Treasurer Morrison delivered the Federal Government’s 2018/2018 Budget on Tuesday night. We share our thoughts on the key issues that impact you.
We get it
We understand that not everyone gets excited about Budget night the way we do. We get it, we truly do.
We get excited because there is a chance each year that the Treasurer each year will make announcements that result in material changes to the way we advise our clients. Typical changes relate to superannuation laws, tax rates and changes to finance rules. We monitor these changes and decipher what they mean for you each year. In some years we see material changes, in other years we do not. 2018 saw few changes that impact you in a material way, in our opinion. Some changes result in slight changes and most of them are positive. It is safe to say this is a ‘pre-election Budget’ (when people say that, they really mean the Budget doesn’t offend many people and most of the changes are positive with little pain doled out).
Treasurer Morrison’s 4326 word speech was delivered in the customary 30 minute slot between 7:30pm and 8:00pm.
Below we have created a word cloud of the main words he used in his speech to give you a visual representation of the concepts he was trying to get across.
Some key figures from the Budget include:
- A relatively small $2.2 billion surplus is forecast for 2019-20, one year ahead of schedule. Labor has pledged to match this. Given both sides have promised it, we think we can safely say it may not happen (are we being too cynical about politicians?)
- The Medicare levy will no longer go up from 2% to 2.5%. The Government announced that it would go up last year to fund the National Disability Insurance Scheme. We suppose this may well change again next year, who knows.
- There will be a new “tax speed limit” imposed of total tax take to GDP of 23.9%. These sorts of supposed hard and fast rules can be a bit silly in our opinion. We liken it to the legislated debt ceiling in the USA which they argue black and blue over every year and threaten to shut down the Government before they all agree to raise it and just move on. We suspect the “tax speed limit” problem will quickly go the same way as the “debt and deficit disaster” which no one ever talks about any more.
The Government will lift some of the tax brackets which means taxpayers on those brackets will pay a bit less tax.
- The $87,000 threshold will be lifted to $90,000 from 1 July 2018
- In 2022/23 (that is a long way off!) the $37,000 threshold will be lifted to $41,000 and and the $90,000 threshold will be raised again to $120,000 (if they are still in Government and if they still want to do it)
- In 2024/25 (ie in the never/never) the Government plans to abolish the 37% bracket altogether (this is the bracket that currently ranges from $87,000 to $180,000). That means someone earning $38,000 will pay the same tax rate as someone earning $179,000 which is a massive change to how we tax income. This is not likely to ever be implemented as much will happen between now and then, even if the current Government does win the next two elections and finds itself in a position to do it.
- To put 2024 in perspective, that is the year the mother dies in the TV series “How I Met Your Mother” and the year the diaries of the Right Honourable James Hacker from Yes, Prime Minister are published. It’s also the year in Doctor Who when World War IV occurs (yes, I’m also wondering when WWIII occurred). We classify the 2024/25 planned Budget changes in the same fiction genre as each of these.
Both the Coalition and Labour have also promised to pay off Australia’s debt. It’s great to get clarity on that (we are being completely facetious here).
In addition, A Low and Middle Income Tax Offset (LITO AND MITO?) will now be available for individuals with incomes of up to $125,333.
Why ‘middle incomes’ need a tax offset is beyond us, we’d prefer if they just lowered the tax rate rather than the added complexity of taking your money with one hand and giving your money back with the other.
Good behaviour for SMSFs
Interestingly, the Government is going to reduce the audit requirements for SMSFs with a good history of
compliance from an annual audit each year to an audit every three years.
This will commence from 1 July 2019 and will apply to SMSFs that have:
- A history of 3 consecutive years of clear audit reports and
- Lodged the fund’s annual returns in a timely manner
This move should reduce costs for your SMSF (eg could reduce audit costs by 2/3rds). However, we make a caveat that the annual audit fee may go up if there is more work involved if it is audited less frequently. It will be interesting to see how this develops.
Who can be in your SMSF?
As flagged in the media prior to Budget night, SMSF will now be allowed to admit 6 members instead of four. As we wrote in the Australian Financial Review recently, “In my opinion, unless you have compelling reasons to include your children, more is not necessarily better for your SMSF.”