Crystal Ball Time – Forecasting the Federal Budget
At this time of the year, the financial media second guess what will be included in the Budget (Tuesday, 13 May 2014). In what has become the norm, there have been various leaks with a view to softening the blows and gauging public feedback.
The government's pitch is that everyone needs to share the pain, including households and corporates. However, the limited information available so far points to the main burden falling on households as follows:
- Superannuation – the superannuation preservation age is forecasted to increase to 5 years below the Age Pension age with an extension to the current phased increase in the preservation age by an extra 4 years so the preservation age reaches 62 by 2027.
- Paid Parental leave –impact reduced with a payment cap being tied to Average Weekly Earnings.
- R&D Funding – A proposed reduction to R&D funding could impact businesses conducting R&D in a continuation of the tightening in this field.
- Health rebate - higher-income earners required to take out private health insurance for basic health services in place of Medicare and no private health insurance rebate.
- Debt Levy – Still being decided, however, a 2% levy is now expected to be imposed on incomes over $180,000 or more or imposed only on income above $80,000 rather than on all of the income. The Opposition may block this in the Senate.
- Aged pension – an increase in pension age to 70 has been flagged with expectations that it will phased in over a significant amount of time with nothing expected before 2017. This is likely to be coupled with a tightening of assets and/or means tests which could include the family home. Such changes could be grandfathered for people born before 1965.
- Family Tax Benefit Part A and B have been flagged to be either combined or have FTB B abolished with a tightening on the means tested threshold of the remaining benefit.
- State income tax: the National Commission of Audit report recommended that the States be given power to levy income taxes with reductions in the Federal personal income tax rate. This has a number of hurdles including the Government relinquishing power and the States being able to do this under the constitution.
As the first Budget of a new government, there is high anticipation and speculation. Whilst we expect to see a number of the above (in one form or another), there are sure to be some surprises. We will keep you informed of the changes and how they impact you with our special Budget newsletter.
Article by David Prichard