FEDERAL BUDGET 2018: What you need to know

Stefan Postles / Getty ImagesAustralian federal Treasurer Scott Morrison.
  • Personal income tax cuts for low to middle income earners. From July this year, the 32.5% tax bracket will be lifted to $90,000 from $87,000.
  • A new tax offset to provide up to $530 a year, paid as a lump sum. Those earning between $48,000 and $90,000 will get the full benefit
  • Simplifying the tax system so that 94% of taxpayers pay no more than 32.5 cents in the dollar in 2024–25.
  • The budget is forecast to return to modest surplus of $2.2 billion, in 2019-20.
  • A ban on exit fees on superannuation accounts when changing funds.
  • Instant asset write offs extended for businesses with a turnover of $10 million or less for purchases up to $20,000.

The 2018 budget shifts tax brackets to bring small savings to many, gives lump sums to lower income earners, helps the ageing who want to live at home longer, and continues an infrastructure spending theme to create jobs.

Treasurer Scott Morrison’s election budget uses better than expected tax collection to take aim at low to middle income earners while still returning the budget to balance by 2019-20.

Morrison, who himself turns 50 this month, also offers up benefits to older Australians, including allowing pensioners to earn more without losing their pensions. Almost half of all voters are aged 50 or older.

“You must not punish people for working hard and doing well,” says Morrison.

He’s giving back in the form of personal tax cuts but says he’s keeping taxes under the policy speed limit of 23.9% of GDP.

“Higher taxes to chase higher spending never ends well,” he says. “Australians always end up paying for it one way or another.”

He has a three-stage plan on taxes, spread over seven years. The first stage will give just $11.25 a month or $135 a year as a personal tax saving starting from July this year.

The top of the 32.5% tax cut out level will be shifted to $90,000 from $87,000, starting July this year.

This will give a tax cut of up to $135 a year to 3 million people and will prevent about 200,000 from facing a marginal tax rate of 37% in 2018–19.

And low and middle income taxpayers will get a new tax offset worth up to $530 paid as a lump sum after lodging tax returns.

More than 10 million people will benefit and about 4.4 million of those with incomes between $48,000 and $90,000 will get the full $530 benefit starting next financial year.

Those earning up to $37,000 and paying 19 cents in the dollar will have tax reduced by up to $200. The average tax paid in this tax bracket is $1900 per year.

Tax will be reduced up to a maximum of $530 per year for those being paid more than $37,000 and paying the 32.5 cents in the dollar tax rate. The average tax in this tax bracket is $10,400.

Morrison says a middle income household with both parents working on average wages will see their combined incomes benefit by more than $1000 a year.

For those earning above $90,000 the tax relief reduces to zero at just over $125,000.

In 2022-23, more income tax bracket shifting will lift the $37,000 threshold to $41,000, keeping half a million from a marginal rate of 32.5%. At the same time the $90,000 threshold will be raised again to $120,000, preventing 1.8 million paying 37 cents in the dollar.

And in 2024-25 the 37% tax bracket will be abolished, reducing the number of income tax brackets from five to four.

Those earning more than $41,000 will only pay 32.5 cents in the dollar all the way up to the top marginal tax rate threshold which will be adjusted to $200,000, to account for inflation and expected wage movements over the next seven years.

The deficit

Underlying cash balances have improved by $20.2 billion over the forward estimates since the December mid-year budget update.

This financial year is expected to end with an underlying cash deficit of $18.2 billion, equal to 0.8% of GDP, down from $33.2 billion last year and the best result since the GFC.

The deficit is forecast to fall again to $14.5 billion in 2018-19 and then return to a modest balance of $2.2 billion in 2019-20 and increase to surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.

“It has been a long road back from where we started in 2013,” says Morrison. “We are close to our destination. We must stick to the plan.”

Superannuation

Exit fees on superannuation accounts will be banned and funds will be stopped from forcing those aged under 25 or with low balances to pay for life insurance policies they have not asked for or do not need.

Exit fees cost super fund members about $37 million a year. In 2015-16 there were 9.5 million super accounts with a balance of less than $6000.

The ageing

The budget expands the Pension Work Bonus to allow pensioners to earn an extra $1300 a year without reducing pension payments.

The bonus will be extended to the self-employed who can now earn up to $7800 a year with affecting their pension. Age Pensioners will be able to earn up to $300 each fortnight, which is an additional $50 each fortnight, without reducing pension payments.

Morrison also ruled out any change to franking credit rebates, as proposed by the Labor Opposition, calling this is an “unfair” tax grab on retirees and pensioners.

“We will stand up for older Australians to keep them safe and prevent elder abuse, with new support services and a national online register for enduring powers of attorney,” says Morrison.

The government will expand the Pension Loans Scheme, where the retired use the equity in their homes to boost their incomes, to include full rate pensioners and self-funded retirees.

These retirees will be able to increase retirement income by up to $17,800 for a couple without impacting on their eligibility for the pension or other benefits.

And the number of home care places, allowing the ageing to stay in their homes longer, will rise by 14,000 over four years at a cost of $1.6 billion.

Business

The $20,000 instant asset write off for businesses with a turnover of up to $10 million is being extended to next financial year.

New anti-phoenixing measures will ensure small businesses don’t get ripped off by other businesses who deliberately go bust to avoid paying bills.

And the black economy will be attacked with an increase in the enforcement of illicit tobacco and an economy-wide cash payment limit of $10,000 to reduce money laundering and tax evasion.

The government is also imposing a cap of $4 million on cash refunds for research and development tax offsets.

Infrastructure

The government is funding $24.5 billion in new major transport projects, part of a $75 billion investment in transport program from 2018–19 to 2027–28.

The Roads of Strategic Importance initiative includes $1.5 billion for a Northern Australia Package for Queensland, the Northern Territory and Western Australia, $400 million for Tasmania, $220 million for the Bindoon Bypass in Western Australia, $100 million for the Barton Highway Upgrade benefiting NSW and the ACT, and $1.3 billion for future national priorities.

The federal government is also establishing a $1 billion Urban Congestion Fund to tackle urban congestion in cities.

In Victoria, there is $7.8 billion for new major projects, including a commitment of up to $5 billion for the Melbourne Airport Rail Link.

In New South Wales, there is $1.5 billion for new major projects, including $971 million for the Pacific Highway Coffs Harbour Bypass, $400 million for the Port Botany Rail Line Duplication and $155 million for the Nowra Bridge.
And the Commonwealth and New South Wales governments will be equal partners in funding the first stage of the North South Rail Link in Western Sydney.

Construction on the Western Sydney Airport is due to start this year and bein operation by 2026. The federal government is providing equity of up to $5.3 billion to deliver stage one of Western Sydney Airport.

Preparatory work on the Melbourne to Brisbane Inland Rail project is underway and construction is due to start this year.

The federal government is providing $9.3 billion in equity and grant funding to the Australian Rail Track Corporation.

MORE FROM OUR FEDERAL BUDGET 2018 COVERAGE:

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.