Apr 3, 2019 | COVID-19

2019 Federal Budget Summary

Last night the Treasurer delivered a perfectly sound and sensible budget, and one that they should rightly feel proud of.

For the first time in over a decade, Australia’s national budget will see a surplus delivered in 2020 (+$7.1bn projected).

However, lets also understand the context within which the budget has been delivered, and the fanfare around the headline $302bn in tax cuts, since it is entirely likely that we will see the formal election campaign commenced as soon as this weekend.

Of the $302bn in tax-cuts touted, $144bn were previously announced in the 2019 Federal Budget a year ago, and only about $20bn will find their way into tax-payer’s pockets in the coming 4-years.

The most significant impact from personal tax-cuts begins to land in FY2023 and then again in FY2025.

As a guide for financial markets reaction to the Budget, investors this morning moved marginally further in favour of interest rate cuts before the end of 2019, indicating little faith in the potential for the government handouts to prevent further weakening in the already softening economy.

Beyond the personal tax cuts, the government announced an expansion to their national infrastructure plans, taking the planned spend from $75bn to $100bn (positive for Downer) and also made additional room in the healthcare budget to match Labor’s plans to remove the freeze on Medicare rebate indexation as well as an expansion of funding for the Pharmaceutical Benefits Scheme (PBS) and imaging services.

The Federal Opposition Leader is traditionally given the chance to respond to the Budget in Parliament on Thursday night, and this will be an interesting event since Labor are unlikely to challenge any of the immediate tax cuts afforded in the Budget, only the tax cuts set for deeper into the coming decade

This has the potential to neuter much of the Government’s attempt to win over voters with very near-term cash handouts.

In terms of the assumptions underlying the Budget, the government forecast economic growth of 2.75% in the coming year, and unemployment to remain near its cyclical trough currently at 5.0%.

With forward indicators of employment already on the slide, there is certainly some risk to current assumptions on employment and personal tax take.

Winners in the budget are easy to identify –

Small Business

  • See an extension of the small business instant tax write-off to 30 June 2020 with purchases up to $30,000 now eligible (from $25,000) and for businesses with turnover up to $50m (from $10m previously). This is a good move and makes this tax-break available to a further 22,000 small businesses across the country according to the NAB.
  • Businesses with under $50m in turnover will also see their corporate tax rate lowered 5-years sooner than planned, with the rate reduced to 26% in FY2020 and then 25% in FY2022.

Low & Middle Income Taxpayers

  • Over 3.9m Australian’s on income support will immediately receive $75 for singles or $125 for couples as an offset to address rising energy costs.
  • The Government will also effectively double the low-to-middle income offset (LMITO) for those earning up to $126,000, which effectively can put up to an extra $1080 in those individual taxpayer’s pockets as soon as the 3rd quarter of 2019 once FY2019 tax returns have been assessed.

Superannuation Contributions

From the July 1st 2020,

  • The government will allow those aged 65 and 66 to make voluntary superannuation contributions (both concessional and non-concessional) without having to meet the work-test (40 hours in any consecutive 30-day period). This is great news.
  • Further, those aged 65 and 66 will be able to use the bring-forward rule to make up to 3 years of non-concessional contributions ($300,000 total).
  • The rules around spouse contributions have also been eased, allowing those up to and including the age of 74 to receive spouse contributions, with those aged 65 and 66 again no longe required to meet the work test.

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