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Federal Budget 2014 Update

The 2014 Federal Budget is now a week old and while the dust has far from settled, we thought it would be useful to get some simple facts on how the proposed budget measures will impact.

It is worth noting that very few of the measures are guaranteed until they make their way through the parliament – we will be waiting with baited breath to see how this all plays out.



Budget Repair Levy

The much talked about Temporary Budget Repair Levy will see an additional 2% of taxable income added to the tax bill for taxpayers with taxable income over $180,000 commencing 1/7/2014. For those affected, if you are able to get your taxable income lower or beneath this threshold over the 'temporary' period of the levy then you will save yourself this additional tax.

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Some Tax Offsets gone, some Medicare Levy joy, but not so much on HELP

Dependant Spouse and the Mature Age Worker Tax Offsets are to be Abolished from 1/7/14. This is on top of changes in last year's budget to means test the Net Medical Expenses Tax Offset. Signs are clear that tax offsets are going to be tougher to access in the future.

On a slightly more positive note, the Medicare Levy Low-income threshold will be increased to $34,367 which means that more low income earners will be able to avoid paying the Medicare Levy.

When it comes to higher education however, there is set to be more pain for students and their families who support them. New minimum threshold for HELP debt repayments will reduce to $50,638 from 2016/17 and a repayment rate of 2% of income will apply. The indexation of HELP loans at CPI will cease and be replaced with a market rate linked to 10 year bonds (capped at 6%), which will see HELP Loan balances increase. To compensate for this, a slight concession has been given to remove Loan fees – however one doesn't balance out the other and the Government will gain far more revenue from this initiative.

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Age Pensions and Tax Concessions in gun sights

Quite a bit to cover for older Australians and unfortunately almost none of it good.

The changes to the Pension Age have been widely covered, but here is the detail of exactly who will be effected.  The increase is going to happen gradually but check to see where your date of birth falls for the answer to when you will be able to access the Pension.

Date of birth between                    Age at which eligible for Age Pension

1 July 1952 and 31 December 1953                65½

1 January 1954 and 30 June 1955                    66

1 July 1955 and 31 December 1956                66½

1 January 1957 and 30 June 1958                    67

1 July 1958 and 31 December 1959                67½

1 January 1960 and 30 June 1961                    68

1 July 1961 and 31 December 1962                68½

1 January 1963 and 30 June 1964                    69

1 July 1964 and 31 December 1965                69½

1 January 1966 and later                                    70

The Government is also looking at how the Preservation Age (age at which you can access your super) should also be changed to be in line with the Aged Pension age, although nothing was specifically mentioned in the Budget papers on this issue.  The key message is, you are expected to live longer, so also expect to work longer.

But the hit to older Australians doesn't stop there.   Deeming Thresholds for pension income tests will be reset from $46,000 to $30,000 for singles and $77,400 to $50,000 for couples from 1 September 2017.

Indexation of income and assets test free areas will be frozen for 3 years from 1 July 2017.

The income threshold for the Seniors Health Card will be indexed.

The Seniors Supplement will also cease from June 2014.

In another move unlikely to be popular with self-funded retirees, untaxed superannuation income will be included in the income test for the Commonwealth Seniors Health Card for new recipients.  Additionally, health cardholders will no longer be eligible for the seniors supplement from January 2015 in order to target payments to those who need them most.

For older Australians and those heading for retirement, there is no positive change to come from any of these reforms.

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Families to lose from FTB reform

FTB income limit will be reduced from $150,000 to $100,000  to apply from 1 July 2015. Other changes will be made to pause indexation, reset supplement payments to their original levels (before indexing).  Families who are reliant on either regular payments or annual lump sum payment from the Family Assistance Office should look carefully at their own family budget to see how a reduction or loss of the FTB is going to impact.

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Fuel Excise

Biannual indexation to the consumer price index (CPI) of excise and excise-equivalent customs duty for all fuels except aviation fuels will be reintroduced to secure funding for additional road infrastructure projects.   Expect to see transport costs increase in particular over time from this initiative – although there is spending on roads which may be of some benefit to productivity!

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Super Guarantee

The government will change the schedule for increasing the superannuation guarantee rate to 12%. Instead of pausing the rate at 9.25% as previously announced, the superannuation guarantee rate will now increase to 9.5% on 1 July 2014 (as currently legislated). The rate will remain at this level until 30 June 2018. The rate will then increase by 0.5 percentage points each year until it reaches 12% in 2022/23, one year later than previously proposed.  Really just a shuffling of the timeframes but the same overall result – and a significant impact to employers more so than the Federal Budget.

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Apprenticeship Changes

The government will cut the Australian Apprenticeships Incentives Program, known as 'Tools for your Trade' from 1 July.

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Mature Age Worker Incentives

Starting from 1 July this year eligible employers will receive $3000 if they hire a full-time mature age job seeker who was previously unemployed for a minimum of six months and employ that person for at least six months. Once the job seeker has been working for the same employer for 12 months, the business will receive another payment of $3000, then another $2000 at 18 months and a final $2000 at two years.  This measure might be aimed at encouraging employers to seek older employees, but arguably is not going to do anything for unemployment in general.  Will we see the need for similar incentives for young inexperienced job seekers in the future?

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Excess Super Contributions

For any excess superannuation contributions made after 1 July 2013 breaching the non-concessional cap, the government will allow individuals to withdraw those excess contributions and associated earnings.  This is a common sense approach that is a breath of fresh air from our legislators – compared to the harsh penalties that would otherwise have been imposed.

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Couples get $200

One of the few examples of increased Government spending, comes in the form of relationship counselling.  You read right, Tony Abbott is honouring his election pledge by putting $20 million over two years to provide up to 100,000 couples with $200 towards relationship education or counselling.

Under the 'Stronger relationships scheme', couples will be able to register online for a subsidy to see a relationship educator to work through key issues such as parenting and financial management.

The scheme will be open to all couples including engaged, married, de facto and same-sex couples.

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ATO to bring forward staff reductions

The planned reduction in 1,600 ATO staff that was due to occur in 2015/16 will be brought forward to achieve savings of $142.8m over three years.

These reductions had already been factored into the forward estimates as part of the planned reduction in 4,700 ATO staff that was due to occur because of efficiency dividends and decisions of the previous government.

Will this stunt the ATO's audit and regulatory capabilities?  Probably not given that the technology at the ATO's disposal is what drives much of their compliance activities and has provided the efficiency to reduce the staff numbers.  More automated reviews, and disprove or pay up ultimatums may be the result of this initiative.

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Tony has The Block Bug

Looks like Tony Abbott has caught Australia's renovation bug.  

The budget includes provision for 'lodge refurbishment'. It has been known for a while that the Lodge needs some work, but the interesting thing is the government won't say how much this is actually going to cost.  The budget item is marked as 'NFP' (not for publication) where the numbers should be.

'The cost of this measure is not for publication due to commercial-in-confidence considerations', according to the budget papers.

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Budget Blues?

With the exception of The Lodge, there are almost no direct winners from the Budget – although the Government believes we are all winners because the state of the economy will be dramatically improved if they are allowed to steer us into more austere waters.   Only time will tell if this is the case or if in fact they have a green light on any of these measures.

If you need to better understand how the Federal Budget could impact your specific circumstances, please our team either by phone 03 5144 4566 or via email – check our website for contact details or for general enquiries contact queries@phillipsons.com.au

Kind regards,


Kurt Best

General Manager
Phillipsons.com.au


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