Elliot Watson, Senior Financial Planner, Newcastle Financial Planning
On Tuesday, 13 May 2014 the Treasurer Joe Hockey announced his first budget and as predicted this has started the process of budget repair in ensuring a sustainable long term future. The budget deficit to fall from $49.9 billion to $17.1 billion in first year. Government debt is to reduce by $300 billion in ten years, which will include tax relief, plus a saving of $16 billion in interest to the taxpayer. Without structural change we would never pay off the debt.
Chris Richardson from Deloitte Access Economics: “Won’t hurt the economy and is less than one quarter of a percent interest rate cut. It is not as tough as Hawke and Keating or Howard and Costello’s first budget but they have made a genuinely good start and I am in the happy column. The government had only two choices: do the right thing and fix the budget or keep promises of last election”.
The CEO of the Chamber of Commerce Kate Carnell AO described the budget as “The budget we had to have”, “A tough budget but a fair one” and “the infrastructure funding in particular is exciting and will create jobs”.
The key benefits of the budget include;
- By 2020 Australia will have the strongest and largest medical research fund in the world with $20 billion to be invested and provide ongoing funding for research and development.
- A payment to employers of up to $10,000 to incentivise them to employ Australians over the age of 50 who have been unemployed for more than 6 months.
- A $50 billion infrastructure plan over the next decade with $11.6 billion in this budget to ‘fire up the economy’ and drive the next wave of future growth which over the long term will provide a boost to the economy of 1% of GDP.
- $1 from every $5 in university tuition fees will be allocated to support the disadvantaged in getting to go to University.
- Up to $20,000 to assist apprentices over their four years.
- A company tax rate reduction of 1.5% bringing the new rate to 28.5%. The carbon tax and mining tax will go as promised saving families over $500 per year.
Some of the downsides include;
- Family Tax Benefit Part B threshold will reduce to $100,000 from $150,000 and payments will cease when the youngest child in a family turns age 6.
- A $7 Medicare co-payment to apply on your first 11 visits to the doctor each year (a total impact of $77 per person) and what was surprising on the upside is that money will be allocated to fund the medical research fund.
- Fuel indexation is back and will increase the cost of fuel every 6 months in line with the inflation rate. This money will be linked by law to the road building fund.
- A temporary deficit levy of 2% to apply for next three years for those Australians who earn over $180,000 p.a. which is the top 3% of Australians.
- The age pension eligibility age will increase from age 67 to age 70 by 2035 and the annual senior supplement will be abolished.
- The Commonwealth has made the decision to reduce its funding of State Hospital and State Schools by a total of $80 billion over the next 10 years. This is part of a much bigger debate as the Federal Government is setting the tone and returning the responsibility of school funding back to the States.
This budget can be best described as a growth budget which may be the catalyst that leads to an efficient, effective and stronger federation for Australia.
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