Budget 2016 – What is likely to become a reality?
August 2016
The Coalition has formed Government but what happens now to all those Budget announcements?
The return to Government has been anything but smooth for the Coalition and as it gets back to business, there are still outstanding Budget announcements that are yet to be passed.
What is likely to pass and why?
Business Tax Cuts
Prediction: Heavily amended
In general, tax cuts for Australia's largest corporations are deeply unpopular despite modelling that shows an overall reduction in the corporate tax rate stimulates the economy. The Greens have stated that they will not support tax cuts for big business; describing the announced reforms in their budget reply as "liberal corporate welfare".
Most Australian businesses are small and medium businesses - over 800,000 companies, only 0.3% are large or very large. Despite the big business focus during the election campaign, there is base level support to increase the threshold to access the current 28.5% small business company tax rate from $2m to $10m - a position supported by Senator Xenophon's team which holds three Senate seats (the Greens also supported the current reduced tax rate for small business).
Income tax cuts
Prediction: In doubt
Depending on your perspective, the Budget announcement to increase the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016 is a stopgap against bracket creep or a hand out for middle-income households. The Greens have rejected the reform but Pauline Hanson, whose One Nation party may have up to three Senate seats, is quoted as saying, "…there are a lot of Australians who need a break in the cost of living, who face bracket creep and are paying a lot of income tax."
There is a chance the personal tax cuts will pass Parliament, potentially with a different start date and depending on the final Senate composition. But, there may be a sting in the tail for high income earners with Mr Xenophon calling for the Temporary Budget Repair levy (debt tax) to be extended (it's due to expire on 30 June 2017).
Superannuation reform
Prediction: Amended
Superannuation reform will happen. The simple reason is that increasingly, SMSFs in particular, are used for tax and estate planning rather than strictly for retirement purposes. According to a 2015 report by the Association of Superannuation Funds of Australia, "…around $360 billion is held in superannuation by those with more than $1 million in super."
The more controversial budget measures are in doubt in their current form, in part because they do not shelter existing retirees., such as:
- Limiting the non-concessional contributions cap to a lifetime limit of $500,000 from Budget night (applies to all non-concessional contributions made on or after 1 July 2007); and
- Capping tax-free earnings on super balances to $1.6 million. However, it is likely that we will see an amended form of these announcements.
The other announced superannuation reforms are more likely to pass Parliament as most parties broadly support reforming the way tax concessions apply to superannuation.
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Disclaimer
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
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