When he released the Mid Year Economic and Financial Outlook (MYEFO) at the end of October, Treasurer Wayne Swan painted a sobering picture: the outlook for the Australian economy is looking less promising than it did when the Government released the Budget in May, with the culprits being the recession in the European Union and the slow recovery in the US. The anaemic global GDP Growth has affected the price growth of Australia’s non-rural bulk commodities, such as iron ore and coal.
Moving forward, growth forecasts for the Euro area have been revised downwards for 2013, but the outlook for Asia’s growth continues to be robust. Australia has continued to grow following the GFC and its real GDP is expected to grow at up to 3% through to 2013-2014, faster than other major advanced economies, although lower than forecast in the May Budget.
Investment in new business has hit 50-year highs, buoyed by $260 billion in resources investments that have just received final investment approval. Although the resources investment as a share of GDP is expected to peak, the Government still expects a 45% increase in mining investment to follow the 2011-2012 growth of 75%. Other sectors are expecting subdued growth, although Treasurer Swan expressed the opinion that non-mining investment would grow due to the 150-basis-point drop in the official cash rate since November 2011.
Australia’s unemployment is forecast to rise to 5.5% by the end of the 2013 financial year and inflation to remain within the Reserve Bank’s target band when removing the one-off effect of the carbon tax.
Despite experiencing lower growth in tax receipts than expected — amounting to write downs of almost $160 billion over the five years since the start of the GFC and $20 billion since this year’s forward estimates – the Government has been determined to return the budget to a surplus, with controversial MYEFO measures including changing from quarterly to monthly corporate tax installments and moving unclaimed superannuation and bank account amounts to the taxation office, which will hold the money until it is claimed by owners.
The tax change has been criticised in business circles; many industry figures said it was simply manipulating timing differences. There were a few changes in the MYEFO, however, that touched on remuneration.
- Companies providing in-house fringe benefits through salary sacrifice arrangements were previously able to reduce the aggregate of the taxable value on each employee by $1000. This concession has been removed.
- The levy for Self Managed Superannuation Funds will increase from $191 to $259 per annum from 1 July 2013
- The government has capped the increase on its contribution towards private health insurance by the lesser of CPI or the actual increase in commercial premiums, which will affect the rebate individuals receive on their private health insurance costs.
- The cost of 457 visas has increased.
The Fringe Benefit Tax change will not have a significant effect on executive remuneration, as it previously only provided concessional tax treatment for benefits up to $1000 in value. Executives are unlikely to notice changes of this magnitude. However, some businesses will feel the effects of the change due to benefits offered to their broader workforce.
Those running Self Managed Superannuation Funds are unlikely to be fazed by the increase in levy, because contrary to previous speculation, the Government decided not to cut superannuation tax concessions and has also announced that after a fund member dies, assets used to fund pensions will continue to be tax free when sold to pay out a death benefit, escaping capital gains and income tax.
In terms of the health rebate, The Age has quoted Citigroup analysis that forecast the rebate to shrink by 1% each year from its current 30% based on the current gap between the increase in premiums and inflation.