It was a much friendlier Budget this year, especially for small business and families.
Most commentators, remembering the difficulties faced by the Government in getting last year’s budget passed through Parliament, believedTuesday’s Budget would be more palatable – both financially and politically – and they were right.
This more positive approach from the Government comes as no surprise given various issues impacting our economy and country over the past 12 months.
Seemingly more than ever our newspapers and airwaves have recently been full of negative stories, with the political stalemate in Canberra perfect fodder for daily commentators as terrorist plots in Sydney and Melbourne create an air of general uncertainty in the community.
On the financial side, mixed economic conditions have continued to impact business confidence, resulting in cost cutting and job losses as well as reducing investment spending.
We have seen below average GDP growth of 2.5% over 2014 and early 2015; falling commodity prices, with iron ore below $50 a tonne in March and April; an unexpected spike in unemployment figures in November and January, with some economists forecasting 7% by the end of the year; and frothy property prices (especially in Sydney and Melbourne) top of mind for the RBA in their decisions on interest rates.
In response to these economic headwinds, this Budget has been positioned by the Government to create new opportunities and growth, care for the most vulnerable and to keep the country safe and secure without being irresponsible or grossly unfair on any particular demographic.
At the same time, it has to be said the Budget’s forward projections are predicated on improving growth, a position which cannot be assured.
To help boost the economy and create new opportunities the Government has announced a number of policies aimed at “energising” small business (with turnover of less than $2 million).
The Budget also proposed a cut in the corporate tax rate for small businesses from 30% to 28.5%, effective from 1 July this year.
For individual taxpayers with business income, the Budget offers a 5% tax discount of up to $1000 a year, and no-one was expecting a temporary increase in the instant asset write-off limit from $1,000 to $20,000.
This will really encourage those profitable small businesses in the fields of Accounting & Tax, Strategy & Advisory, Audit, Wealth Creation, Stockbroking, Finance, Legal, Communications, Digital & Insurance to think of spending money on capital items to do so this side of June 30 (the next six weeks) to reduce their tax bill for the current year.
The Budget also encourages new businesses via a raft of incentives such as an immediate deduction for business set-up costs, a sensible delay to the taxing point for employee share schemes and capital gains tax relief for CGT liabilities arising from corporate restructures.
Some other “positive” key business facing changes are the simplification of the motor vehicle deduction methodologies, greater fringe benefits tax exemptions on portable electronic devices used predominantly for business purposes (providing a salary sacrifice opportunity) and the increase in deductibility and/or depreciation of specific costs for primary producers.
To support families and encourage them back into work, the Government announced $3.2 billion over five years. This largely manifests itself as a Child Care Subsidy, which is now being means tested.
However, restrictions have also been introduced with child immunisation being required to be eligible for subsidised child care, and the entitlement to the paid parental leave scheme being stripped from individuals already receiving employer-provided parental leave entitlements.
To help provide confidence to current and future retirees, the Government has promised there will be no new taxes on superannuation (in stark contrast to the Federal Opposition’s stance) and that the age pension will continue to increase twice a year at the highest available indexation rate.
However, pensioners with significant assets other than their family home are subject to revised eligibility thresholds.
Interestingly, and in contrast to the last Budget where many commentators said much of the savings were being clawed back from pensioners and low income earners, the Government has positioned this Budget as though it levels the “playing field” through initiatives such as new plans to target 30 large multinationals that may have diverted profits away from Australia and imposing GST on digital imports.
But with all of these policy changes on the cards it is important to remember that there is still an elephant in the room.
The policies first have to make it through Parliament before they can actually become law, and if recent history is anything to go by, that will be no mean feat. One interesting part of the Opposition’s response to the Budget was Bill Shorten’s proposal to work with the Abbott Government to reduce the rate of company tax for small businesses, dropping it from its current rate of 30 cents in the dollar to the 28.5 cents proposed by the Government, and then down to 25 cents after that.
I would encourage you to contact the team at Bell Partners for specific advice as to what all of these changes may mean for you.
Image: skynews
