2017 Federal Budget Impact Summary: The Reboot

Treasurer Scott Morrison has just unveiled his 2017 Federal Budget, which seems to have been met with responses ranging from mild indifference to mild approval.

Here is a brief summary of some of the main points that may affect you.

Increase to the Medicare Levy

The Medicare Levy will increase from 2% to 2.5% as at 1 July 2019.  This will affect most taxpayers (as the Levy is fully payable by anyone with an income over around $26,000).

The purpose of the increase is to pay an additional $9.1 billion towards the National Disability Insurance Scheme (NDIS) (which is costing the Government $22 billion).  Some folks (like Greens Leader Di Natale and Nick Xenophon) have said it the Government should have instead simply kept the 2% “temporary budget repair levy” (which only applied to people earning over $180,000) which they scrapped last year.

Small business instant tax offset remains

The Government has continued with the instant tax offset for small businesses (being those with turnover less than $10 million p.a.) which allows you to immediately claim a deduction of  $20,000 during the year.

Some news for First Home Buyers

First Home Buyers will be able to utilise contributions to their super (taxed at 15%) to save for a house deposit, with these contributions capped at $15,000 per year, and $30,000 overall.  Your First Home contributions would appear not to count towards your concessional contributions cap (i.e. the amount you can contribute from your employment) which is currently $25,000 for the 2017 income year.

It seems that super has only been used because the Government did not want to have people ‘open a new account’, so everyone’s existing super accounts have been utilised for this First Home Buyer money – though this money does not appear to be treated like super (other than being taxed at 15%).

The specifics of this scheme are not quite clear such as, if you deposit First Home Buyer money but then do not buy a property, do these funds morph into superannuation to be stuck in your fund for your retirement, or can you draw them back out (after receiving the benefit of paying less tax on it)?  We will let you know as this scheme becomes clearer over time, particularly in relation to what is the role of employers in administering it.

Older folks can downsize into super

People over 65 will now be able to make a non-concessional contribution up to $300,000 into super (and presumably use to generate an income stream in pension phase) if the contribution comes from downsizing their home (which they have lived in for 10 years).

A nibble on negative gearing

There have been some minor changes to negative gearing, with property investors no longer able to claim deductions for travel expenses – however the Government has largely left the remainder of the negative gearing provisions intact.

Foreign property owners

Foreign people who own property in Australia will have to pay extra charges for properties they leave vacant.  This is supposed to address the concern that many foreign investors are buying up Australian properties but leaving them empty – something which is not helping the need for more rental housing.  We are interested to see how the Government will actually be able to keep track of whether a house is kept occupied or not, and how easy it will be for foreign owners to engage in mischief around this.

Foreign people also no longer have the CGT ‘main residence exemption’ available to them when they sell their Australian home, which will mean they pay capital gains tax on the sale.  Australian home owners retain their exemption.

New property developments will also have their foreign ownership capped at 50%.

Incentive to “buy Australian” on labour

Businesses that employ foreign workers under the Temporary Skills Shortage Visa will now have to pay a levy of up to $5,000 for each foreign worker that they employ, which will go towards training Australians.

Businesses that employ someone on a Temporary Work Visa will have to pay up to $1,800 per year, or pay a one-off levy for employees on a Permanent Skilled Visa.

It is not yet clear to us how these levies are to be calculated (such as when press releases say businesses will pay “up to $5,000”), and whether it will be applied across all businesses, or only specific industries.  We will provide an update about this as further details come to light.

Another excuse to quit

The Government will increase taxes on ‘roll-your-own’ tobacco and smoke cigars, which is expected to raise $360 million over 4 years.

Taxing the Banks

Probably the most ‘out of the box’ measure in this Budget is the Government’s introduction of a 0.06% levy on the Big Four Banks (Westpac, Commonwealth, ANZ and National Bank) plus Macquarie Bank, which will come into effect from 1 July 2017.

This measure is expected to raise $6.2 billion.  Most people will have no problem with beating up on this hugely profitable industry.  However it could be seen as a little arbitrary – with the levy’s narrow focus being on the banking sector to the exclusion of others, and then particularly in the way that it focuses on 5 specific Banks only (why not Bank of Queensland etc.?).

Some commentators have suggested that this levy will affect the profits of the Banks, which will ultimately flow through to the shareholders.

The main concern is whether the Banks will simply pass these extra costs on to consumers (and would you like to take bets on this?).  Treasurer Morrison has sought to reassure people by saying that the ACCC will watch the Banks to stop this happening, and in the end, consumers (at least theoretically) have the ability to go to local and regional banks as an alternative.

Going forward

Yes, there were more changes in the 2017 Budget (such as more spending on education and infrastructure, a gradual ‘unfreezing’ of Medicare rebates, and the use of random drug testing on welfare recipients – just to name a few), but these are the main ones we consider most relevant to families and business people.

As the Budget moves through Parliament, and more details are uncovered about these plans, we will provide you with updates.

If you have any questions about the Budget changes, and how they may affect your position going ahead, you can call us on 1300 654 590.

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