of that tax paid.
From 1 July 2012, small businesses will be able to instantly write-off each and every asset they purchase costing less than $6,500 – a full deduction straight away, rather than waiting.
From 1 July small businesses will also be able to instantly write-off the first $5,000 of a motor vehicle.
Reduced tax offset for “golden handshakes”
From 1 July 2012, only that part of a “golden handshake” that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will be taxed at concessional rates. The $180,000 cap will complement the existing ETP cap ($175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap. The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15% for those over preservation age and 30% for those under preservation age.
Medicare Levy Exemption
The Government will raise the low-income thresholds for the Medicare Levy and Medicare Levy Surcharge as part of the 2012-13 Budget. The increase in the threshold will be backdated to take effect from 1 July 2011.
The Medicare Levy low-income threshold will increase in line with the Consumer Price Index to $19,404 for singles (up from $18,839) and to $32,743 for couples (up from $31,789). For families, the additional amount of threshold for each dependent child or student will also be increased to $3,007 (up from $2,919).
The Medicare Levy low-income threshold for pensioners below Age Pension age will also be increased. For the 2011-12 financial year, the threshold will rise to $30,451 (up from $30,439). This will ensure that pensioners below Age Pension age do not pay the Medicare Levy when they do not have an income tax liability.
Other tax changes: what is being scrapped or reducing?
Personal Tax: 50 per cent discount for interest income scrapped
The Government will not proceed with 50 per cent discount for interest income, which was due to commence on 1 July 2013.
Government scraps standard deduction for work-related expense
The Government will not proceed with the 2010-11 Budget measure for a standard deduction for work-related expenses and the cost of managing tax affairs which was due to commence on 1 July 2013.
The Government said it is pursuing other simplification measures such as tripling the tax free threshold to $18,200 from 1 July 2012, taking up to one million people out of the tax system.
Phase out of mature age worker tax offset
The Government will phase out the mature age worker tax offset (MAWTO) from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in 2011-12.
Net Medical expenses tax offset: threshold increases and reimbursement reduced
The Government will introduce a means test for the net medical expenses tax offset from 1 July 2012. For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012-13), the threshold above which a taxpayer may claim will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10 per cent for eligible out of pocket expenses incurred.
People with income below the surcharge thresholds will be unaffected.
Business and investment – Tax changes
- The Government has abandoned the planned cut in company tax from 30 to 29 per cent, originally announced as part of the carbon Price package.
- Targeting Fringe benefits tax —living-away-from-home allowances and benefits at people legitimately maintaining a second home in addition to their actual home for an initial period by:
- limiting access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
- providing the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.
- The Government will increase the managed investment trust final withholding tax rate from 7.5 per cent to 15 per cent, with effect from 1 July 2012.
Deferral of higher concessional contributions cap
The Government will defer the start date of the $50,000 concessional cap for individuals over 50 with a superannuation account balance under $500,000. The measure was initially intended to commence from 1 July 2012 but it will now be delayed by two years and will commence from 1 July 2014.
30% contributions tax for individuals earning over $300,000
From 1 July 2012, individuals with incomes greater than $300,000 will pay 30% contributions tax on their concessional contributions. The definition of “income” for the purpose of this measure includes concessional superannuation contributions.
Pensioner Draw Down
The Government will phase out the pension drawdown relief that has been provided over the last three years. Minimum payment amounts for account-based, allocated and market linked pensions will be reduced by 25% for 2011-12 and will return to normal in 2012-13.
Extra allowance for those on income support
The new supplement will provide $210 each year for eligible singles and $175 each year for each member of an eligible couple.
The supplement will be paid in two instalments, in March and September each year, with the first payment commencing on 20 March 2013.
The supplement will be an ongoing, non-taxable payment to recipients of Newstart Allowance, Sickness Allowance, Youth Allowance, Austudy, ABSTUDY, Special Benefit, Parenting Payment Single, Parenting Payment Partnered, Transitional Farm Family Payment and the Exceptional Circumstances Relief Payment.
The Government will also double the liquid assets test thresholds for income support recipients. From 1 July 2013, newly unemployed people will be able to access income support without waiting up to 13 weeks if they have liquid assets of up to $5,000 for singles without children and $10,000 for all others.
The Government will encourage greater investment in the sector to provide consumers with more choice and greater protections, at a cost of $660 million over five years.
The Government will also make savings through new income test arrangements for people commencing Home Care packages or entering residential aged care after 30 June 2014. A new income test will be introduced from 1 July 2014 for Home Care packages. Under these arrangements, full pensioners will not pay any income-tested care fee, while part-pensioners will contribute up to a maximum of $5,000 a year, and self-funded retirees up to $10,000 a year, for their care.
Care recipients will continue to pay a basic fee of up to 17.5 per cent of the basic age pension.
An annual cap of $25,000 will apply to care contributions in residential care. Care recipients will continue to pay a basic fee, currently up to 84 per cent of the basic age pension. Residents in permanent care in an aged care home as at 30 June 2014 and all respite residents will not be affected by these changes.
National Disability Insurance Scheme
The Government will commit $1.0 billion over four years to the first stage of a National Disability Insurance Scheme.
The first stage will deliver personalised care and support for up to 10,000 people with significant and permanent disability from 2013-14 and expand to support up to 20,000 people from 2014-15. Eligible individuals will be entitled to reasonable and necessary care and support that reflects their individual circumstances with the Government providing funding of $342.5 million over three years from 2013-14.
This first stage of an NDIS will occur in up to four launch locations, to be announced following negotiations with state and territory governments. The Government will be seeking to share the costs with state and territory governments of individual care and support for people with a significant and permanent disability, and will bear the full remaining costs of this initiative.