Budget Update and Labor Policies
Given that most people expect a change of government, we have included some of the Labor proposals. There was big infrastructure spending and increases to funding to Aged Care, but there were not any major surprises. At last a surplus and some income tax cuts over time. This differs from the more dramatic changes should there be the expected change of government.
Personal income tax cuts
From 1 July 2018 to 30 June 2022 – increase the Low and Middle Income Tax Offset (LMITO) from a maximum of $530 to $1,080 ($2,160 for dual income families).
From 1 July 2022: the upper threshold for the 19% tax bracket will increase from $41,000 to $45,000, and the LITO maximum amount will increase from $645 to $700.
From 1 July 2024, the 32.5% marginal tax rate will be reduced to 30%. The 37% tax bracket will also be abolished as per the Government’s already legislated plan.
The proposed marginal tax rates and thresholds are as follows:
People aged 65 and 66 will now be able to contribute without needing to meet the work test and use the bring forward rules.
Some of the proposed changes under Labor that will impact superannuation are as follows:
• Moving more rapidly to a superannuation guarantee rate of 12%.
• Reducing the non-concessional contributions cap from $100,000 to $75,000.
• Abolishing concessional contributions cap carry-forward.
• Re-establishing 10% test for personal tax-deductible contributions.
• Reducing the income where an additional 15% tax is paid on super contributions to $200,000.
• Banning limited recourse borrowing.
• Ceasing refunds of franking credits (personal as well as super).
There are also big changes in tax including:
• Limiting negative gearing to new housing investments from 1 January 2020.
• Reducing the capital gains tax discount from 50% to 25%.
• 30% minimum tax rate on discretionary trust distributions.
• $3,000 maximum deduction for cost of managing tax affairs.
At this stage they are just proposals and if Labor gain power, they would need to get through both houses in parliament and compromises are likely. However, clearly from a tax and superannuation perspective these changes are more substantial and generally result in an increase in tax to those impacted by the changes. The Coalition or whatever is left of it, is in the rare situation of a being a big underdog in an election where there is a solid economy, a budget surplus and tax cuts and the opposition have declared their intention for a range of significant tax increases.
It shows how out of touch this government must be with societies’ beliefs that they go into the next election fearing a bloodbath, rather than a comfortable re-election.