- Personal incomes tax cuts.
- No rise in the Medicare levy.
- Big spending infrastructure projects.
- A wind back of tax benefits for the research and development scheme.
Treasurer Scott Morrison might not like being compared to Santa but cuts to personal income tax are coming in the Federal Budget.
These will be targeted at middle to lower income earners. The key questions to be answered on Tuesday night is how big will the cut be, who will benefit most and what will this do to work to the schedule to bring the budget out of deficit and to balance again?
This budget is the last before the next federal election which is due to be held sometime in the next 12 months.
Treasurer Scott Morrison says: “This year’s Budget we will be delivering tax relief to put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures.”
Those on $65,000 a year would save $13 a week in tax if the 32.5% tax rate is reduced to 30%.
According to CommSec, the cost to the budget for that size of a cut would be about $6.7 billion.
Economists at the ANZ Bank say the tax cuts are likely to be directed at those earning less than $87,000 a year.
“That should equate to an increase in disposable income of around $6.50 a week — enough for a latte and a train fare perhaps,” the economists write in a research note.
On top of those personal income tax cuts, the government is also dropping a plan to take more under the Medicare levy.
Treasurer Morrison has announced he won’t be increasing increasing the Medicare Levy to 2.5% from 2% to fund the National Disability Insurance Scheme.
This largess is being driven by a better than expected tax revenue collection as the government collects more tax from improved company profits.
The latest numbers, thsoe for March, show the annual underlying Budget deficit running at $14 billion, the lowest total since early 2009.
According to Deloitte Access Economics, overall government revenue will grow by 9.8% in 2017-18 then followed by a further 5.7% gain in 2018-19.
This puts the Budget bottom line better than the official forecasts by $7 billion this financial year and another $7.2 billion next year.
That translates into underlying cash deficits of $16.6 billion in 2017-18 and $13.3 billion in 2018-19.
“The revenue windfall accruing to government finances is real,” says Michael Blythe, Chief Economist at the Commonwealth Bank
“But that windfall is being asked to pay for many initiatives — tax cuts, new spending and a surplus.”
Here’s a ready reckoner on how much personal tax cuts could cost the budget:
Other parts of the budget, expected or already announced:
Infrastructure. The biggest infrastructure promise in the budget is $5 billion for a Melbourne-airport rail link. Malcolm Turnbull said: “”For over 50 years people have been saying Melbourne’s airport needs a railway.” Other items include $1 billion for the M1 motorway corridor in Queensland, hospitals in Western Australia and remote housing in the Northern Territory.
A cut to Research and Development tax breaks. Sweeping changes reportedly coming to the $3 billion tax credit scheme. KPMG says: “It is clear that the Government intends to rein in the cost of the program.”
Australian Space Agency. Around $50 million, as seed money, to get the agency off the ground. Megan Clark, the former head of the CSIRO, will head the new agency for its first year.
Saving the reef. A $400 million package to save the Great Barrier Reef. The project will aim to improve water quality, target coral-eating crown-of-thorns starfish and implement reef restoration.
Defence Export Strategy. Making Australia an exporter of defence equipment. A $3.8 billion Defence Export Facility to be administered by Australia’s export credit agency EFIC. Last month Defence Industry Minister Christopher Pyne said: “And we put the money aside, $200 billion, to build up the capability of our military over the next 10 years, and now it’s really over to industry to take all the opportunities that we are giving industry.”
The Aged. Australia’s aging population and the impact on the economy. The ABC reports that the budget will include measures to cut the waiting list for older Australians needing aged care in their own homes.
Open banking. Industry body FinTech Australia, representing more than 220 financial services technology companies, expects the government to announce key details about Australia’s open banking framework, allowing consumers more control over their banking data and increase competition among banks for savings and loans.
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