“I’m the most boring. No! I’m the most boring…. Seriously, no one is more boring than me…."
Sorry, I was in my own little world, imagining an argument between Wayne Swan and Joe Hockey this morning. If last night’s Federal Budget is anything to go by then, dare I say it, I think we might be in for the dullest election in Australian history.
Budgets during an election year are often a sneak preview of the government’s election platform. Then, you can sometimes glean the opposition’s platform from their response. If both parties are going to play the “economically responsible” card, then this year’s campaign might be an enormous snooze fest. Of course they might surprise us with something unexpected, or a juicy scandal....
Still, perhaps a very clever snooze fest, following a Global Financial Crisis? Getting us “back in the black” within 3 years instead of 6, is a pretty reassuring pledge. By the way, if you’ve just started singing AC/DC’s Back in Black in your head, please pause and re-focus.
Much of the 2010 Budget focussed on confirming proposals from last year’s Budget, as well as the Henry Tax Review. So, for now, let’s just concentrate on the “new” key issues (see my “burbs breakdown” 4 May 2010 for more on the Henry proposals):
Tax discount for savings:
From 1 July 2011 there will be a 50% discount applied to the first $1,000 of interest earned on certain saving facilities (bank deposits, bonds, debentures, annuities).
May I take a moment to say – big whoop! Essentially this means that if you assume a 5% interest rate, you’ll need to have $20,000 in order to take full advantage of the tax saving, and anything over that gets nada. If this is something that the government is serious about then why not make it a lesser tax discount but on all savings? Anyway, that’s my opinion.
Over the long-term, the tax savings within super will probably continue to be the winner, but at least it’s something for short-term savings, and for people worried about waiting until preservation age to access their super.
Permanent reduction to the co-contribution rate
I think most people are aware of the government’s superannuation co-contribution (happy to post a blog on this in the future just in case). You may also recall that at one stage you could receive a co-contribution of up to $1,500, if you made an after-tax contribution to super of $1,000. This represented a guaranteed 150% return.
This had been reduced back to $1,000 (or 100% return), and it looks like it’s going to stay that way. Furthermore, they are not going to increase the qualifying level of income by indexation each year. This is disappointing because the co-contribution rate was supposed to return to 150% by the 2015 financial year.
Simplified tax returns
Question without notice – who thinks superannuation is simple? Coz that’s what Costello promised us back in May 2006, and I’m still waiting. It’s a fantastic tax structure, but simple? Nah.
So here is the Labour government four years later promising us simpler tax returns. In fact, Wayne Swan even went as far as to say that it will give most people “more time with their loved ones.” Tad over the top?
From 1 July 2012, individual taxpayers will have the option of claiming a standard deduction of $500 for work related expenses and the cost of managing their tax affairs. From 1 July 2013, the Government will increase this standard deduction to $1,000. The idea being that it makes it easier to lodge your own tax return. Of course, this is optional, you can still claim your full expenses if you believe they will be higher.
This brings to me to my next question – do you trust the government with your tax deductions? And please bear in mind we’re talking $1,000 of deductions, not $1,000 refund… You’ll have to forgive the cynic in me, but I can’t help wondering who is likely to most benefit most from this proposal. By making it simpler, are they really hoping that we’ll get lazy and forego our higher tax refund for the easier option? Hmmmmmm.
Again, that’s just my opinion, but I’ve been in this game a while and there are very few free lunches….
Capping the Child Care Rebate
This will most likely be billed as the major Budget “nasty”. Currently the rebate is capped at $7,778 per child and increases each year with indexation. As of 1 July 2010, it will be capped at $7,500 per child (this was the original cap back in 2008) and there will be no indexation for 4 years.
Not sure how I feel about this one. It’s obviously a cost cutting measure to help achieve the three year debt turnaround, but is it counter-productive?
So who got the money?
$5.6 billion to infrastructure;
More than $2 billion to be spent on health;
$1 billion to rail networks;
$661 million to the Skills & Sustainable Growth Strategy;
$652 million to the Renewable Energy Future Fund.
Did you know??
Under our current social security system, widows and widowers that enter into a de facto relationship can still claim the War Widow/ers pension. However, if they get married, the pension ceases. A pretty compelling reason to shack up wouldn’t you agree? He he. Don’t worry, the government are going to remove this little inconsistency. If they are already claiming the pension when they marry or move in together, they will continue to receive it. Nice win.
Heard enough?
This is by no means an exhaustive list of the Budget proposals, but I thought I’d at least share the biggies and try to break them down for you. Remember, at this stage, they are only just “proposals” and there may be changes between now and legislation. I’ll keep you posted of course…..
Talk soon,
C
