What The Latest Federal Budget May Mean To You
The Federal Government handed down its budget last night, with the emphasis clearly changing from ‘budget emergency’ to ‘fairness and boosting jobs’. There were no real surprises in the speech, with most of the key changes having been released in the weeks and days prior to last night.
For the majority of our clients, this was an uneventful budget, with no changes to superannuation, employee personal tax rates or gearing. However, the key areas that may impact some of you are:
Child Care: From 1 July 2017, a new single Child Care Subsidy (CCS) to replace the existing Child Care benefit and Child Care rebate. The hours of subsidy available will be determined by the amount of work, study or training that is undertaken by the parent / guardian. The amount of subsidy to be determined by family income. There is also a new Child Care Safety net for disadvantaged & vulnerable families.
Rob says: ‘With child care costs accounting for such a large part of our young families’ budgets at a time when incomes are usually reduced, relatively minor changes to child care arrangements will have a big impact on affordability. Our young families (and those who are considering starting a family) need to remain vigilant with their budgets and we will assess the impact that these changes will have with you at your review meeting.
Pension Asset Test Changes: From 1 January 2017, changes are proposed for the age pension asset test.
Homeowners: – the asset free area will increase from $202,000 to $250,000 for singles and from $286,500 to $375,000 for couples.
Asset Taper Rate: The amount the pension will reduce by for every dollar of assets above the asset free area will increase from $1.50 to $3.00 per fortnight for every $1,000 of assets over the threshold. This means that the cut-off for age pension will reduce to $547,000 for singles (previously $755,500) and $823,000 for couples (previously $1,023,000).
Eric says: ‘These changes, combined with the historically low rates of return on term deposits, mean that our retirees cannot afford to be complacent with their investments in retirement. Make sure you review your budgets and attend your review meetings so we can re-run your capital drawdown models and discuss possible asset allocation investments’
Tax Incentives for Small Business: A tax cut of 1.5% is proposed to apply to all incorporated small businesses from next financial year (2015/16). Those small businesses who are not incorporated will be eligible for a 5% tax discount on income tax payable in the 15/16 tax year. The discount will be capped at $1,000 per individual for each income year.
Small businesses also have the opportunity to purchase equipment of up to $20,000 (per item) from today until the 30 June 2017 and claim the purchase as a tax deduction.
Rob says: ‘Whilst the cut in tax for small business is relatively small, the Government is hoping that this will stimulate businesses to expand and employ which will improve economic growth and lower unemployment’
Eric says: ‘Just remember, a $20,000 tax deduction for purchasing equipment will still cost $14,000 in after tax dollars at the corporate tax rate. Don’t go out and buy additional equipment unless you have a need for it’
AMP economist Shane Oliver provides the following commentary on the impact of the budget on the RBA and Australian assets:
Implications for the RBA
While this Budget could provide a boost to confidence, ongoing fiscal tightening will act as a mild drain on growth in the years ahead. As such, it’s hard to see major implications for the RBA. Our view remains that we have probably seen the low for the cash rate but that the risks are skewed to more cuts and a rate hike is a long way off.
Implications for Australian assets
Cash and term deposits – with interest rates expected to remain low for an extended period, returns from cash and bank term deposits are expected to remain very low at around 2%.
Bonds – a major impact on the bond market from the Budget is unlikely. With five year bond yields at 2.4%, it’s hard to see great returns from Australian sovereign bonds over the next few years.
Shares – the potential boost to confidence from this Budget could be a small positive for the Australian share market. However, it’s offset by the ongoing drag coming from fiscal policy. Overall, the Budget’s impact is unlikely to be huge. Stocks that benefit from infrastructure and child care spending may be beneficiaries.
Property – the Budget is unlikely to have much impact on property markets where the dominant impact remains very low interest rates. Expect further modest gains in most cities although momentum may slow over the year ahead in Sydney.
The Australian dollar – the announcements in the Budget alone are not radical enough to have much impact on the $A. With the commodity price boom fading, the interest rate differential in favour of Australia having fallen and the $A still too high, the trend in the $A is likely to remain down.
As always, the team at MAS Wealth Management are here to help, so don’t hesitate to give us a call if we can be of any assistance.
