Small businesses and middle income earners get the handouts in a federal budget that promises to control spending growth, make savings and keep chipping away at the deficit.
The targets for revenue raising are welfare cheats, multinationals avoiding tax and the wealthy who use superannuation to park cash in a low tax environment for their children to inherit.
These measures, including raising $4.7 billion over four years from more tax on tobacco, will fund further tax cuts for small business and an effective income tax cut for middle Australia.
Treasurer Scott Morrison, releasing his first budget, treads a line between being generous to voters the government is expected to face on July 2, and fiscal responsibility.
While giving on one hand, the budget still maintains a steady path to surplus. The deficit is forecast to fall to $6 billion in 2019-20, about 0.3% of GDP, from $37.1 billion in 2016-17, or about 2.2% of GDP.
The overall impact of policy decisions in the budget is an improvement to the bottom line of a modest $1.7 billion over the four years to 2019-20.
Real GDP is expected to hit 2.5% in 2016-17 and return to 3% in 2017-18.
A key constraint in repairing the budget is the difficulty passing legislation for savings measures. At present, $13 billion worth of spending savings and $1.5 billion of revenue increases have not yet passed the Senate.
However, the government is introducing a $9.2 billion package of reforms across company tax, small business and personal income tax.
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Morrison says his budget is an economic plan, sticking to the job of creating jobs and economic growth.
“Australians know that our future depends on how well we continue to grow and shape our economy as we transition from the unprecedented mining investment boom to a stronger, more diverse, new economy,” he told Parliament.
“They know that their future, their jobs and those of their children and grandchildren depend on it. This is a very sensitive time.”
A key measure is lifting the 32.5% tax level threshold to $87,000, up from $80,000, removing 500,000 taxpayers from the 37% second top marginal tax rate.
“This is about providing room in our tax system for average full-time wage earners to earn more without being taxed more,” says Morrison.
“Of course we would like to do more, but this is what we can afford today.”
The changes to income tax will reduce revenue by $3.95 billion over the next four years, but Morrison says they are fully offset by other measures.
Under a 10-year plan, the corporate tax rate will be reduced for all to 25% from 30%.
As in last year’s budget, small business is getting another tax cut, a $20,000 fully tax deductible equipment purchase and the definition of those businesses getting benefits is being widened.
From 1 July, the small business tax rate will be lowered by 1% to 27.5% and the turnover threshold for small businesses able to access it will be increased to $10 million from $2 million.
About 870,000 businesses, employing 3.4 million Australians, will get the tax cut.
Also, from July the instant write off for equipment purchases of up to $20,000 will apply for a year to businesses with a turnover of less than $10 million.
Businesses with a turnover of less than $10 million will also be able to access other tax incentives, including the small business depreciation pooling provisions, simplified trading stock rules and Pay-As-You-Go tax instalments payments option.
And the plan is to keep reducing the tax rate for other small businesses by widening the qualifying definition in subsequent years, as well as eventually getting the rate lowered to 25% for all companies.
The lower company tax rate of 27.5% will apply to businesses up to $25 million in turnover in 2017-18, to $50 million in 2018-19 and $100 million in 2019-20.
By 2020 more than half of all employees in Australia will be in companies paying a lower tax rate of 27.5%. That’s around 4.9 million employees.
The second phase of the government’s 10-year enterprise tax plan will extend the lower tax rate of 27.5% to all businesses by 2023-24 and then cutting the rate to 25% for all by the end of 2026-27.
The wealthy are the target of adjustments to superannuation concessions and the savings will be $2.9 billion over the next four years.
The higher tax rate of 30%, instead of the concessional 15%, will now apply to the contributions of those earning more than $250,000 annually, $50,000 less than the current $300,000 threshold.
A lifetime non-concessional contributions cap of $500,000 is being applied from tonight and there will be an annual cap on concessional superannuation contributions of $25,000.
The maximum which can be moved into the pension phase of super is now capped at $1.6 million. The government says $1.6 million can support an income stream in retirement of four times the level of the single age pension.
The balance cap will be applied to both current retirees and to individuals yet to enter their retirement phase.
Morrison says the transfer balance cap, lifetime non-concessional cap and the 30% contributions tax for those on high incomes will each affect less than 1% of superannuation fund members.
Low income earners will benefit from an offset from July 2017 that ensures those getting less than $37,000 a year are not paying more tax on their superannuation than they are on their income. They will effectively get a rebate on tax paid up to a maximum $500.
MULTINATIONAL TAX AVOIDANCE
A new taskforce of more than 1,000 specialist staff at the Australian Tax Office (ATO) is being formed to prosecute companies, multinationals and high wealth individuals not paying the tax they should.
This crackdown will use the new powers and penalties introduced in December to ensure multinationals pay tax on what they earn in Australia.
The latest measures include a diverted profits tax, similar to UK legislation, to tax multinationals on income they have sought to shift offshore at a penalty rate of 40%.
Protections for whistleblowers who come forward and report tax avoidance will be strengthened and there will be penalties for multinationals failing to meet their compliance and disclosure obligations to the ATO.
These are forecast to raise an additional $3.9 billion over four years.
Morrison announced new programs, costing $751.7 million over the next four years, to get vulnerable young people into jobs.
One of them is called Youth Jobs PaTH –Prepare, Trial, Hire.
“Australian businesses, especially small businesses, have told me they want to give young people a go, but we need to do more to get young people ready for a job, so businesses don’t carry all the risk and cost,” Morrison says.
From April next year, young job seekers will participate in intensive pre-employment skills training within five months of registering with jobactive.
The first three weeks of training will focus on skills such as working in a team, presentation, and appropriate IT literacy. A further three weeks of training will centre on advanced job preparation and job hunting skills.
The government will also introduce an internship programme with up to 120,000 placements over four years to help young job seekers who have been in employment services for six months or more.
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