If you haven't read it yet, take a few minutes to look over it. Amongst some of my thoughts of that budget I predicted that the $1.5 billion surplus wouldn't happen, as well as GWS failing to win the 2013 AFL premiership. The "My Reaction" part, at the bottom, still stands as true today as when I first wrote that 12 months ago.
Now, unlike past budgets where the facade of secrecy has been paramount, save a few well chosen leaks here and there, this year it appears that a lot of the significant and highly visible aspects of the budget have already been formally announced.
Having said, it's only after Wayne Swan has delivered his (frankly boring) budget speech (his Swan Song? - sorry) that some of the details begin to emerge. A couple of surprises amongst it all too. But to be honest, this budget could have been far worse than it ended up being.
Let's have a look at those areas that will affect our clients the most:
Individuals and Families :
- The baby bonus will be scrapped from 1st March 2014 and be replaced with increased Family Tax Benefit Payments, though at lower rates and with lower income thresholds. This means that if you are wanting to get that Baby Bonus, get busy!
- Those tiny income tax cuts that were going to come in to offset the increase in the carbon price have been deferred as the carbon price won't be increasing. The increase in Family Tax Benefits to compensate for the increase in carbon price has also been scrapped.
- The net medical expense tax offset will be phased out. If you are claiming them in the 2013 tax year, they will hang around a bit longer. In all honesty this particular "carve out" arrangement makes absolutely no sense to me. And will make no sense for those clients trying to make the claim in future years. A shocking decision, this one.
- Disaster Income Recover Subsidy payments (but only those made between 3rd January and 30th September this year) will be exempt from income tax. While the exemption makes sense, there should be no date limitations placed. It's another one of those special considerations that make you scratch your head in wonder.
- Medicare will increase by 0.5% to partially fund the National Disability Insurance Scheme. I personally think this is a fair thing, and probably didn't go far enough. The purpose of the Scheme has absolute merit, and I think that there needed to be "buy in" by taxpayers into the scheme. I think a 0.75% or even 1% increase in Medicare would not have been unreasonable.
- HECS/HELP discounts for upfront and voluntary payments will be scrapped, removing the only reason why you would want to pay these debts off earlier than they need to be.
- You may have heard about some changes to make PAYG tax instalemnts monthly payments instead of quarterly. All our clients can ignore this one as the two annual turnover thresholds ($1 billion in 2016 and $20 million in 2017) make this a non-event. Even if it did, this is one of those budget decisions that is effectively fiddling the books, as it doesn't increase the amount of tax raised, just changes the timing of the payments.
The Tax Office:
- Every year the tax office receives extra funding to support one or more targeted audit operations. This year there a couple of interesting ones:
- $67.9 million to undertake compliance activity in relation to taxpayers who have been involved in "egregious" tax avoidance and evasion using trust structures. Now from what I understand the word egregious can mean either outstandingly bad or remarkably good. What about normal and legal tax minimisation using trust structures, like pretty much most small businesses out there? Is that egregious? I don't think so, but that doesn't mean that the Tax Office thinks the same way. Stay tuned on this one.
- The Tax Office will also increase compliance activity targeted at restructuring activity that facilitates profit-shifting opportunities. What the hell does this mean? Does this mean a sole trader wishing to transfer their business into a company or trust structure will be targeted? Changing partnerships? This one may also be one to keep an eye out for, as I reckon there is a bit more to this than meets the eye.
- More spending on education under the "Gonski" reforms, but cuts to university funding.
- Lots of spending on new roads, though not much on rail, I see. (Update - Yes, I neglected to include the Metro Rail Tunnel as part of this assessment. Interestingly, the total project is worth $9 billion, 1/3 contributed by Federal Government and 1/3 by State Government. The remaining third will be raised through private sector payments, creating some form of public private partnership. Forgive me for being a bit cynical, but I don't believe this project will go ahead, or not in its current format.)
- More job cuts to the public service. This comes on the back of already large reductions outlines in last year's budget. Either there has been a lot of excess staff over the last few years, or these cuts are really going to start impacting on the provision of services (has anyone tried to call either Centrelink or ASIC in the last few months? Get through to someone within 30 minutes?)
- Our local Federal Member (at least until the upcoming election, where we change electorates), Rob Mitchell, has been silent on Twitter tonight. Unlike last year. I think that means no new spending or no new benefits for our area. I guess that's what happens when your community moves into a safe liberal seat.
Ignore the headline figures as they are meaningless. Every year they are nothing except guesses that the treasury department provide to the Treasurer of the day and then gets trumpeted as though it is gospel. Both sides of politics are guilty of this. And the estimates are almost always poor.
It was about time that the Treasurer stopped the pretence of the importance of budget surpluses. I said as much in my analysis of last year's budget. This was always going to be a tricky budget, coming just before an election that, as most media commentators are predicting, Labor are set to lose. There were no irresponsible hand outs as we saw in Costello's final budget. The big spending packages of NDIS and education have been a long time coming. The continuing spending on transport infrastructure is reasonable. No doubt pain will be felt here and there as some of the spending cuts filter through to programs that we currently get benefits from. But such is life.
The markets shouldn't overreact to this budget. I am sure the media commentators and the opposition will, though.
Abbott and Hockey will have the job in front of them to provide a reasonable response to this budget without sounding like broken records and overusing the words "trust", "dishonest" or "incompetent", as they normally do. But their alternative solution is to do .... what, exactly? We don't know, because at the moment they don't know. No clue at all.
A lot of people, including most of the media, seem to like bagging the current treasurer's record of economic management. Personally I can't see it. I think our country's current economic performance compares favourably to pretty much any other country in the world. And whilst there is some pain being felt locally, it is nothing like that experienced in Europe and North America.
So, your thoughts now. What do you think?