2014 FEDERAL BUDGET | The path back to sustainability
14 May 2014
Federal Treasurer, Joe Hockey, last night delivered the Coalition Government’s first Budget and unsurprisingly there were not many surprises. As has been the trend over past years much of the detail had been leaked prior to budget night.
The 2014-15 Budget focuses on the expenditure side for the longer term and includes two main revenue raising measures to address the forecast budget deficits, reducing the 2014-15 cash deficit to $29.8 billion, down by approximately $20 billion from the current $49.9 billion.
The Government has flagged expenditure savings in areas including foreign aid, education loan programs, and family and welfare benefits whilst increasing revenue through the reintroduction of the fuel excise indexation and a 2% increase in the highest marginal personal tax rate for a three year period through the introduction of a “Temporary Budget Repair Levy”.
The 1.5% reduction in the company tax rate to 28.5% will proceed as planned from 1 July 2015.
One of the few surprises in the Budget was the linking of the leaked healthcare co-payment – set at $7 per visit – to a new Health Research Future Fund. Savings from cuts to health to be diverted to this fund will reach $20 billion by 2020 – the largest of its kind in the world.
The Treasurer said the ‘age of entitlement is over’ and he asked all of us to share some of the pain, although the commentary suggests that some will feel more pain than others.
Individuals, Families and Superannuation
Temporary Budget Repair Levy
For a three year period from 1 July 2014 to 30 June 2017 a 2% levy will be imposed on individuals’ taxable income above $180,000 as part of the Government’s strategy to share the budget pain across all sectors.
The Temporary Budget Repair Levy will only apply to income above the $180,000 threshold. This means for example, an individual with earnings of $250,000 in the 2015 financial year will pay an additional levy of $1,400.
Fringe Benefits Tax
The Fringe Benefits tax rate (FBT) will increase from 47% to 49% from 1 April 2015 to 31 March 2017 as a result of the Temporary Budget Repair Levy.
This increase to the FBT rate will ensure that individuals on incomes above $180,000 don’t swap salary for fringe benefits in an effort to reduce their earnings below the levy threshold.
The Budget outlined various reforms to the Family Tax Benefit (FTB) Part A and Part B.
- The primary income threshold for families to be eligible to receive FTB Part B will be reduced from $150,000 to $100,000. In addition the youngest child must be aged less than 6 years in order for a family to receive FTB Part B. As a transitional measure those families whose youngest child is 6 or over on 30 June 2015 will remain eligible for two years.
- A new $750 allowance will be introduced for single parents on the maximum FTB Part A rate, but who will no longer receive FTB Part B payments due to the eligibility changes.
- The FTB Part A child add-on to the higher income free threshold will be removed.
- The FTB Part A Large Family Supplement (currently $313.90 per child per annum) will be limited to families with four or more children.
- The FTB end of year supplements will be no longer indexed and revised down to the original levels i.e. $600 per FTB Part A child and $300 per family per annum for each FTB Part B family.
These measures largely commence on 1 July 2015 with some transitional arrangements. The FTB payment rates will be maintained for two years by pausing the indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B from 1 July 2014.
From the 2013-14 income year the Medicare Levy low income threshold will increase for families – for couples with no children the threshold will increase to $34,367 and the additional amount of threshold for each dependent child or student will increase to $3,156 for the 2013/14 income year.
The Medicare Levy Surcharge and Private Health Thresholds are to be frozen for three years from 1 July 2015.
The Government will reduce the Medicare Benefits Schedule (MBS) rebates from 1 July 2015 by $5 for standard general practitioner consultations and out‑of‑hospital pathology and diagnostic imaging services and allowing the providers of these services to collect a patient contribution of $7 per service.
For patients with concession cards and children under 16 years of age the MBS rebate will only be reduced for the first 10 services in each year, after which it will return to current benefit levels.
Additionally, there will be changes to the Medicare Safety Net arrangements from 1 January 2016.
The savings from these measures will be invested in a $20 billion Medical Research Future Fund.
- The Mature Age Worker Tax Offset will be abolished from 1 July 2014.
- The Dependent Spouse Tax Offset will be abolished from 1 July 2014 (this was being phased out with access limited to taxpayers with a dependent spouse born before 1 July 1952).
- The First Home Saver Accounts will be abolished from 1 July 2015.
- From 1 July 2014, taxpayers will receive a tax receipt showing how and where their tax dollars were spent.
- From 1 July 2016 the threshold triggering a requirement to commence repaying Higher Education Loan Programme (HELP) debts will decrease to $50,638 with a new repayment rate of 2% of income to be applied. Additionally HELP debts will be indexed at a rate equivalent to the yield on 10 year government bonds (up to a maximum of 6%) instead of CPI from 1 July 2016.
- On top of existing support available, from July 1 2014 the Government will support those learning a trade by providing concessional Trade Support Loans of up to $20,000 over a four-year apprenticeship.
- The qualifying age for the age pension will increase to 70 by 1 July 2035 and from 1 September 2017 pension increases will be linked to the Consumer Price Index (CPI).
- The government will include untaxed superannuation income in the assessment of income to determine eligibility for the Commonwealth Seniors Health Card from 1 January 2015.
Excess contributions tax
For any excess contributions made after 1 July 2013 that breach the non-concessional contributions cap, the government will allow individuals to withdraw these excess contributions and associated earnings.
If an individual chooses this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual’s marginal tax rate.
Final details of this policy will be determined following consultation with key stakeholders.
Rescheduling increase in superannuation guarantee rate
The Government will change the schedule for increasing the superannuation guarantee rate to 12% due to the uncertainty over the repeal of the Mineral Resources Rent Tax.
Instead of pausing the rate at 9.25% as previously announced, the rate will now increase to 9.5% on 1 July 2014 (as currently legislated). The rate will remain at this level until 30 June 2018 before then increasing by 0.5% each year until it reaches 12% in 2022/23, one year later than previously proposed.
Business tax changes were limited as many of the Budget measures focused on expenditure savings.
Company Tax Cut and Paid Parental Leave Levy
The Government confirmed its intention to reduce the corporate tax rate to 28.5% from 1 July 2015.
On the other side of the ledger, companies with taxable income in excess of $5 million will be hit with a 1.5% levy to help fund the Government’s paid parental leave scheme.
Research and Development Tax Incentive
From 1 July 2014 the research and development tax incentive on refundable and non-refundable tax offsets will be reduced by 1.5% to retain alignment of the commitment to reduce the company tax rate from 1 July 2015.
This means the refundable offset will be reduced to 43.5% and the non-refundable offset to 38.5%.
New Subsidy for Hiring Australians over 50
Employers may receive up to $10,000 in Government assistance if they hire a job-seeker aged 50 or older under a new “Restart Program”.
Payments will commence after the worker has been employed for at least six months and will be paid in the following instalments:
- $3,000 after 6 months of employment;
- $3,000 after 12 months of employment;
- $2,000 after 18 months of employment; and
- $2,000 after 24 months of employment.
Fuel tax changes
Fuel excise indexation will be reintroduced from 1 August 2014. This will involve a biannual CPI indexation. Revenue raised through this measure will be linked to funding for new road infrastructure.
The burden of fuel excise indexation will fall largely on consumers and to a lesser extent on the business sector. This is as a consequence of the fuel tax credit scheme, which is available to businesses acquiring taxable fuel for eligible uses and which will remain essentially unchanged.
The Budget also outlined a gradual increase in the excise on ethanol and biodiesel from 1 July 2016. Excise on ethanol will increase by 2.5 cents per litre per year until it reaches 12.5 cents per litre.
Excise on biodiesel will increase in line with product energy content rules.
Abolition of the Minerals Resource Rent Tax (MRRT) and Carbon Tax
It remains the Government’s policy to proceed with the repeal of the MRRT and Carbon Tax after 1 July 2014, despite having its initial Bill defeated in the Senate in March 2014.
Infrastructure Growth Package
The Government will provide a further $3.7 billion over five years from 2013‑14 to the Infrastructure Investment Programme for new investments to support economic growth and employment. The new investments include:
- $229 million for a National Highway Upgrade Programme;
- additional funding of $200 million for the Black Spot Programme; and
- additional funding of $350 million for the Roads to Recovery Programme.
- the Toowoomba Second Range Crossing in Queensland.
Reaction from farmers to the 2014 Federal Budget has been mixed despite the Coalition’s stated commitment to the agriculture sector as a key driver of the Australian economy.
Support for drought affected farmers
The budget has confirmed previously announced measures to support farmers affected by drought (click here to read our Boyce e-News article for more details).
Other spending measures:
- $100 million over four years for a competitive grants program to deliver cutting-edge technology and applied research, with an emphasis on making the results accessible to farmers.
- $20 million over four years for a stronger biosecurity and quarantine system that will enable early response to import and export related biosecurity issues, strengthen systems and capabilities to contain biosecurity incursions and focus on improvements to the import risk analysis process.
- $15 million over four years to support small exporters with export costs.
- $8 million over four years to improve access to and registration of agricultural and veterinary chemicals.
Major savings measures:
- National Landcare Program created through merging the Caring for our Country and Landcare saving $483.8 million over five years.
- National Water Commission to close in December 2014, saving $20.9 million over four years.
- The Office of Water Science research program to be ended on 30 June 2016, saving $10 million over five years.
- Rural Industries Research and Development Corporation funding to be cut by $11 million over four years from 2014-15.
- The Bureau of Meteorology to be asked to increase efficiency, to save $10 million over four years.
If you have specific questions about how the 2014 Budget may impact you or your business, please speak with your local Boyce Director.