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Federal Budget Summary 2017/18

Federal Budget Update 2017/18

The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process.
  • Budget projected to return to balance in 2020–21 and remain in surplus over the medium term
  • Growing consensus that the global economic outlook is improving
  • First-home buyers allowed to save a deposit through voluntary contributions to superannuation
  • No changes to negative gearing or capital gains tax
  • The Medicare Levy will increase by 0.5 % to 2.5 % of taxable income on 1 July 2019
  • Non-concessional contributions to superannuation funds of up to $300,000 allowed from sale of principal residence
  • Small businesses with a turnover up to $10 million can write off expenditure up to $20,000 for a further year
  • Education funding set at $18.6 billion over 10 years
  • University student fees will increase by 7.5 % by 2021
  • University graduates will start repaying their loans when they reach an income level of $42,000 a year, down from $55,000
  • $75 billion in infrastructure funding and financing over the next 10 years
  • A $472 million Regional Growth Fund will be established
  • Doctors will be encouraged to prescribe generic drugs to save the Pharmaceutical Benefits Scheme (PBS) $1.8 billion over five years
  • $350 million to help returned soldiers
  • A one-off energy bill payment for pensioners worth $75 for singles and $125 for couples
  • $321 million over four years for the Australian Federal Police
  • An annual foreign worker Levy of $1,200 or $1,800 will apply per worker per year on temporary work visas and a $3,000 or $5,000 one-off Levy for those on a permanent skilled visa.

Overview

The economic plan Treasurer Scott Morrison delivered on Tuesday 9 May has housing affordability as the centrepiece. His 2017 Federal Budget had a number of significant announcements:

  • Using superannuation to help fund the deposit for first-home buyers
  • Allowing non-concessional contributions for those downsizing the family home
  • Increasing the Medicare Levy by 0.5%
  • Changes to eligibility for concession cards and income support payments.

The Budget also announced $75 billion in infrastructure funding and financing over the next 10 years. This will include $5.3 billion in equity funding for the second Sydney airport at Badgery’s Creek and $8.4 billion in equity funding for the inland rail link between Melbourne and Brisbane.

Another $18.6 billion will be spent on education over the next 10 years, with funding for each student across all sectors growing at an average of 4.1 % a year. Small businesses with a turnover up to $10 million will continue to be able to immediately write off expenditure up to $20,000 for another year.

Housing and superannuation

While Mr Morrison says “there are no silver bullets to make housing more affordable”, he promised a range of measures to boost the supply of land for new housing, help first-home buyers and further restrict foreign investment.

First-home buyers

First-home buyers will be able to use voluntary contributions to their existing superannuation funds to save for a house deposit. Contributions and earnings will be taxed at 15%, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less a 30% tax offset. Contributions will be limited to $30,000 per person in total and $15,000 per year. Both members of a couple can take advantage of the scheme. Non-concessional contributions can also be made but will not benefit from the tax concessions apart from earnings being taxed at 15%.

Housing supply

The States will be required to deliver on housing supply targets and reform their planning systems and a $1 billion National Housing Infrastructure Facility will aim to remove infrastructure impediments to developing new homes.

In Melbourne, Defence Department land at Maribyrnong will be released for a new suburb that could cater for 6,000 new homes. A new National Housing Finance and Investment Corporation will be established by 1 July 2018 to provide long-term, low-cost finance for more affordable rental housing.

States and Territories will be encouraged to transfer stock to the community housing sector and Managed Investment Trusts will be allowed to develop and own affordable housing. The incentive for investors will include a capital gains tax discount of 60%, and direct deduction of welfare payments from tenants.

Contribution of home sale proceeds into super

Australians over the age of 65 will each be able to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home.

Negative gearing

There are no changes to negative gearing, but tougher rules on foreign investment in residential real estate remove the main residence capital gains tax exemption and tighten compliance. An annual Levy of at least $5,000 will also apply to all future foreign-owned properties that are vacant for at least six months each year. As well, developers also won’t be allowed to sell more than 50% of new developments to foreign investors.

Education and health care

Schools funding

This Budget will invest $18.6 billion in extra schools funding over the next 10 years, in accordance with the Gonski needs-based standard. Funding for each student across all sectors will grow at an average of 4.1% a year.

University fees

However, university fees will rise by $2,000 to $3,600 for a four-year course and students will have to start paying back their debt when they earn more than $42,000 from July next year, down from the current level of $55,000. A 2.5 % efficiency dividend will be applied to universities for the next two years.

Medicare Levy

In health care, the Medicare Levy will increase on 1 July 2019 by 0.5% to 2.5% of taxable income to help fund the $22 billion National Disability Insurance Scheme (NDIS). The Treasurer says all Australians have a role to play in supporting the disability scheme, even if they aren’t directly affected.

The Budget lifts the freeze on the indexation of the Medicare Benefits Schedule and reinstates bulk billing for diagnostic imaging and pathology services. The Pensioner Concession Card will be reinstated for those pensioners who were no longer entitled to the pension following the changes to the pension assets test from 1 January 2017.

Hospital funding will increase by an additional $2.8 billion over four years and an additional $115 million will be spent on mental health initiatives. Another $1.4 billion will be spent on health research over the next four years.

What’s next?

Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.

 

If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today.

How Budget 2017 may affect families

The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process. 

  • The Medicare levy will increase by 0.5 per cent to 2.5 per cent from 1 July 2019
  • The Government will spend $37.3 billion on child care over four years
  • Additional education funding has been set at $18.6 billion over 10 years
  • University student fees will increase by 7.5 per cent by 2021
  • University graduates will start repaying their loans when they reach an income level of $42,000 a year, down from approximately $55,000
  • Family Tax Benefit Part A payments will not be indexed for two years
  • Doctors will be encouraged to prescribe generic drugs to save the Pharmaceutical Benefits Scheme $1.8 billion over five years
  • No changes to negative gearing

Overview

Medicare levy

In health care, the Medicare levy will increase on 1 July 2019 by 0.5 per cent to 2.5 per cent of taxable income to help fund the $22 billion National Disability Insurance Scheme. Treasurer Scott Morrison says all Australians need to support the disability scheme, even if they aren’t directly affected.

Child care

The Government will invest $37.3 billion in child care over four years to help about 1 million families, including those that need before and after school care for their children. A single, simplified, means-tested child care subsidy will provide more support for the families who need it the most from 2 July 2018.

The subsidy will introduce hourly rate caps and remove unnecessary regulation to allow providers to offer more flexible hours of care. The child care subsidy will be payable only to families with incomes below $350,000 per annum (in 2017-18 terms) from 2 July 2018. The upper income threshold of $350,000 per annum will be indexed annually by CPI from 1 July 2018.

A further $428 million will be provided to extend the National Partnership Agreement on Universal Access to early childhood education for the 2018 school year to allow access to a quality preschool education.

Schools funding

This Budget will invest $18.6 billion in extra schools funding over the next 10 years, in accordance with the Gonski needs-based standard. Funding for each student across all sectors will grow at an average of 4.1 per cent a year.

However, university fees will rise by $2,000 to $3,600 for a four-year course and students will have to start paying back their debt when they earn more than $42,000 from July next year, down from the current level of approximately $55,000. A 2.5 per cent efficiency dividend will be applied to universities for the next two years.

First-home buyers

First-home buyers will be able to use voluntary contributions to their existing superannuation funds to save for a house deposit. Contributions and earnings will be taxed at 15%, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less 30% tax offset. Contributions will be limited to $30,000 per person in total and $15,000 per year. Both members of a couple can take advantage of the scheme. Non-concessional contributions can also be made but will not benefit from the tax concessions apart from earnings being taxed at 15%.

The States will be required to deliver on housing supply targets and reform their planning systems and a $1 billion National Housing Infrastructure Facility will aim to remove infrastructure impediments to developing new homes.

In Melbourne, Defence Department land at Maribyrnong will be released for a new suburb that could cater for 6,000 new homes. A new National Housing Finance and Investment Corporation will be established by July 1, 2018, to provide long-term, low-cost finance for more affordable rental housing.

States and Territories will be encouraged to transfer stock to the community housing sector and managed Investment trusts will be allowed to develop and own affordable housing. The incentive for investors will include a capital gains tax discount of 60 per cent, and direct deduction of rent from welfare payments from tenants.

Australians over the age of 65 will be able to make a non-concessional contribution of up to $300,000 each into their superannuation fund from the proceeds of the sale of their principal home from 1 July  2018.

Family Tax Benefits

The current Family Tax Benefit Part A payments will not be indexed for two years from 1 July 2017. Indexation will resume on 1 July 2019. A 30¢ in the dollar income test taper will apply under Method 1 for Family Tax Benefit Part A families with household incomes above the Higher Income Free Area (currently $94,316) from 1 July 2018. Entitlements under Family Tax Benefit Part A may be worked out using two income tests, with the one giving the highest rate applying. Method 1 sometimes produces a higher result for larger families.

 

What’s next?

Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.

 

If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today. These opportunities apply to Australian consumers.

How Budget 2017 may affect Wealth Accumulators

The announcements in this update are proposals unless stated otherwise. These proposals need to successfully pass through Parliament before becoming law and may be subject to change during this process.

  • First-home buyers have the opportunity to save a deposit through voluntary contributions to superannuation
  • No changes to negative gearing or capital gains tax
  • Accommodation and travel deductions will be disallowed for residential rental property
  • Small businesses with a turnover up to $10 million can write off expenditure up to $20,000 for a further year
  • Depreciation deductions for plant and equipment on residential investment properties will be limited
  • The Medicare Levy will increase by 0.5% to 2.5% of taxable income on 1 July 2019
  • Budget projected to return to balance in 2020–21 and remain in surplus over the medium term
  • Capital gains tax rules for foreign investors will be tightened
  • Foreign investment rules will be changed to discourage investors from leaving properties vacant.

 

Overview

To address the desire for many first home buyers to enter the market, the Budget proposes they will be able to use voluntary contributions to their existing superannuation funds to save for a house deposit. Contributions and earnings will be taxed at 15%, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less a 30% tax offset. Contributions will be limited to $30,000 per person in total and $15,000 per year. Both members of a couple can take advantage of the scheme. Non-concessional contributions can also be made but will not benefit from the tax concessions apart from earnings being taxed at 15%.

The States will be required to deliver on housing supply targets and reform their planning systems and a $1 billion National Housing Infrastructure Facility will aim to remove infrastructure impediments to developing new homes.

States and Territories will be encouraged to transfer stock to the community housing sector and managed Investment trusts will be allowed to develop and own affordable housing. The incentive for investors will include a capital gains tax discount of 60%, and direct deduction of welfare payments from tenants.

There are no changes to negative gearing, but tougher rules on foreign investment in residential real estate remove the main residence capital gains tax exemption and tighten compliance. An annual Levy of at least $5,000 will also apply to all future foreign-owned properties that are vacant for at least 6 months each year. In addition, it is proposed that developers also won’t be allowed to sell more than 50% of new developments to foreign investors, which may make it easier for Australian residents to enter the market.

What’s next?

Most changes must be legislated and passed through Parliament before they apply. If you think you may be impacted by some of the Budget’s proposed changes, you should consider seeking professional advice. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments in light of proposed changes.

 

If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today. This article is relevant for Australian consumers.