In short, this budget strangles the goose that lays the golden eggs and provides a short term cash stimulus at the expense of long term economic sustainability and economic health.
The Treasurer has forecast that they will be taking the current $44.4 billion deficit to a $1.5 billion dollar surplus (this represents a $45.5 Billion dollar turn around in government profitability) while at the same time increasing the countrys' borrowings from $250 billion to $300 billion, costing Australians $12 billion in interest this year alone.
It’s the equivalent of a small business making a massive loss in one year, then turning it around to a profit in 12 months while spending more on the company credit card and taking on debt to pay its way. This is a one hit, unsustainable strategy that will leave a debt legacy for many, many years to come.
The following is a summary of the major changes announced on Tuesday night.
Individual Tax Payers
The individual Tax Rates will change form 1 July 2012 to the following rates.
Increased Medicare levy low income thresholds from 1 July 2011
The Government will increase the Medicare Levy low income threshold to $19,404 for individuals and $32,743 for families for 2011-12. The additional amount of threshold for each dependent child or student will also increase to $3,007.
The Medicare levy threshold for single pensioners below age pension age will also increase to $30,451.
Net Medical Expenses now to be means tested
From 1 July 2012 the government will begin means testing eligibility to the Medical Tax Offset. This means that for people with adjusted taxable income above the Medicare levy surcharge (MLS) thresholds ($84,000 for singles and $168,000 for couples or families in 2012-13), the threshold above which a taxpayer may claim an offset will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10% for eligible out of pocket expenses incurred. Taxpayers with income below the MLS thresholds will be unaffected.
The School Kids Bonus
From 1 January 2013, the Government will replace the current Education Tax Refund with the School Kids Bonus. Qualifying families will receive $410 each year for primary school children and $820 for high school children, with payments made at the start of term 1 and term 3 each year.
The payment will be available to those families that currently qualify for the Education Tax Refund (families that receive the Part A tax benefit) as well as those families that receive income support such as Youth Allowance or Veterans Assistance.
In addition, as the Education Tax Refund is to be replaced, the Government will pay to families that qualify for the Education Tax Refund their full 2012 entitlement to the refund. This payment will be made in June 2012, with families not being required to lodge their claim through their income tax returns - the payment will be made automatically.
Consolidation of Current Dependent Tax Offsets
The Government will move to consolidate eight dependent non-refundable tax offsets for taxpayers who maintain a dependent that is genuinely unable to work due to a carer obligation of disability from 1 July 2012.
This will see an amalgamation of the current invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.
50% General Tax Discount to Be Removed For Non-Residents
Non-Residents acquiring property in Australia will be no longer entitled to the 50% General Discount For Capital Gains from 8 May 2012.
What is Not Proceeding?
The 50% discount for Interest Income previously announced by the government for interest amounts up to $1000 has been scrapped.
The $1000 automatic standard tax deduction for individuals lodging tax returns has been scrapped. This means that people will still need to incur taxation compliance costs to complete their taxation affairs each year.
The Mature Age Tax Offset that provides a $500 offset for people remaining in the work force past 55 years of age has been removed and will be phased out from 1 July 2012.
Companies and Business
Carry back of company lossesThis is a new measure that has been announced that will start from 1 July 2012. Effectively companies will be able to carry back up to $1million in losses from up to 2 previous financial years where they had tax payable.
This means that if a company has a loss in the tax year of 2013-14 then they can claim this back if they were tax payable in any of the 2 preceding years. This is subject to certain restrictions, ie the Company has franking credits in their franking account.
Bad Debt Deductions
Bad Debt deductions will no longer be available where the debtor and creditor are related parties. This will commence from 8 May 2012.
Small Business Instant Write Offs
From 1 July 2012 small business will be able to have an immediate asset write off for assets costing less than $6,500 for normal plant & equipment and $5,000 for motor vehicles.
More ATO Audits on the way
The government is pouring another $195 million dollars in to the Taxation Office to increase the level of GST Audit activity on small business.
What’s Not Proceeding for Companies & Small Business?
The government will not be proceeding with the 1% company tax rate and will not be proceeding.
Superannuation
Increased Contributions TaxPeople who earn more than $300,000 income per year (including their concessional super contributions) will pay 30% contributions tax on amounts over this threshold up from 15%.
If your contributions push you over the $300,000 threshold it will only be the amount that has gone over the threshold that will be subject to the increased 30% amount.
The $50,000 Concessional cap for those over 50 has been deferred to 1 July 2014. This means that everybody from 1 July 2012 will be subject the $25,000 concessional contributions cap until 1 July 2014.
It is envisaged that from 1 July 2014 the caps will be as follows
The self-managed super fund levy currently $180 per year will be increased. The amount of the increase is yet to be advised by the government.
This is the fee that all self-managed funds pay on an annual basis.
