Federal Budget Review 2013
This year’s Federal Budget had plenty of cuts and very few goodies for an election year,
as the Government looked for further savings. From an investment perspective there’s little
of note, especially as most of the superannuation reforms had previously been announced.
There’s one important takeaway from many of these changes – they’re yet to be
legislated. Given current political polling there’s the reality some changes may
never see the light of day.
Surplus
There’s no more ‘back in black’ talk and the forecast 1.5bn surplus has evaporated. The
budget is now forecast to be in deficit until 2015-16 and back into surplus by 2016-17.
However, given the quick erosion of this year’s predicted surplus, we should be wary of
rosy forecasts that may be based on unrealistic assumptions with little regard for economic
headwinds.
While Wayne Swan underlined the inherently unreliable business of forecasting, “the truth
is that the global economy is capable of changing dramatically, quickly, and having
different effects on the (Australian) economy at different times,” Treasury haven’t exactly
erred on the cautious side in the past and their future predictions appear to be quite
optimistic.
Superannuation a quick reminder:
There’s an increase in the concessional contributions cap. Currently $25,000 for everyone,
this will increase to $35,000 for those over 60 from 1 July 2013, while for those over 50 the
increase to $35,000 comes on 1 July 2014.
Excess contributions will now be taxed at marginal rates, or there’s the option to withdraw
them from the superannuation environment. Previously any excess contributions were hit
with a top tax rate penalty. Applies to all excess contributions from 1 July 2013.
There is a reduction in the superannuation concessions for those who earn over $300,000
a year. These individuals will have to pay an additional 15% tax on their concessional
contributions.
Income streams will be deemed from 1 January 2015, however this will only be for income
streams started after that date. All pension income streams started before this date will be
grandfathered under present rules.
Superannuation pension earnings above $100,000 will be taxed at 15% from 1 July 2014.
However withdrawals (lump-sum and pension) will remain tax free for those over 60.
Deferred lifetime annuities will receive the same concessional tax treatment applying to
investment earnings on assets supporting pensions.
Personal Tax
The abolition of proposed tax cuts from July 2015. Not a great issue here, the cuts never
came into existence so they’re not going to have an impact on anyone’s wallet.
Medicare Levy
The Medicare Levy will increase from 1.5% to 2% from 1 July 2014; this is being
introduced to pay for the National Disability Insurance Scheme (NDIS). Low income
earners will continue to receive relief from the Medicare levy through low income
thresholds.
Net Medical Expenses Tax Offset
This will be progressively phased out. For most people this will be on 1 July 2013, but for
those in aged care or suffering significant disability this will be abolished by 2019 when
DisabilityCare Australia is fully functional and aged care reforms have been fully
implemented.
Baby Bonus
The previous $5,000 will be replaced with a $2,000 payment to those receiving Family Tax
Benefit Part A for the first child and $1,000 for subsequent children.
Family Tax Benefits
The government will freeze indexation on the eligibility thresholds and amounts paid for
Family Tax Benefit A & B.
Exempting the proceeds from downsizing the family home
An interesting idea, which will run as a trial program from 1 July 2014 to 1 July 2017.
There is a belief that many older Australians would like to downsize their home, but are
reluctant to do so as the excess proceeds from the sale would affect their age pension.
Under this scheme the government would offer a 10 year means test exemption on those
excess proceeds and income earned on them.
However, to qualify, the family home must have been owned for 25 years and at least 80%
of the proceeds (up to $200,000) must be deposited into a special account at an
authorised deposit taking institution.
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