Find out if you're a winner or a loser in this year's Australian federal budget.
On a day when the Reserve Bank of Australia (RBA) has cut Australia’s interest rate to a record low, Treasurer Scott Morrison has delivered a solid budget with a coherent narrative.
The budget is the definition of “steady as she goes” and while there are those that might think this is good, it’s not good enough.
The government has done such a good job positioning the budget as a modest plan that the Reserve Bank of Australia did not have the confidence to wait and see if any of the measures announced would have a meaningful impact on our economic position.
The interest rate is the pulse of the economy and today we got the news that our economy is gravely ill. We need our leaders to acknowledge this and do something about it.
Some of the measures announced show a level of innovative thinking that CPA Australia would desperately like to see applied more broadly.
CPA Australia welcomes the income tax relief that will flow to small to medium companies with a turnover of between A$2 million and A$10 million and the extension of the A$20,000 instant asset write-off.
The changes to the superannuation system recognise the flexible nature of the modern workforce and provide incentives for people to make provision for their own retirement and we are pleased to see some detail on new investment vehicles that will make Australia a more attract place to invest.
However, the combined impact of these initiatives is a long way from presenting us with anything like the leadership Australia needs to ensure we can enhance our competitiveness against increasing global headwinds.
This budget is about setting up an election campaign. It is yet another lost opportunity for real reform on top of a decade of lost opportunity.
With everything that involves spending and saving there have to be areas that are targeted – with some winners and some losers – and this budget is no exception.
Taxpayers in the middle and higher brackets
The government will increase the 32.5 per cent tax threshold from A$80,000 to A$87,000, which it says will stop about 500,000 taxpayers facing the 37 per cent marginal tax rate if and when they move into this tax bracket through wage growth.
Company tax rates
Over the next 10 years, the government plans to cut the tax rate on all companies to 25 per cent – bringing it closer to the OECD average tax rate.
The government is proposing to cut the company tax rate for small to medium-sized enterprises (SMEs) to 27.5 per cent from 28.5 per cent starting 1 July 2016, building on its small business tax cut in the last budget.
Further, the government proposes to extend the 27.5 per cent rate to companies with an annual turnover of less than A$10 million, up from A$2 million.
Related: 6 key drivers of small business growth in the Asia-Pacific
An additional 870,000 small businesses are expected to gain from this cut, including 60,000 businesses with an annual turnover between A$2 million and A$10 million.
The plan is to extend the lower tax rate progressively to all companies and then reduce the company tax rate to 25 per cent by 1 July 2026.
In recognition that not all small businesses are companies, the unincorporated discount will be increased from 5 to 8 per cent from 1 July 2016. The discount will be progressively increased to a final discount of 16 per cent from 1 July 2026 and limited to small businesses with turnover of less than A$5 million, with a cap of A$1000 per individual a year.
Saving for retirement
Along with the objective for superannuation to be enshrined in law, the government announced a series of measures they state are aimed at better targeting superannuation tax concessions.
There will be both winners and losers from these reforms:
- Low-income earners will benefit from the Low Income Superannuation Tax Offset, which replaces the Low Income Superannuation Contribution when it expires on 30 June 2017. This ensures someone earning less than A$37,000 doesn’t pay more tax on their contributions than their take-home pay.
- Concessional caps will be able to be carried forward for up to five years by individuals where balances are A$500,000 or less to enable catch-up superannuation contributions.
- Restrictions for people aged below 75 allowing a tax deduction for personal contributions to eligible superannuation funds up to the concessional cap will be lifted.
- Australians aged 65 to 74 will be able to make contributions to superannuation under the same contribution acceptance rule that currently apply for all individuals under 65.
- Retirement income products and their developers will benefit from the removal of tax barriers to their development. The tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuatisation products.
- The taxation of earnings in Transition to Retirement Income Streams will reduce the incentive for them to be used to minimise tax (effective 1 July 2017).
- The removal of the anti-detriment provision means no further refunds of contributions to tax paid over a lifetime when a death benefit is paid (effective 1 July 2017).
- Non-concessional cap – a new A$500,000 lifetime non-concessional cap will be introduced starting from 7.30 pm Budget night, 3 May 2016.
Rural and regional Australia
With a focus on building a more profitable, resilient and sustainable agriculture sector, the government re-announced the appointment of five additional agricultural counsellors in key markets to help negotiate access arrangements created by export trade agreements with China, Japan and Korea.
A previously announced A$1.2 billion white paper on Developing Northern Australia includes a A$100 million beef roads program to ensure farmers can get their cattle to markets.
Related: Rural regions need Federal Budget money
To help farmers develop their trade capabilities, the government will provide A$13.8 million to the Farm Cooperatives and Collaboration Pilot Programme.
Rural counsellor numbers will get a boost through an additional A$7.1 million in funding with the focus on providing free financial advice to farmers in drought-affected areas.
Self-employment and entrepreneurs
Job seekers looking to start their own businesses will be helped through the expansion of the existing New Enterprise Incentive Scheme (NEIS).
The investment of an extra A$88.6 million will fund an additional 2300 NEIS places a year, taking the total to 8600 a year.
The government will also establish new “exploring being my own boss” workshops to engage young job seekers exploring self-employment as well as self-employment starter packs and appointing “inclusive entrepreneurship facilitators in selected locations with high youth unemployment”.
As agreed at the April 2016 Council of Australian Governments meeting, an extra A$2.9 billion will be provided over three years from 1 July 2017 to the States and Territories for public hospitals.
Education and training
An additional A$1.2 billion will be provided to state and territory governments between 2018 and 2020 for schools, adding to the existing budgeted A$17 billion a year.
In other measures, an additional A$41.8 million will be spent on early education and care, including a simpler and more flexible child care system and a commitment to the Nanny Pilot Program, higher education reforms and skills.
A$50 billion is being delivered for the period 2013-14 to 2019-20 onwards in road and rail infrastructure across the country.
Related: Why is it so hard to plan for infrastructure?
Critical projects identified include the Inland Rail project between Brisbane and Melbourne and preparatory works for a Western Sydney Airport. Further commitments were made to the Ipswich Motorway, the Perth Freight Link, Melbourne’s Metro Rail Tunnel, improving Adelaide’s North-South Corridor, improvements to Tasmania’s Midland Highway and a A$5 billion concessional loan facility for development of Northern Australia.
Innovation and competition in financial services through new business ideas and financial technologies – FinTech – was singled out as an area of priority with changes proposed to regulation and further tax incentives to encourage more investment in this sector.
While a stronger financial services industry will be of benefit to all Australians, the cost of a A$127 million boost to the Australian Securities & Investment Commission’s (ASIC’s) funding will be worn by parts of the industry, including the banks.
Under the previously announced policy, ASIC will receive funding from the industry to cover a A$61.1 million enhancement to the corporate regulator’s data analytics and surveillance capabilities, A$57 million to boost ASIC’s enforcement and surveillance and A$9.2 million to accelerate the implementation of measures recommended by the Financial Systems Inquiry.
The price of cigarettes will rise along with tightening limits on what can be brought into the country duty-free.
Four annual 12.5 per cent increases in tobacco excise and excise equivalent customs duties are planned starting 1 September 2017.
Farmers and tourism operators
The failure of the government to drop or amend the so-called backpacker tax announced in the last budget will impact many thousands of farmers and tourism operators who rely on backpackers for their workforce.
A new diverted profits tax will impose a 40 per cent penalty rate of tax on multinationals that attempt to shift their Australian profits offshore to avoid paying tax. This is in addition to the Multinational Anti Avoidance Law put in place in 2015.
Businesses and high net-worth individuals
A new Tax Avoidance Taskforce will give the Australian Taxation Office (ATO) greater firepower to crack down on tax avoidance. The Taskforce will have about 1300 jobs in the ATO, including 390 new specialised officers.
Retirees with superannuation account balances in excess of $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these people may be converted to superannuation accumulation phase accounts – thus losing their tax-free status.
Related: Retirement report card – does your country make the grade?
High income earners
The 30 per cent contributions tax rate will now be imposed on people earning A$250,000 a year (including concessional contributions), down from A$300,000.
At the same time, the government will reduce the annual concessional contributions cap to A$25,000 a year.
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