Why you don’t need to consult VFS after the 2016/17 Federal Budget

The federal budget overnight was hyped to be the budget to set Australia to a path of greater jobs, better economic control and more money in your pocket. What was delivered was a swathe of mixed messages and policy juxtaposition which in reality will not move the needle in one way or another.

The budget aims for a deficit of $37.1bn in 2016/2017, this compares to a budget deficit of $39.9bn in 2015/2016. In contrast 12 months ago the budget deficit was aimed at $35.1bn and at the mid-year review revised upwards to $37.4bn and then 5 months later expected to come in at the $39.9bn mark. Progress? The numbers would suggest otherwise.

Why not worry today?

With most federal budgets, we recommend calling your adviser and speaking to them about how this will impact your personal situation. With the policy measures announced as they stand, we have to remember that in-between most of the changes announced especially around superannuation these changes aren’t due to take effect until July 1, 2017, in between now and then we will face an election (possible new government) and another budget. Therefore, before you rush to change your long term plan and strategy, we would suggest a cool head and await confirmation on some of these changes. The Government has not had much luck with passing measures through the Senate, with a double dissolution election this may complicate things even further.

What about a surplus?

The forecasts delivered at last night’s budget are not aiming for a surplus over the forward 4 year estimates, however if we believe the growth targets we aim to get close in 2020. This must be taken with a grain of salt considering the track record of both governments over the better part of the last decade.

We will aim to break down the budget by the biggest changes to be seen, Personal Income, Corporations and Superannuation.

Personal Income

The current middle income threshold of $37,001 – $80,000 will be increased to $37,001-$87,000.
For an individual earning over $87,000 this will have an annual saving of $315. Furthermore, the temporary budget repair levy introduced by the Abbott-Hockey Government will be scrapped as initially legislated from the 1^st of July 2017.

Corporations

Small & medium business was the big winner in this budget with company tax rates set to fall a further 1 % from 1^st July 2016 and furthermore there will be an increase of the turnover test from $2 million to $10 million and then stepped increase over the coming decade to include all businesses with a turnover of less than $1bn by 2023.

Superannuation

The aim of the superannuation changes is to close off the tax concessions to Australia’s wealthiest and better target the concessions and provide flexibility to working Australians. The policy announcements include:

• Annual cap on concessional contributions reduced to $25,000 (previously $30,000)
• Unused caps may be brought forward for a period of up to 5 years (*only from 2017 onwards)
• People earning over $250,000 will be taxed 30% on contributions
• Concessional contributions may be made by individuals regardless of employment status up to age of 75
• No more work test for those over the age of 65
• $500,000 lifetime cap on non-concessional contributions
• Lifetime limit of $1.6 million on the amount that can be moved to a pension
• Earnings on TTR pensions to be taxed at 15% (currently 0%)

With regards to the superannuation changes we view these as a winners and losers piece with clear regressive policy measures introduced. However, with all of these policies aimed at being introduced on 1^st of July 2017, we will see how many measures will be able to pass through the Senate with an election and very possibly a new government to contend with.

Conclusion

As far as budgets go this was not hot nor cold, spending and concessions were funded from savings elsewhere. It was very “Turnbullesque”, with more IOU’s and plans down the track rather than firm commitments today. The company tax cuts will benefit and have the potential to lift hiring but will certainly not set the economy nor jobs on fire. This was confirmed in the treasurer’s outlook for both jobs and growth with either needle not moving a great deal on the government’s own projections. This is not a bad budget; (we can thank Hockey for the recent benchmark on those). However, this is by no means bold nor progressive and with an election around the corner the government is somewhat forced to remain in a holding pattern and not “rock the boat”. In our view Morrison would be waking up hoping he gets a second chance on this one.

 

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