Our thoughts on the 2019-2020 Federal Budget
The Federal Budget for 2019-2020 was announced on 2 April 2019 by Treasurer, Josh Frydenberg. The flavour of the announcements was in sync with a political party fighting for re-election with a typical pre-election cash splash!
Prime Minister Scott Morrison, is widely expected to visit the Governor-General in the coming days to advise that he will call a Federal election – with likely dates to be 11th or 18th May 2019. It is important to understand what happens when this occurs.
When a Federal election is called, Parliament is dissolved and consequently, some/most or all Bills before both Houses (tax, super and other measures – some more important than others) will be put on hold or may lapse if there is a specific start and end date. Therefore there is very little time for any of these bills to be enacted and most of all of the Budget announcements to become law before the election is called. Therefore, whilst we welcome these announcements it is unclear on what will actually come to fruition.
The biggest catch cry from Mr Frydenberg was how Liberal plans to deliver a surplus “without raising taxes”. In our opinion, there were some big short-term carrots offered to taxpayers.
The first was the income tax offset. To be clear, this is a non-refundable offset of up to $1,080 for single income families and up to $2,160 for dual income families. This will be available to Australians, when tax returns are submitted for the income year ended 30 June 2019. This must not to be confused with previous stimulus package payments provided by the then Rudd government. These packages were paid directly to taxpayers and not part of their income tax return.
The second short term announcement was increasing the instant asset write-off from $25,000 to $30,000, with effect from 2 April 2019 for businesses with a turnover of up to $50 million. Importantly, on 13 February 2019, Treasury introduced a Bill to parliament to amend the existing instant asset write-off provision which was then $20,000, to increase the amount to $25,000 and extend the provision to 30 June 2020. This Bill is still before Parliament and however it is also to interact with the Budget changes announced. The key dates are show below –
|Amount eligible for instant write-off||Date set to conclude|
Eligible Business Turnover threshold
|New or second-hand asset installed ready for use before 29 January 2019|
|30 June 2019|
|New or second-hand asset installed ready for use from 29 January 2019 until 2 April 2019|
|30 June 2020|
|New or second-hand asset installed ready for use after 2 April 2019|
|30 June 2020|
** Note that this measure has not yet passed as law.
The third announcement which we view is to sway taxpayers to vote for Liberal is the Lowering of Income tax rates. The interesting point is that the reduction is not until 1 July 2024. This is more a long-term strategy in return for votes in the short term. Whether this works on taxpayers, time will tell. The announcement is to lower the tax rate to 30% from 32.5% from 1 July 2024 for all taxpayers earning between $45,000 and $200,000.
There was many more announcements made which we summarise in the table below. Our view is to wait and see if these measures actually become law.
Our final word of advice is this – expect to hear and see additional tax compliance and audit activity. The Australian Taxation Office (ATO) has been allocated an additional $1 billion for the operation of the Tax Avoidance Taskforce. This may see additional activity for large businesses and high-net-worth individuals. This is in addition to the $42.1 million to be provided to the ATO to recover unpaid tax and superannuation liabilities.
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Who are the major winners?
|Carers||An extra $84 million in support for carers, especially young carers to help them study|
|Commuters||“Urban Congestion Fund” increased to $4 billion|
|Construction||Infrastructure investment to grow to $100 billion.|
“Cranes, hard hats and heavy machinery will be seen across the country” says Josh Frydenberg.
|A royal commission into disability abuse, with $528 million set aside.|
|About $100 million will be provided for environmental restoration.|
|Low and middle income earners|
|Workers on up to $126,000 a year will get a tax cut. This will be up to $1,080 for a single income family and up to $2160 for dual income families.|
|More than $700 million over seven years for mental health services. This includes $461 million specifically dedicated to young people.|
|Some welfare recipients will get a one-off payment to help with power bills. This will be $75 for singles and $125 for couples.|
|An extra $215 million in dispensing fees for PBS medicines over three years.|
|Funding will continue for 15 hours of preschool education per week in the year before school. There was uncertainty before the budget about funding for the 2020 school year.|
|The ABC will have funding extended for its ”enhanced newsgathering program”, worth $43.7 million over three years. SBS will also receive a funding boost of almost $30 million over the same period.|
|The instant asset write-off jumps from $25,000 to $30,000. This will now include businesses with a turnover of up to $50 million.|
|The Australian Bureau of Statistics will get an extra $38.3 million to help with the 2021 census. This follows a review of the problematic 2016 census.|
|In a further boost, the 32.5 per cent tax rate is lowered to 30 per cent from July 1, 2024. This will be for income earned between $45,001 and $200,000.|
Who are the major losers?
|Motorcycle gangs||$337 million will be spent on a drug prevention strategy. This will crack down on outlaw motorcycle gangs and their drug supply chains.|
|Newstart||Newstart recipients will miss out on the new energy assistance payment.|
|Overseas doctors||Almost $300 million will be saved over four years by reducing the planning target for overseas trained doctors in regional areas.|
|More than $1 billion will be spent boosting the ATO’s tax avoidance taskforce. This will focus on multinationals, big business and high wealth individuals.|
Summary courtesy of The Age, 3 April 2019 – https://www.theage.com.au/politics/federal/budget-2019-the-winners-and-losers-20190402-p51a4b.html