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2019 Federal Budget - A net win overall, but not for all

2019 Federal Budget – A net win overall, but not for all

Federal Treasurer Josh Frydenberg has promised a secure and stronger economy in announcing a $7.1 billion surplus, tax cuts and extra funding for infrastructure and services to regional Australia in the 2019/20 budget.

He stressed repeatedly that this would be achieved without raising taxes, while announcing that ten million people and three million small business could look forward to lower tax rates.

The Treasurer delivered the first budget surplus in 12 years and announced investments in education that he said would invest in the jobs of tomorrow.

However, these budget decisions will only be put into place if the Liberals win the election looming on the horizon against the Labor party, fronted by Bill Shorten.

Many people are tipping against them as it stands, but Labor has said, however, that it will support one-off cash payments and tax cuts for low and middle-income earners.

They did however stress that they will deliver their own major economic statement in the second half of the year.

CPA Australia head of external affairs Paul Drum FCPA said the budget made a strong election pitch but “their biggest test is whether they can get re-elected in the coming months to enable them to deliver on these budget commitments.”

Personal

That’s all well and good, but what does this mean for the common man? What, past all the jargon, impact will all of this actually have? For the layman, it can be difficult to cut through the ‘political talk’ and the medley of percentages and figures to find what matters to them. Well, read on below to find out.

Young People and Education

With significant expenditure going into improving education and creating jobs for the future, the younger generation has good prospects on the horizon, and can expect a number of benefits, such as;

  • $200.2 million over four years to support up to 80,000 new apprenticeships in industries with skills shortages
  • $132.4 million over four years to further improve the quality of the Vocational Education and Training (VET) system and pilot new skills organisations in key areas of future job growth
  • $263.3 million over seven years to improve access to youth mental health services across the national headspace network
  • $67.5 million over five years to trial 10 national training hubs to support school-based vocational education in regions with high youth unemployment
  • $62.4 million over four years from 2019-20 to expand second chance learning in language, literacy, numeracy and digital skills to upskill at-risk workers.

Individual/Families

CPA Australia’s Head of External Affairs Paul Drum FCPA has said, “the proposed income tax cuts are also well targeted and will ameliorate family financial pressures and may also help stimulate consumption and savings.”

However, he did stress that he was disappointed, saying, “it’s regrettable the government has not taken the initiative to introduce measures that would also encourage Australians to save outside the superannuation regime.”

That said, the changes and initiatives taken for individuals should still have a substantial effect, alleviating pressure for ten million people who are earning up to $126,000 a year, with personal income tax cuts through more than doubling the low and middle-income tax offset from 2018/19.

The full actions focusing on families and individuals are as follows;

  • Tax relief for low-and middle-income earners of up to $1,080 for singles or up to $2,160 for dual-income families. The offset will be available for the current tax year and up until 2022
  • Personal income tax rates will be reduced from 2024-25, with the Government replacing the 32.5% and 37% thresholds with a single 30% threshold
  • The low-income threshold for the Medicare levy will be increased from 2018-19. The family threshold will rise from $37,089 to $37,794. The threshold for singles will be increased from $21,980 to $22,398. For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406
  • $187.2 million to bring forward the indexation of all remaining GP services items on the Medicare Benefits Schedule (MBS) to 1 July 2019. Ultrasound and x-ray diagnostic imaging items will also be indexed from 1 July 2020 at a cost of $198.6 million
  • $328 million over four years from 2018-19 towards initiatives to reduce domestic and family violence against women and children. The initiatives include $64 million in additional funding over two years to ensure that 1800RESPECT can meet forecast increases in demand, and $75.4 million to provide emergency accommodation for women and children escaping domestic violence.

Super and Retirees

A number of changes have been put forward to improve the situation for superannuation holders and retirees, such as;

  • Increases to the Medicare levy threshold from the 2018-19 income year. For single seniors and pensioners, the threshold will be increased from $34,758 to $35,418. The family threshold for seniors and pensioners will be increased from $48,385 to $49,304
  • $282.4 million over five years from 2018-19 for an additional 10,000 home care packages
  • $320 million in 2018-19 for a one-off increase to the basic subsidy for residential aged care recipients
  • $185 million from 2018-19 to 2028-2029 to establish a new mission for dementia, ageing and aged care
  • Those aged 65 and 66 can make voluntary superannuation contributions (both concessional and non-concessional) without meeting the work test from 1 July 2020. People aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule. Those up to and including age 74 will be able to receive spouse contributions, with those 65 and 66 no longer needing to meet a work test.

However, Mr Drum says that these changes are, “really only more tinkering around the edge of existing rules. It does not address the complexity of all the various caps and limits in the super regime.”

Mr Drum says to see real change, he believes the government should, “introduce lifetime caps and revisit abolishing the work test,” and that the current changes are more focused on just aligning the system with the increasing pension age.

Business

But what about business, after all the budget is liable to affect business owners and investors the most, and indeed, it’s done a lot for a plethora of industries, but according to Mr Drum, there’ve been some missed opportunities.

Small Business

Small businesses turned out to be one of the most interesting topics in the budget, and Mr Drum had a lot to say;

“2019 is a year of uncertainty, with global trade tensions, weakening global growth and Brexit amongst other things, and these factors are having a negative impact on business confidence. Initial findings from CPA Australia’s soon-to-be-released Asia-Pacific Small Business Survey shows that less than half of Australia’s small businesses expect to grow in 2019, the second lowest result of the ten markets surveyed. Further, small business confidence in Australia’s economy is even lower, with just over a third expecting the economy to grow in 2019, the lowest result for Australia since 2011.”

“Against this background, the government’s income tax cuts – to be backdated to the start of the current financial year, as well as the proposed increase and extension of the small business immediate asset write-off are both welcome announcements. Further, expanding the eligibility of the write-off measure to businesses with a turnover of up to $50 million will also provide many more businesses with opportunities to invest and expand,” he said.

The full list of actions taken for Small Businesses are as follows;

  • Increasing the instant asset write-off threshold to $30,000 and expanding access to businesses with an annual turnover of up to $50 million
  • Fast-tracking the company tax rate cut to 25% for small and medium‑sized companies with an annual turnover of less than $50 million by 2021-22
  • $1 billion over four years to extend funding for the ATO’s Tax Avoidance Taskforce, which targets multi-nationals, large public and private groups and high wealth individuals
  • Employers will be eligible for a $4,000 incentive payment under the Additional Identified Skills Shortage Payment. Apprentices will be eligible for $2,000, paid at key milestones in their apprenticeship
  • $30.7 million to pay compensation owed to small businesses from unpaid external dispute resolution determinations dating back to 1 January 2008.

Mr Drum noted that “CPA Australia’s initial research findings also show that small businesses that are growing strongly are much more likely to have a stronger focus on technology than those that are not. In this regard it would’ve been most welcome to see some government support to assist small business to embrace technology more strongly, and the help them build their digital capabilities.”

Investors

Little has changed for investors, but according to Mr Drum, that’s a good thing. He says that, “it is pleasing to see that the government is not proposing to further dent investor confidence by proposing any radical changes to how passive income – that is – income from rents, dividends and interest – are to be taxed.”

Prof. Accounting

“From the professional accounting sector’s perspective, there are a number of additional proposals that, while they may not capture front page headlines, are nonetheless important. For example, ‘it is worth noting the additional $.8 million over three years for the Auditing and Assurance Standards Board to help audit quality in Australia” Mr Drum said.

“A second such example is the deferral of any changes to the treatment of private company loans to enable the development of a workable, appropriate and enduring legislative outcome” Mr Drum said. “We sought this deferral in our pre-budget submission and look forward to further discussions on this issue, including appropriate transitional measures to ensure taxpayers are not unfairly prejudiced” he added.

Drum said that “as trusted business advisers, the accounting profession is keen to see the full details of these announcements, and as always, assist to help shape their design and implementation so that they best achieve the policy outcomes and reduce unintended consequences.”

Building and Transport

A number of new projects have been announced by the federal government, on top of increasing the budget of several existing ones by upwards of $3 million.

These projects, on top of improving the driving, parking and general transport experience in cities across Australia will also go a long way in increasing the amount of work available to the construction and transport industries, creating jobs nationwide.

Federal Budget 2019
Source: BankWest Australia

Rural

In interest of providing drought relief, upgrading regional airports and transport infrastructure, as well as water infrastructure, the federal government has committed to major spending in regional and rural areas such as;

  • in July 2019 a $3.9 billion towards the Future Drought Fund which will be established. It aims to enhance future drought resilience, preparedness and response across Australia
  • $206.2 million for round four of the Building Better Regions Fund for regional infrastructure projects, and community events and activities
  • $60 million to improve internet and mobile services in regional Australia
  • $45.5 million to establish Cancer Treatment Centres in regional Australia for radiation therapy
  • $29.4 million over four years to enhance agricultural exports and trade by breaking down barriers for exporters, reducing the impact of policies other than tariffs and addressing pest and disease risk.

 This budget could prove to be a massive step in the right direction, creating jobs, improving infrastructure, and alleviating the pressure of taxes from family and individuals.

As ever there is more that could be done, as Mr Drum points out, but in the uncertain times we live in now, these changes could do much to give Australia prosperity and stability. Assuming, of course, that they win the election.

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