Federal Budget: What you need to know
09 May 2018
5
min read
The Honourable Scott Morrison MP, Treasurer of the Commonwealth of Australia, has handed down the 2018-19 Budget. Here are the main announcements for you to be aware of.
"What have you achieved? What are you going to do now? What does it mean for me?"
For those Australians with an economic bent, 7.30pm on the second Tuesday of May is always ‘Budget Night’, with the full speech televised on the ABC.
Sporting a light blue tie, the Honourable Scott Morrison MP, Treasurer of the Commonwealth of Australia gave a typically rousing Budget speech, posing three questions that Australians are apparently asking, which boil down to “what’s in it for me?”
The answer, according to Morrison, is a stronger economy, more jobs, guaranteeing essential services, and the Government living within its means.
Note that these budget announcements are yet to be legislated and may be subject to change. We will keep you up to date on all proposed changes on our website.
Predicting a return to Budget surplus in 2019-20, the main Budget items for members to be aware of include the following:
Superannuation
Protecting Your Super package
With a slated commencement date of 1 July 2019, the government has announced a ‘Protecting Your Super Package’ that helps to supports the retirement savings of all Australians. The draft package comprises three separate measures:
Helping Australians find lost superannuation. Currently Australians can search for lost superannuation by logging on or creating a myGov account, or by asking their superannuation fund to do a search for them. From July 2019 the ATO will use sophisticated data-matching processes to reunite lost and low balance superannuation accounts with a member's active account where possible.
Tailoring insurance arrangements. The Government intends to tailor insurance arrangements in super by ensuring that cover is offered on an opt-in basis for accounts of young members below the age of 25, inactive accounts that have not received a contribution in 13 months (where the member has not elected to retain existing cover), and low balance accounts below $6,000. Calculate your insurance needs, to check what level of protection may be appropriate for you.
Superannuation fees. For superannuation accounts with a balance of less than $6,000, administration and investment fees will be capped at 3% per annum. The Government will also ban exit fees for all superannuation accounts. Please note that we do not estimate that either of these fee measures will impact QSuper member accounts.
More funding to chase down unpaid super
In August last year the government announced a package of reforms to give the Australian Taxation Office (ATO) near real-time visibility over superannuation guarantee (SG) compliance by employers. Unpaid Superannuation can be a real issue for some workers.
In this year’s Budget the government provided additional funding to the ATO, with additional funding for a Superannuation Guarantee Taskforce to crackdown on employer non-compliance.
Superannuation Work Test exemption for retirees
The Government will provide a one-year exemption from the work test for superannuation contributions to allow recent retirees to boost their superannuation balances.
Currently people aged 65-74 must work a minimum of 40 hours in any 30-day period in the financial year in order to keep making contributions to superannuation – this is known as the work test.
From 1 July 2019, Australians aged 65 to 74 with a total superannuation balance below $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
Individuals will also be able to access unused concessional cap space to contribute more than $25,000 under existing concessional cap carry forward rules during the 12 months.
Existing annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply to contributions made under the work test exemption.
Gus increases his super as he transitions to retirement
At the age of 68, Gus retires from full-time work on 1 June 2020. As he would not meet the work test in the 2020-21 financial year, Gus would currently be prevented from making any voluntary super contributions after 30 June 2020.
As his total superannuation balance is $150,000 at the end of the 2019-20 financial year, Gus is eligible to make contributions under the work test exemption from 1 July 2020 to 30 June 2021.
As Gus had not reached his concessional contribution cap over the past 2 years, having contributed only $18,000 in 2018-19 and $12,000 in 2019-20, under the existing carry forward arrangements and new work test exemption Gus can contribute up to $45,000 at concessional tax rates in the 2020-21 financial year.
As a result of the work test exemption, Gus is also able to contribute up to $100,000 in non concessional contributions in 2020-21.
Source: Budget papers
Earnings
Seven-year personal income tax plan
The government announced a three-step personal income tax plan, to help more working Australians pay lower rates of tax. The three step plan involves:
A new Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The Offset will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. It will then phase out for incomes up to $125,333.
Mitigating bracket creep. There are a number of actions under this step.
- From 1 July 2018, the Government will increase the threshold of the 32.5% personal income tax bracket from $87,000 to $90,000.
- From 1 July 2022, the Government will increase the Low Income Tax Offset from $445 to $645.
- From 1 July 2022, the Government will also extend the 19% personal income tax bracket from $37,000 to $41,000.
- From 1 July 2022, the Government will further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
Flattening the income tax system. The government intends to remove the 37% tax bracket entirely, with taxpayers paying the top marginal tax rate of 45% on taxable incomes exceeding $200,000 and the 32.5% tax bracket applying to taxable incomes of $41,001 to $200,000.
No increase in the Medicare Levy
Announced in late April, this decision reversed one of the announcements made by the Treasurer last year, which was an intention to increase the Medicare Levy by 0.5 percentage points in 2019-20 in order to fully fund the National Disability Insurance Scheme (NDIS).
That intention to apply the additional levy to all Australians who pay a Medicare levy was opposed by the Opposition. The government has announced that the NDIS can instead be fully funded via other revenue.
The Government will also increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2017-18 income year. The increases take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
Retirement
Announcements that may affect retirees specifically include the following.
Boosting retirement income choices
The Government intends to develop a retirement income framework to increase flexibility and choice for retirees and help boost living standards. The framework will ensure retirees have more retirement income products to choose from and the information they need to make a choice. New Age Pension means testing rules for pooled lifetime income streams will also support innovation in retirement income products.
The intention is to offer retirees a greater choice of retirement products that provide an income for life, no matter how long they live.
There are very few details in relation to this announcement as yet; the government will first release a position paper for consultation.
Pension work bonus increase
The Pension Work Bonus is an income test concession for age pensioners and equivalent Veterans' Affairs pensioners. Currently, the first $250 of employment income a fortnight is not counted in the Age Pension income test. This amount has not been increased since 2011, and does not apply to income earned from self-employment.
The government announced an increase to the Pension Work Bonus from $250 to $300 per fortnight. This means that Australians receiving an age pension can earn up to $7,800 each year without impacting their pension. It will also be expanded to allow self-employed retirees to earn up to $300 per fortnight without impacting their pension.
Rohan works one day a week, and receives full pension
Rohan is a single age pensioner working one day a week and earning $450 a fortnight. He has no other income and his assets are below the asset test free area. His pension is currently reduced because of his earnings. Under the changes, the first $300 of Rohan's earnings will not be assessed and only $150 will count for the pension income test. As this is less than the pension income test free area, his pension will increase by $16 per fortnight to the maximum rate.
Source: Budget papers
Expansion of the Pension Loans Scheme
From 1 July 2019, the Government will extend eligibility for the Pension Loans Scheme to all Australians of Age Pension age, allowing them to improve their income in retirement.
Some older Australians, particularly maximum rate pensioners who own their own home, may have most of their wealth tied up in the family home.
Currently, the Government offers a reverse mortgage through the Pension Loans Scheme (PLS) to part and some nil rate pensioners to allow them to 'top up' their Age Pension to the maximum rate. This provides an option for
Australians to supplement their income. However, maximum rate age pensioners and self funded retirees are currently excluded from the PLS.
The Government will:
- expand eligibility of the Pension Loans Scheme (PLS) to all Australians of Age Pension age including maximum rate age pensioners; and
- increase the maximum allowable combined Age Pension and PLS income stream to 150 per cent of the Age Pension rate.
Supporting a long life
With an increasing number of Australians choosing to access aged care in their homes, the government is providing funding for an additional 14,000 high level home care packages. This means that by 2021-22, over 74,000 high level home care packages will be available, an increase of 86% on 2017-18. A summary of aged care services options is available on the myagedcare website.
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