The lead-up to the 2017 federal budget was a whirlwind of on-again, off-again priorities.
What we thought was the housing affordability budget, and then the health budget, and then the education budget, turned out to be an all-round budget focused on lowering the high cost of living.
It’s a considerably extensive budget this year, with a range of new levies and lots of spending, but the overall economic outlook from the treasurer, Scott Morrison, is optimistic.
Although he had to axe $13 billion worth of zombie measures from the previous two budgets, the treasurer expects the 2017 budget to return to balance in 2020-21 and remain in surplus over the medium term.
Wage growth is also expected to increase from 2% to above 3% over the next four years.
First-home super savers scheme
After a lot of going back and forth on this measure for months, it looks as if first-home buyers will be able to dip into super to fund their deposit after all.
Future voluntary contributions to superannuation made by first-home buyers are able to be withdrawn for a first-home deposit, along with associated deemed earnings.
You can only contribute up to $15,000 a year under this measure, subject to a total cap of $30,000. Withdrawals will be taxed at marginal rates, less a 30% offset.
Contributions towards the scheme can be made from July 1, with withdrawals allowable from July 1, 2018.
The government has also outlined a range of measures that it expects to even the playing field for first-home buyers, including increased restrictions on foreign investors, new incentives to promote investment in affordable housing and a new super rule that encourages retirees to sell their family homes.
Ending the freeze on indexation of Medicare benefits schedule
The freeze has ended.
First introduced in the Labor budget of 2013, the freeze on the Medicare benefits schedule has been lifted, with the government planning to provide $1 billion over four years for the phased re-introduction of indexation for certain items on the MBS.
General practitioners will see indexation resume for bulk-billing incentives from July 1, with standard consultations frozen until July 1, 2018.
$1.2 billion in new medicines
$1.2 billion will be provided for new and amended listings on the PBS. The budget mentioned new drugs available for treatment of heart failure and schizophrenia.
With the high cost of living a key aspect of the budget, measures to improve electricity affordability included $86.3
million over four years to increase gas production and support affordable electricity prices for households and industry.
Further, the ACCC has been given a $14.5 million funding boost to investigate and police the competition in the retail gas and electricity markets.
Skilling Australia Fund
A $1.5 billion fund will be established to support the skilling of Australian workers.
Over the next four years it will
support up to 300,000 more apprentices, trainees and higher-level skilled workers who are likely be working on Commonwealth-priority projects.
Job seekers will also benefit largely from the abundance of new jobs that are set to be created by the large-scale infrastructure investments.
The government will inject $5.3 billion into a new Western Sydney Airport Corporation, which is set to create between 20,000 and 60,000 new jobs.
Around the states, a $10 billion program will be implemented to create a number of rail links, including possible links for Melbourne’s Tullamarine airport, Western Sydney’s Badgery’s Creek airport, and the Cross Rail in Brisbane. The government also committed $8.4 billion to the Melbourne-to-Brisbane inland rail project, which will support a further 16,000 jobs.
Streamlined authority for complaints and disputes
A new framework for dispute resolution will be introduced for consumers as part of a crackdown on the banking system.
The Australian Financial Complaints Authority (AFCA) will absorb the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.
Morrison hopes it will be a “one-stop shop” for consumers, offering a more streamlined and efficient service. This is expected to be established from July 1, 2018.
$20,000 write-off on expenses extended
Last year’s budget introduced a measure to allow small businesses with an aggregated annual turnover of less than $10 million to immediately deduct purchases for eligible assets costing less than $20,000. This was scheduled to end on June 30 this year but it has now been extended to June 30, 2018.
This measure is expected to improve cash flow for small businesses, providing a boost to business activity for another year.
Peter Strong, from the Council of Small Business Australia (COSBOA), says this will allow for another 100,000 small businesses to access the instant asset write-off.
“This will in many instances create employment opportunities or enable casual and part-time workers to become full time,” he says.
“Combining the instant tax write-off with the company tax cut will certainly create more sales in the economy, adding GST revenue and increasing business for suppliers.”
$18.6 billion to all schools over 10 years
Education minister Simon Birmingham revealed his $18.6 billion “Gonski 2.0” funding model in the week leading up to the budget.
From 2018, the base amount for every primary school student will be $10,953 and for every secondary student $13,764.
Birmingham says that the new funding model, implemented over 10 years from 2018, will reach a record $242.3 billion of government funding for schools.
Concession card restored for those affected by pension assets test
$3.1 million will be provided to reinstate the pensioner concession card for pensioners who were no longer entitled to the pension following changes to the assets test from January 1.
This will enable pensioners to access Commonwealth-subsided hearing services.
$300,000 can be contributed to super from sale of family home
A new superannuation rule has been introduced for home owners approaching retirement.
Up to $300,000 of the
proceeds of selling the family home for those aged 65 and older can now be invested in super as a non-concessional contribution.
This contribution will be exempt from the age test, work test and $1.6 million balance cap. This measure won’t be introduced until July 1, 2018.
The government hopes that by encouraging older people to sell large family homes, more housing will be freed up for younger, growing families impacted by rising property values.
Medicare levy changes
The Medicare Levy has been increased from 2% to 2.5% of taxable income from July 1, 2019.
The majority of the $8.2 billion in revenue from this measure is expected to help the government close the gap in funding for the National Disability Insurance Scheme.
Higher education students
New reform package
First introduced by then education minister Christopher Pyne in 2014, the government’s higher education reforms have undergone a radical, widely reported facelift.
An efficiency dividend of 2.5% will be introduced to universities in 2018 and 2019, which is a significant step away from the previous suggested measure of 20%.
The new package also requires students to pay 7.5% more of the cost of their course fees. This will occur gradually as a 1.82% annual increase over four years from January 1 next year.
The minimum repayment threshold, which was $54,869, is now $42,000, attracting a 1%pa repayment rate. For a minimum wage earner, this would cost about $8 a week.
The maximum repayment threshold is also $12,668 higher, attracting a 10% repayment rate – also higher than the original 8%pa maximum rate.
This is expected to achieve saving of $3.8 billion over five years from 2016-2017.
New major bank levy
From July 1, the five big banks will be hit with a quarterly levy of 0.015% of their liabilities. This will not apply to individual’s deposits of under $250,000.
The treasurer in his speech stressed that this is “not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans”, but rather a representation of an “additional and fair contribution from our major banks” to assist with budget repair, and also a means to level the playing field for smaller banks.
This is estimated to raise the government $6.2 billion over the forward estimates period.
Annual vacancy levy
Applying immediately, foreigners who make a foreign investment application for residential property will be charged an annual vacancy tax if their property is not occupied or leased for at least six months a year.
This measure will provide the government with $16.3 million over four years, but is expected to increase housing supply in areas of high demand.
Removal of main-residence capital gains tax exemption
Foreign investors are now also being stripped of their entitlement to the main-residence capital gains tax
This will be effective immediately; however existing properties held before this date will be grandfathered until June 20, 2019.
Also, from July 1, foreign tax residents will see their CGT withholding rate increase from 10% to 12.5% and their CGT withholding threshold decrease from $2 million to $750 million. This is expected to earn the government $581 million in revenue over four years.
Australian property investors
Limit on plant and equipment depreciation deductions
The government will be limiting how much property investors can claim on plant and equipment depreciation deductions.
Plant and equipment items include mechanical fixtures, such as dishwashers and
This measure has been implemented to “address concerns that some plant and equipment are being depreciated by successive investors in excess of their actual value”.
While investors who purchase plant and equipment from today will be able to claim a deduction over the life of the asset, subsequent owners of the property will be unable to claim deductions for those purchases.
This is expected to provide the government with revenue of $260 million over the forward estimates period.
No more deductions for travel expenses
From July 1, travel expenses incurred by property investors will no longer be able to attract a tax deduction.
Similar to the reasons behind the changes to plant and equipment deductions, the government is concerned that many taxpayers have been claiming travel deductions falsely or incorrectly.
This is expected to provide $540 million over four years.
New demerit system for job seekers
A strict new system will be implemented to refocus the work-for-the dole program to penalise job seekers for “deliberate non-compliance”.
Each failure without a reasonable excuse will result in payment suspension until re-engagement.
Four demerits in six months will trigger a three-strike intensive compliance phase, in which they will lose 50% of their fortnightly payment, 100% for their second strike, and have their payment cancelled for four weeks for the third strike.
This is expected to create efficiencies of $632 million over the five years from 2016-17.