Federal Budget Snippet

By May 18, 2016 May 24th, 2016 News

budgetBy Clinton Peake

 

The federal government pitch of jobs and growth will remain to be seen. The reserve bank cutting interest rates to 1.75% suggests that storm clouds continue on the horizon with low inflation. The housing property bubble was not attended to via any change to negative gearing so may continue for some time yet.

Some of the growth assumptions underpinning the budget look optimistic with news continuing about the Chinese in particular going through a period of transition from resources boom to food security and service consumption.

Headlining the budget were a cut to the tax rate for small companies as defined as having revenue under $10 million. Of course, when the owners take the money out of the company, they will still be subject to marginal tax rates in their own name so this cut may be a timing issue only. Wage growth forecasts continue to be muted over the next four years.

Superannuation has been the subject of tweaking, with a lifetime limit of $500,000 suggested for non concessional contributions. This might impact on succession planning if it becomes law. Retirees with account balances above $1.6 million are going to be taxed on the excess at 15%. This still represents the best place to hold passive income in retirement if personal name income exceeds $45,000 or thereabouts. Curiously, the budget also announced a reduction in the concessional contributions (amount you claim a tax deduction for) to $25,000. The policy behind this appears short term focussed as for a decade or more a concerted policy push has been for Australians to support themselves in retirement through superannuation but this budget very clearly reverses that policy trend.

Otherwise, there were minor measures relating to the income tax rate level increasing from $80,000 to $87,000 before entering the 37% marginal tax rate for individuals and a re-announcement that the temporary budget repair levy will cease at the end of 2017 tax year in some welcome good news for higher income earners. The opposition budget reply and ensuing election campaign may make some or all of the above redundant before it is enacted!