Last night the Federal Treasurer Joe Hockey delivered his first Federal Budget, and handed down the governments proposed measures to reduce the budget deficit. The Government forecasts a Budget deficit of $29.8 billion in 2014-15 reducing to $2.8 billion by 2017-18.

INDIVIDUALS

Temporary budget Repair Levy applies from 1 July 2014 to 30 June 2017

A levy of 2% will apply to an individual’s taxable income over $180,000 per annum for three years from 1 July 2014.

The levy amount expected to be paid by taxpayers with taxable income over $180,000 is summarised in the following table.

Taxable Income

Budget Repair Levy at 2%

$180,000

$0

$200,000

$400

$250,000

$1,400

$300,000

$2,400

Increase in the Medicare Levy from 1 July 2014

As per the 2013 Budget, the Medicare Levy will increase from 1.5% to 2.0% from 1 July 2014 to provide funding for DisabilityCare Australia. This measure has already been legislated.

Medicare Benefits Schedule – Patient contributions for standard GP consultations and certain out-of-hospital services from 1 July 2015

The Government is reducing Medicare Benefits Schedule (MBS) rebates by $5 for standard GP consultations and out-of-hospital pathology and imaging services, allowing providers of these services to collect patient contributions of $7 per service.

First Home Saver Account (FHSA) will be abolished

New FHSAs opened from 13 May 2014 will not be eligible for concessions. The government co-contribution for the FHSA will cease from 1 July 2014.

The Mature Age Worker Tax Offset (MAWTO) will be abolished from 1 July 2014.

FAMILIES

Paid parental leave to commence from 1 July 2015

The government will proceed with the paid parental leave scheme from 1 July 2015. Under the scheme mothers will receive up to 26 weeks of salary up to a cap of $100,000 per annum. This translates into a maximum payment of $50,000 over the 26 week period. Women earning over $100,000 a year will receive paid parental leave but it will be capped at an equivalent of $100,000 per annum. This scheme will be funded via a 1.5% levy on companies earning taxable income over $5 million.

Family Tax Benefit A & B from 1 July 2014 freezing of indexation

Family Tax Benefit A & B from 1 July 2015:

BUSINESS

The company tax rate will be reduced by 1.5% to 28.5% from 1 July 2015

For companies earning more than $5,000,000 in taxable income, this reduction will be offset by the 1.5% levy to fund the paid parental leave scheme which also commences from 1 July 2015.

New subsidy for employers hiring Australian 50 years or over

The government will introduce a new wage subsidy, Restart, to encourage business to employ Australian who are aged 50 and over and have been on income support for at least six months. Employers may receive up to $10,000 over 24 months in government assistance.

PENSIONS

Increasing of Age Pension qualifying Age to 70 from 2035

This means that those born on or after 1 January 1966 (currently 48 years of age or younger) will have to wait until they are 70 before they are eligible for the age pension.

While the current pension age for both men and women is 65, it has been legislated that from 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65½ years for both men and women. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023.

Whilst the policy intention is to encourage people to continue working until age 70, the reality is many people will be unable to continue working. This means there will likely be a gap between when someone retires and when they qualify for the age pension.

How much additional superannuation will be required to fund this gap?

A person who is currently 48 (born 1 January 1966) who wishes to retire at age 65, will require approximately $96,432 to generate the equivalent of the maximum age pension currently $21,912 p.a. (for singles) to fund the five-year gap. For members of a couple, they require approximately $72,689 each to fund the five year gap.

This is a substantial amount to accumulate over the next 16 ½ years. To close this gap, a 48 year old today will need to make additional pre-tax contributions of approx. $5,232 p.a. (for singles) or $3,943 p.a. (for members of a couple) every year for the next 16 ½ years.

Assumptions:  Figures are shown in today’s dollars; rate of inflation of 3% p.a. Centrelink rates for the period between 20 March 2014 and 30 June 2014. Pensions are indexed at 3.0% p.a. An account based pension is to be commenced at age 65 with rate of return of 7% p.a. Contributions tax of 15%, rate of return on investment in accumulation phase is 6.0% p.a. net of taxes and fees. Super contributions will increase by 3.5% p.a.

The DVA Service Pension qualifying age has not changed

 Changes to the Commonwealth Seniors Health Card (CSHC)

The Government has announced a number of changes to the Commonwealth Seniors Health Card (CSHC). The CSHC allows self-funded retirees to gain access to medicines listed on the Pharmaceuticals Benefits Scheme at a concessional rate as well as other concessions.

The proposed changes include:

SUPERANNUATION

No changes were announced regarding contribution caps for concessional and non-concessional contributions.

For the 2014/15 financial year the following contribution caps will apply.

Concessional Cap

Age at 30/06/2014

Contribution Cap

<50

$30,000

>50

$35,000

Non-Concessional Cap

Age at 30/06/2014

Contribution Cap

<65

$180,000
Or
$540,000 bring forward rule
3 years

>65

$180,000

 

The Government has announced that the superannuation guarantee (SG) rate will increase from 9.25% to 9.5% from 1 July 2014, as currently legislated.

If you need further clarification, please feel free to contact Tim Ward, Financial Adviser on (07) 3833 3999, or via email tim@fwo.net.au