2019-20 Federal Budget Announcement
As would be expected in the final budget before an election, the 2019-20 Federal Budget focused more on minor adjustments and has left superannuation largely untouched. We’ve prepared this blog to give you all the important information you need to know regarding changes that might impact you.
Currently, it is predicted the Australian Federal election will take place in May 2019, with the 11th and 18th most likely options for the polling date. It is anticipated Labor will win the next Federal election, with a gain of about 10 seats. The opposition will deliver their budget reply Thursday evening 4 April 2019. With a near term election, the implementation of the Government’s 2019 Budget is likely to be variable.
Nevertheless, important aspects of the budget are highlighted below:
The 2019-20 Budget anticipates a surplus being delivered for the first time in over a decade. The underlying cash balance is forecast to be a surplus of $7.1 billion in 2019-20, with surpluses projected to build to more than 1% of GDP in the medium term. Real GDP is expected to grow at approximately 2¾% in 2019-20 and 2020-21. The economy is expected to be supported by solid growth in business investment, exports and the roll-out of major public infrastructure projects.
The Government will provide immediate middle-income tax relief of up to $1,080 for singles, or up to $2,160 for dual income families, including tax structural reform so a projected 94% of taxpayers will face a marginal tax rate no higher than 30% by 2024-25. The Government will lower the 32.5% tax rate to 30% from 2024-25. Combined with the already legislated abolition of the 37% tax rate from that year, this means a single 30% marginal tax rate will apply to taxable incomes from $45,000 to $200,000. The top marginal rate of 45% will remain for taxable incomes above $200,000. It is projected that in 2024-25 around 60% of all personal income tax will be paid by the highest-earning 20 percent of taxpayers. A projected 94% of Australian taxpayers will face a marginal tax rate of no more than 30% in 2024-25. The maximum tax offset will increase from $530 to $1,080 per annum and the base amount will increase from $200 to $255 per annum. Depending on a person’s circumstances, they may be entitled to a tax offset if they are:
- A Senior Australian or pensioner
- Receive certain government allowances or payments
- Maintain certain dependents or a carer
- Are low-income earners
The Government will increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000 per annum from 1 July 2022.
The 2018-19 financial year Medicare Levy low-income thresholds will be indexed for individuals and families. The threshold for singles will increase to $22,398 per annum and, for families increase to $37,794 per annum. For individuals and couples who are eligible for the Seniors and Pensioners Tax Offset (SAPTO), the thresholds will increase to $35,418 per annum and $49,304 per annum respectively. The additional threshold amount for each dependent child or student will increase to $3,471 per annum.
Companies with an aggregated annual turnover below $50 million will have a tax rate of 25% in 2021-22.
The Government will increase the instant asset write-off threshold for eligible assets to $30,000 and will expand access to medium-sized businesses by increasing the aggregated annual turnover threshold for eligibility from $10 million to $50 million.
The Government has implemented measures, including the Multinational Anti-avoidance Law (MAAL), the Diverted Profits Tax, Country-by-Country Reporting, and strengthened transfer pricing rules, hybrid mismatch rules, the Multilateral Instrument and increased penalties for large entities that do not comply with tax obligations. The ATO estimates the MAAL will bring an additional $7 billion of sales revenue back into the Australian tax base each year.
The planning level of the Migration Program will be reduced from 190,000 to 160,000 places for four years from 2019-20. The Government is introducing new visas to support regional Australia and create stronger incentives for new migrants to settle outside the major capitals.
Infrastructure Spending Boost
A major focus of the Budget is a significant increase in infrastructure spending to $100 billion over the next decade. An increase of around a third compared to the 2018-19 Budget. This will include;
- A new fast rail plan for Australia including a $2 billion contribution to the Melbourne-Geelong fast rail project;
- A $3 billion increase in the Urban Congestion Fund including $500 million for a new Commuter Car Park Fund;
- An additional $1 billion for the next phase of the Roads of Strategic Importance initiative;
- And $15.6 billion for additional road and rail projects across the country
Flood and Drought
The Government is providing $6.3 billion of assistance and concessional loans to support those affected by drought and $3.3 billion to support those affected by flood. The Government has invested in future drought resilience by establishing the new Future Drought Fund with an initial investment of $3.9 billion.
$21.6bn has been allocated towards providing higher quality aged care.
For 3.9 million Australians, a one-off, income tax exempt payment of $75 (for singles) or $125 (for couples) to help reduce their next power bill will be provided.
Financial System, The Royal Commission
The Government will provide the Australian Securities and Investments Commission (ASIC) with additional funding of $404.8 million so it can undertake an accelerated enforcement strategy, implement an enhanced onsite supervisory capability for large institutions and deliver on its expanded role in relation to superannuation as recommended by the Royal Commission. The Australian Prudential Regulation Authority’s (APRA) budget will be increased by $151.7 million to strengthen its supervisory and enforcement activities.
Thankfully for financial advisers and their clients, there were few major changes to superannuation in the budget. Constant Government changes have been seen as one of the negatives for the superannuation system in recent years. Currently, people aged 65 to 74 can only make voluntary superannuation contributions if they meet the work test, which requires working a minimum of 40 hours over a 30 day period in the relevant financial year, and those aged 65 and over currently cannot access bring-forward arrangements. Proposed budget changes to calculating exempt current pension income (ECPI) and increasing the age where the work test for making contributions to superannuation applies, appear positive moves. From 1 July 2020, the Government will increase the work test age to 67 to be aligned with the age pension age. This will allow voluntary superannuation contributions [both concessional and non-concessional] to be made by those aged 65 and 66 without meeting the work test from 1 July 2020. [Concessional contributions, also called before-tax contributions, are funds that go into super from before-tax income. Concessional contributions can be added into super without paying extra tax. Generally, non-concessional contributions are contributions made into super that are not included in the super fund’s assessable income.]
The streamlining administrative requirements to calculate exempt current pension income (ECPI) will reduce red tape. Changes will be made to allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI. Currently, the ATO requires both the proportionate method and segregated method for relevant parts of an income year, this can be unnecessarily complex. This change allows prior industry practice of using the proportionate method and calculating ECPI through an actuarial certificate to begin again. In summary from 1 July 2020, people aged 65 or 66 will be able to make voluntary super contributions without meeting the work test. It will be possible to make three years’ worth of non-concessional contributions (currently capped at $100,000 a year) in one year. From 1 July 2020, there will be an increase in the age limit for spouse contributions from 69 to 74.
Given the near term Federal election and potential for a change of Government, investing based on anticipated budget changes carries risks, as such it appears more logical to invest in sectors likely to benefit despite the budget and treat actual budget implementation as a bonus. To that end a return to surplus does offer Australia an increase in economic support flexibility in future years should that become necessary and the increase in Infrastructure expenditure offers potential benefits for this sector and will likely take some of the pressure off the housing and construction sector. Increased support for seniors may assist this sector. However, the NDIS appears underfunded in part influencing disproportionally the seniors’ sector. The budget on the negative side appears to lack big-picture vision and makes little provision for possible impacts of technology and energy demand and supply changes on the Australian economy and employment market in the future.