Our take
Well this one was hardly a surprise was it? The much leaked small Budget surplus was viewed by the Government as a political imperative and what they have done is balanced that against the economic imperative by delivering a budget that gives back to the economy almost as much as it takes out.
Economically the collective wisdom has always been that in the “bad times”, governments stimulate economic activity by running deficit budgets. In the “good times”, they save for those rainy days by running surplus budgets. Over time, a balanced situation is the target.
So at present with our “two speed” economy and the continuing concern around the global economy, the government is having a bob each way by running close to a balanced budget – not hurting nor helping the economy too much, and providing a bit of a Robin Hood allocation effect in the process.
Carbon tax and mining tax revenues are chief new funding sources and families are winners with small education handouts and modest tweaks to personal tax arrangements. Small businesses get a boost with a tax loss writeback scheme, but overall it is certainly a disappointing Budget for business with the scrapping of the previously announced corporate tax rate cut.
On a year to year basis the budget is economically contractionary, in the sense that it is a $40 billion plus turnaround from the prior year's deficit. This provides the Reserve Bank with scope and arguably puts some pressure on them to further lever the economy by further cutting interest rates.
We find it difficult to understand the government logic on superannuation by continuing to limit taxpayers contributions - it seems this will only create a savings shortfall in future years that will result in various forms of reliance on government support.
Highlights - The good stuff
- Loss carry back rules for small business, allowing businesses to refund prior taxes against current losses;
- Increases in the Individual tax threshold arrangements, Individuals can now earn around $18,200 pa and still not pay Income tax;
- A 'SchoolKids Bonus’ of $820 a year for each child at high school and $410 for every child in primary school will automatically be paid to parents who are eligible for Family Tax Benefit Part A;
- Family Tax Benefits have also increased by $300 and $600 per year.
Highlights - The bad stuff
- Scrapping of the promised corporate tax rate cut;
- Scrapping of individual tax perks like standard deductions and interest concessions;
- People over age 50 can still only contribute $25,000 to super, not $50,000 as previously promised;
- Superannuation Contributions tax increased to 30% for very high income earners;
- Medical Expenses Offset and Private Health Insurance Rebate now means tested;
- Living Away from Home Allowance tightened.
Obviously there is a lot more in the detail, click here to read a summary of the major changes.
As always, or call your Altus Adviser if you need to discuss any potential impacts on you or your business.
The team at Altus.