A Recap For Those Who Missed It!
In his third Federal Budget, Treasurer Scott Morrison attempts to strike a balance between fiscal discipline and well-being of the Australian people. He expects the 2018-19 Budget to strengthen the economy, create jobs, guarantee essential services, and inspire the government to live within its means. The budget also aims to explore ways to address the black economy and proposes measures to ensure the sanctity of the taxation and superannuation systems.
As a stakeholder of Australia’s economy, InstaReM takes a closer look at the Federal Budget to figure out what it means for an average Australian and the businesses in Australia.
Economy: The Treasurer forecasts that the government would receive AUD 486.1 billion in revenues, up 6.55% from AUD 456.2 billion last year. The government expects the revenues to cross AUD 500 billion in 2019-20 to AUD 512.8 billion. While raising revenues, the government aims to control expenses by living within its means and forecasts the deficit to drop to AUD 14.5 billion in 2018-19, which peaked at AUD 18.2 billion in 2017-18. The Treasurer targets to return to a surplus of AUD 2.2 billion in 2019-20, which is estimated to rise further to AUD 11 billion in 2020-21. The Budget estimates the unemployment rate to come down to 5.25% in 2018-19 from 5.5% in the previous year. This is targeted to come down further to 5% in 2019-20. Meanwhile, the inflation is expected to rise to 2.25% in the current year from 2% last year, and rise further to 2.5% in the next year.
Personal Taxes: The government has proposed a 7-year plan to make personal income tax lower, fairer and simpler. Tax reliefs continued for the middle and lower income individuals. An annual tax relief of AUD 200 is proposed for those earning up to AUD 37,000, which increases to AUD 530 for those earning between AUD 48,000 and AUD 90,000. The top threshold of the 32.5% tax bracket is set to increase from AUD 87,000 to AUD 90,000. In another relief to taxpayers, the Treasurer has decided not to proceed with the increase (from 2% to 2.5%) in the medical levy proposed last year.
Further favourable adjustments in the tax brackets are proposed for the coming years. The top threshold of the 19% tax bracket will increase from AUD 37,000 to AUD 41,000 and the top threshold of 32.5% bracket will rise further to AUD 120,000. As a major relief to higher-income individuals, the 37% tax bracket will be abolished in 2024-25.
Black Economy: The Treasurer proposed to deal with the menacing issue of Black Economy in more effective ways. Some of the proposed measures include taxable reporting, stings on illegal tobacco and policing by the Australian Taxation Office (ATO). Tax avoidance and money laundering have been targeted with a limit on cash payments of up to AUD 10,000 made to businesses for goods and services. As an added measure, the government has proposed a black economy hotline to report dubious cash transactions. The government has also proposed to reform the corporate and tax laws to check the menace of black economy. The crackdown is expected to lift the government’s revenue by AUD 5.3 billion over the next four years.
Small Businesses: The Budget continues to encourage small business, a key component of the Australian national economy. Tax on businesses with a turnover of up to AUD 50 million will be pared from 30% to 25% over the next decade. The AUD 20,000 instant asset write-off for small businesses, intended to encourage investment in new equipment, is being extended by one more year. The GST reporting is being further streamlined by reducing the number of BAS GST questions to 3, which will save time and benefit businesses up to AUD 590 annually. The government has also proposed to invest AUD 20 million in SME export hubs to help businesses export.
Large Businesses: The Budget proposals for the bigger businesses are aimed at encouraging innovation and fostering fair business. The Research & Development tax incentive is proposed to be reformed to favour companies investing more in R&D.
At the same time, the government has proposed a crackdown on multinational companies moving profits to lower-taxing countries. The measures include changes to stop rich MNCs availing tax benefits meant for Australian businesses, and expansion of the definition of a “significant global entity” to target the MNCs avoiding Australian tax laws. These new measures are in addition to the Multinational Anti-Avoidance Law, Diverted Profits Tax, and Tax Avoidance Taskforce introduced recently to stop powerful global social media, search and hardware companies using complicated routes to avoid paying due taxes on their earnings in Australia.
Education: Education will continue to get favourable treatment from the government. The government will spend AUD 247 million over four years in new funding for school chaplains. AUD 440 million will be spent to fund universal access to preschool/kindergarten for another year. An additional AUD 53.9 million will be allocated over the next four years to improve students’ access to Youth Allowance by amending the threshold and Assessment Year for assessing parental income. The new Parental Income Test threshold is being increased to AUD 160,000, with a further increase of AUD 10,000 for each additional child.
Superannuation: The government wants to help employees to get back some money missed while jumping jobs. While employees will be able to consolidate multiple superannuation accounts from different jobs through the myGov website, the ATO will be empowered with sophisticated data mining technology to proactively search for people’s lost superannuation. While the administration and investment fees are being capped at 3% for accounts with less than AUD 6000, exit fees are being removed to discourage funds charging people (under 25 or with low balances) for life insurance policies they do not need. This is expected to give back AUD 6 billion to three million superannuation members by 2020!