We’ve been bombarded by coverage of the federal budget, which is likely to only remain relevant for a couple of months in light of the upcoming federal election. But here are my quick thoughts on it:
Economy looking OK (for now)
The economy seems to be bouncing back with Treasury forecasts seeing economic growth accelerate from the current anaemic 1.5 per cent to 2.25-2.5 per cent.
There is still Trump …
That said, inflation is forecast to rise from the current 2.5 per cent to 3 per cent and we still don’t know the full impact of any tariff changes from the global trade war instigated by Donald Trump.
The big question is whether this inflation rebound will delay, or even cancel, the three more rate cuts predicted by the end of the year.
$5 cut a bit of a joke
The $5 a week tax cut seems piddling at best when you add in the perspective that income tax revenue collected by the federal government is at record high levels. You would have thought it could be a bit more generous.
But government spending is also at record levels, so the government needs the tax revenue to pay for yet more infrastructure outlined in the budget.
Energy rebate needs a rethink
The $150-a-year energy rebate is a welcome cost-of-living relief, but I still contend it should be means tested. Still spend the $1.8 billion but more should go to those families struggling with financial pressure rather than to richer Australians.
The government argues that energy retailers don’t know customer income levels and therefore can’t differentiate. The alternative is for the ATO to pay the relief direct into people’s bank accounts, like they do with childcare. The only problem with that is the impact wouldn’t be seen in the inflation figures which the government wants to artificially reduce.
Good to see!
Assistance to encourage more GPs to bulk bill is a good move. I’d previously suggested the GP “gap” be covered by private health insurance. But the budget measure is a good solution.
Not so great …
Scrapping the instant asset write-off will be a big blow to small business owners wanting to invest in their business. Seems a silly move and could come back to bite the government and hurt its election prospects, particularly after last night’s budget reply from Peter Dutton. He promised to not only make the instant asset write-off permanent, but also to lift it to $30,000 a year. As well as the proposed $20,000 per year deduction for business-related meal expenses, it’s a significant boost to the struggling hospitality sector.
Super and capital gains tax
The budget also confirmed the new tax on superannuation balances above $3 million. This will tax unrealised capital gains on an annual basis. Usually, capital gains tax (CGT) is imposed on gains when an asset is sold, but with superannuation fund balances over $3 million, assets will be valued each year and CGT imposed on gains whether assets have been sold or not.
Dutton’s budget reply …
Dutton’s budget reply also confirmed the Coalition’s plan to allow first home buyers to access their superannuation to help build a deposit to buy a home. Naturally the superannuation industry is complaining that it will reduce a person’s retirement payment and send house prices higher. Superannuation funds obviously want to keep that money so they can earn fees on it.
My view is that it’s the customer’s money so why shouldn’t they have the flexibility to use it as a deposit? But, if they do, then they should agree their future annual compulsory superannuation contributions need to rise to a level which means their retirement payout isn’t affected. Best of both worlds.
