Let's not spend too much time on the headline surplus rate of $1.5 billion. This is essentially a meaningless number, created more for political effect than for any sound economic reasons. In addition, GWS has more chance of winning the AFL premiership this year than the government has of getting a $1.5 billion surplus by the end of June 2013 (and that would also be the case if Joe Hockey was standing in Wayne Swan's place).
Here are the parts of the budget that I believe will have the most impact on our clients:
Individuals and Families:
- Labor had previously announced a "standard" rate of work related expenses so that taxpayers could reduce their dependence on tax agents and accountants when completing their income tax returns. This has now been scrapped. The idea was flawed when it was announced, and it has been fought off successfully by the tax and accounting professions.
- The 50% tax discount to apply to interest income has been scrapped (to save money)(ironically).
- Means testing of the medical expense tax offset (what was wrong with using the word rebate, instead of tax offset?)
- The Mature Age Tax Offset is to be phased out for people born before 01/07/1957. This was bought in originally to encourage "older" people to continue in the workforce. Not important now?
- The exemption for the temporary flood and cyclone levy will be extended to those receiving disaster recovery payments in 2010/2011, as well as though impacted by natural disasters in 2011/12. The parochial part of me is asking why this couldn't be extended back to those impacted by natural disasters in 2008/09 to exclude those impacted by Black Saturday.
- The replacement of the education expenses tax offset with a new School kids bonus. Accountants around the country will be cheering at this news. Ensuring that taxpayers had the necessary information and receipts to claim this tax offset was always a challenge at tax time.
- Family Tax Benefit increases by up to $600, but ceases for those with kids over 18 (or 19 if they are still at High School)
- As previously announced, as part of the compensation for the Carbon Tax a significant change in the tax rates, including an increase in the tax free threshhold to$18,200, as well as an increase in various Centrelink payments.
- The proposed lowering of the company tax rate by 1% has been scrapped. This is actually due to the reality that this wasn't able to be passed through parliament. In all honesty, 1% is not the be all and all end all for companies.
- Companies will be allowed to carry back losses made in current years to apply against previous profits, thereby refunding taxes previously paid. This is not a bad proposal, as it will help out a lot of the small, struggling companies now. No mention as to how this helps those businesses set up in other structures like family and unit trusts.
- The current superannuation contributions caps will remain in place until at least 2014.
- Whilst not a new announcement, small business will be eligible for an immediate $5,000 write off of new equipment purchases, as well as changes to motor vehicle depreciation claims from 1st July 2012.
The Tax Office:
- Additional funding for GST compliance measures. The funding is $195 million over the next two years and is looking to raise additional GST of $986 million as a result. This is a big red flag to any business currently registered for GST.
- Additional funding of $106 million to help the tax office manage tax debt. This is another red flag for any business that currently owes money to the tax office. The tax office are about to crank up the pressure another notch or two. Great if you are already struggling to keep up with all your commitments.
- $300+ million to the tax office buys a lot of resources. You won't see this in the headlines on the papers or the ABC, but the tax office have effectively been given the green light to "go after" businesses. This is not good news. I hope you all have tax audit insurance (call me if you don't).
- Yes, the carbon tax hits 1st July this year.
- The National Disability Insurance Scheme has been funded to the tune of $1 billion over the next 4 years.
- Over 4,000 public service jobs to go, with cuts to a lot of important government departments and services, including the Bureau of Meteorology, Regional Australia, Bureau of Statistics, and Local Government. Some people will cheer at the cuts to the public service, but those same people will more than likely moan at the reduced services they will provide as a result.
- The superannuation guarantee will steadily increase from 9% to 12% over the next few years.
- Our local Federal member, Rob Mitchell, tweeted that the budget will provide "...200K for Development of e-Health Capacity at the new Kinglake Ranges Health Centre..." Rob, I'm sorry, but I have no idea what this means. I'm pretty certain you'll read this. Can you please elaborate and explain what this actually means.
As mentioned at the outset, the headline surplus amount of $1.5 billion is more about politics than it is about economics. My concern is that whilst there are noises from the Treasurer that there are problems in the economy, why deliver a budget that seeks to exacerbate this? And I'm not talking about the carbon tax. That's old news. If you sack 4,000 public servants that increases unemployment. If you cut budgets in all departments that has a knock on effect reducing demand throughout the economy. If you let the tax office clamp down on outstanding debts, that will cause businesses to fold. In my opinion this is not the right budget and this is not the right outlook for this time, in this economic climate.
The difficulty we have at the moment is that we have Government that has painted itself in a corner with its previous commitment to deliver a budget surplus this year. And rather than admit that it was wrong to do so, and goaded by an Opposition that has no economic credibility of (when will they replace Hockey and Robb with people with at least some understanding of finance and economics), and an essentially clueless gaggle of political and economic media commentators, they have proudly revealed this small surplus. Bravo.
But for what benefit? Financial markets dont give a toss as to what the headline rate is (they, as a collective, are not that superficial). Our debt is at very manageable levels, especially when compared to just about all other OECD countries. Our government's (Federal, State and Local) primary concern should not be about debt management, it should be about growth, or the lack of it. Cutting budgets, and jobs, is not the answer. It never has been.
Would the Liberal party have produced a different result? I seriously doubt. Anybody watching Joe Hockey on the ABC tonight would have been left in no doubt that there is a large credibility gap in the future alternative government's ability to manage anything bigger than the local chook raffle.
So what do you think?