Budget 2014 – My Take

ImageFor the first time that I can remember, the Australian Government has delivered a budget which pretty closely matched what they were saying in the lead up.

This is a tough budget as budgets in the first year of a government’s term tend to be, and particularly in an environment where the government budget is in deficit, and our nation is facing increasing levels of debt.

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Joe Hockey has said “the age of entitlement is over and it has been replaced, not with an age of austerity, but an age of opportunity”.

Most of the content of the budget had been flagged well before the budget speech, here are what I see to be the key elements:

High income earners will pay a “Temporary Budget Repair Levy” – an increase of 2% in the marginal tax rate for those earning above $180,000 (from 1 July for next 3 years)

Retirees and pensioners  will have the age of eligibility for Age Pension to be increased to 70 by 2035. Additionally untaxed superannuation income will be included for purposes of Senior’s Health Care Card for new recipients. There will be no change at this stage to tax free super income streams for those over 60 in this budget which was expected in some quarters.

For business the company tax rate will be cut by 1.5% from July 1

The government has also announced

–       cuts to the public service of 16,500 over the next 3 years

–       70 government bodies to be abolished

–       a $7 co-payment for visits to the GP which will also have an impact on Retirees and Pensioners

–       a $20bn Medical Research Future Fund funded largely from the above co-payment

–       $11.6bn for infrastructure projects

–       a $10,000 incentive bonus to employers to hire workers over age 50 who have been on unemployment or disability support for six months

It is interesting to note that the largest single cut in the budget was the reduction in foreign aid, approximately $7.5 billion over 5 years, and an item which pre-budget had been largely unheralded.

There are significant cuts to welfare, particularly in respect of young unemployed people.

Overall the impact on the majority of our clients will be important but not catastrophic. For high income earners the budget repair levy will increase the tax they pay, but not by a huge amount, for those on government income support the changes will be most significant, particularly for those under 30. We will all feel the pain of changes to the indexation of fuel excise, but note that this is not a change to the tax, just a change to the way it is indexed. Announced changes to pension entitlement ages don’t kick in until 2035, so someone who is 49 today will likely not be able to obtain aged pension until they are 70.

So now the Federal Budget is out of the way, (and by the way a governent budget is a financial plan just like any other), how are you going with yours?

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