The 2017-18 Federal Budget has been framed around a suite of new impositions for big banks, new regulations, new levies and in particular a significant foray into directly funding key national infrastructure programs and corporations. The Federal Budget is now a $460 billion endeavor.
After a cash deficit of $29.4 billion in 2016-17, as expected a medium term surplus has optimistically been predicted for 2020-21.
The Government has announced a range of tax and superannuation measures to address housing affordability in Australia, particularly in the eastern States:
- First Home buyers will be able to save for a deposit by sacrificing their salary into their superannuation account, capped at $30,000 per person in total and $ 15,000 per year.
- Downsizers over the age of 65 can contribute up to $ 300,000 into their superannuation fund from sale of their own home.
- The capital gains tax discount will be increased to 60 percent for Australian Residents who invest in affordable housing (see further below).
- Measures to encourage investment in affordable housing through managed investment trusts (MITs) will be introduced.
- Foreign investors will face a $ 5000 “ghost house tax” on properties that are left unoccupied for six months or more.
- Foreign investors will also be denied access to temporary resident status, preventing access to the CGT main residence exemption.
- Negative gearing will remain unchanged.
- Permanent residency will require 15 years of continuous Australian residence.
INCREASED CGT DISCOUNT FOR INVESTING IN AFFORDABLE HOUSING
- From 1 January 2018, an additional 10 per cent CGT discount will be offered to resident individual taxpayers who invest in “affordable housing” (expected to mean housing offered to low to moderate income earners at below market rents), which means that individuals investing in such properties will be entitled to a 60 per cent CGT discount when the property is eventually sold.
- The current one-third CGT discount for superannuation funds remains unchanged.
Medicare is getting a boost — but you’ll be paying for it. The Budget will hit most workers hard, with an $8 billion tax grab.
- Medicare Levy will increase from 2% to 2.5% of taxable income from July 1, 2019 to fund the National Disability insurance Scheme.
- The Medicare Levy low income thresholds for singles, families, seniors and pensioners will increase.
- The Fringe Benefits Tax rate will also be increased in line with the new top personal tax rate (after the increased Medicare Levy has been included).
This measure is predicted to make $8.2 billion revenue for the government over 4 years.
- People over 65 who downsize their own home will each be able to add an extra $300,000 into superannuation on top of existing caps.
- Seniors’ health gets a boost through an extra $1.2 billion being injected into programs such as the Pharmaceutical Benefits Scheme (PBS).
- $268.9 million will be provided by the government over two years for a one – off winter energy payment in 2016-17 of $75 to singles and $125 per couple.
- Retirees receiving in-home care such as personal services and Meals on Wheels will benefit from the Government providing $5.5 billion over two years from 2018 to extend the Commonwealth Home Support Program.
The big banks have been specifically targeted in a number of ways. There are new registration requirements for senior executives, a new regulatory agency to oversee consumer financial services complaints. Furthermore:
- Smaller banks would face fines of $50 million and larger banks $200 million if they breach misconduct rules.
- New Levy on Big Banks – there will be a levy on liabilities of $100 million or more from July 1, which is expected to reap $6.2 billion for the government over the next four years.
- Any customer deposits of less than $250,000 would be exempt from the levy.
These measures have come as a surprise to the banks, and there will no doubt be a political battle to try and prevent the banks passing on the new levy to their customer base.
- University student’s fees will be increase by 7.5 percent, phased in over four years starting in 2018.
- The maximum increase for a four-year, government-subsidised degree will be $3600, with a maximum total cost of $50,000. A subsidised six-year medical degree will cost a maximum of $75,000.
- Graduates will start repaying their loans at a lower income threshold of $42,000 instead of $51,957, and high income earners (over $119,882) will pay 10 per cent of their income instead of eight per cent.
- Universities will face a 2.5% efficiency dividend, essentially a funding cut of $2.8 billion
- Schools will get an extra $ 18.6 billion over ten years.
The Government has reaffirmed its commitment to infrastructure, particularly for rail, road and air transport projects. These projects will be financed in the following ways:
- $75 billion in funds for roads, rail and other projects, including snowy hydro 2.0
- $5.3 billion over 10 years will be allotted to construction of second Sydney airport. Completion 2026.
- $10 billion for Rail Links throughout Australia.
- $8.4 billion for Brisbane to Melbourne inland rail.
- $472 million for regional areas.
- The government will extend their “instant asset write-off” scheme to small business owners for another year, which means that Small Business owners can instantly claim up to $20,000 of necessary business purchases for tax purposes up until 30 June 2018.
- Also note that measures extending the definition of a Small Business to those with a turnover of up to $10 Million and the implementation of new measures for start-up ventures are gradually making their way through Parliament.
- Overseas investors will now only be able to buy 50% of new housing developments.
- If the property purchased is not rented out, they will need to face an annual levy of $5000 or more.
- There will be an additional $321 million provided to the Australian Federal Police – allowing the employment of an extra 300 covert intelligence officers and forensic specialists to protect Australia from the threat of terrorism.
- Defence spending will be increase to 2% of GDP by 2020-21.
- 457 visas will be abolished.
- The government will introduce a levy on businesses that employ foreign workers.
- Small business will have to pay $1200 per year for a foreign worker, along with a one-off $3000 payment.
- Larger businesses would pay $1800 a year per worker, along with a one-off payment of $5000.
This is expected to bring in $1.2 billion over the next four years to go towards training Australian workers.
OTHER KEY POINTS
- Crackdown on cash only businesses avoiding tax.
- The four year freeze on Medicare rebates will lift this July.
- $1.2 billion in new medicines available on the PBS.
- $90 million to secure gas reserves for domestic use.
- $350 million to help combat war veteran suicides.