The Australian Government has handed down the 2014-2015 budget with a number of initiatives.
The economy has grown slower than trend for seven of the past eight years and the budget papers forecast that it would grow slightly below trend in 2014-2015. The unemployment rate is tipped to reach 6.25% by the June quarter of 2015, remaining there to the end of 2015-2016. The wage price index is forecast to grow by 3% through the year to the June quarters of both 2015 and 2016. Falling commodity prices would challenge the terms of trade and continue to place pressure on the budget. The budget outlines a $29.8 deficit in 2014-2015.
Raising revenues and curtailing benefits
As foreshadowed, to get the budget back on track, employees earning over $180,000 a year will be hit with a temporary 2% debt levy from 1 July 2014. The tax, expected to affect round 400,000 Australians, is intended to be in place for three years to mid-2017.
The tax raises the marginal tax rate of those affected to 49% once the 2% Medicare levy has been included. The Medicare levy surcharge of 1.5% for those without adequate private insurance would bring the top rate to 50.5%.
To prevent employees from avoiding the tax, the fringe benefits tax will also rise to 49% from 1 April 2015 to 31 March 2017. There is some concern that the nine month gap between 1 July 2014 and 1 April 2015 will lead to tax rate arbitrage consequences which could encourage employees to increase the non-cash benefits component of their package in the short term.
Thomson Reuters also notes that the change will see traditional tax planning measures implemented such as bringing forward revenue where possible and deferring deductions, yet highlights that the government will have difficulty passing the necessary legislation for the tax increase to be put into place.
The superannuation guarantee rate is to be frozen at 9.5% from 1 July 2014 until 30 June 2018. It will then rise by half a percentage point a year, reaching 12% in 2023.
The government will also allow individuals who have contributed superannuation in excess of the non-concessional contributions cap from 1 July 2013 to withdraw those contributions and any associated earnings, which will be taxed at the marginal tax rate.
The AICD noted that Directors serving on multiple Boards will be happy with this development as the collected superannuation contributions for their Board roles had the potential to exceed the concessional cap, which would affect the non-concessional caps, with excess non-concessional contributions to be taxed up to 93%.
Despite speculation, there were no changes to the employee share scheme rules.
Salaries and allowances of parliamentarians, departmental secretaries and all other public office holders are to be frozen at current levels for 12 months, over the period 1 July 2014 to 30 June 2015. The freeze will also apply to the pensions of former parliamentarians received under the closed Parliamentary Contributory Superannuation Scheme.
The Life Gold Pass allowing retired MPs and their partners to take 10 free return domestic business class flights each year has been wound back – disallowing travel for commercial or private purposes and excluding spouses – and will be abolished.
One of the numerous agencies to be abolished in the budget was the Corporations and Markets Advisory Committee (CAMAC), which according to the BRW will mean the abandonment of its review into whether the format of the AGM should change its format.
The review’s discussion paper had proposed four main options for a changed AGM:
- Limit the AGM to the discussion and voting on resolutions.
- Take voting away from the AGM, enabling it to be completed before and after the meeting
- Enable the companies more flexibility in the design of their own AGMs
- Make AGMs optional
The baby boomers’ arrival at retirement age has placed downward pressure on workforce participation. The participation rate is expected to decline from its current rate of 64.7% to 64.5% in the June quarters of 2015 and 2016. The government has continued its push to increase this figure.
Its initiatives target Australians of all ages:
- The age at which the pension can be accessed will rise to 70 by 1 July 2035.
- The government will pay employers up to $10,000 for employing a job seeker aged 50 or over who has been on income support for at least six months. ($3,000 for at least 6 months, $6,000 for 12 months, $8,000 for 18 months and $10,000 for 24 months.) The mature age worker tax offset of up to $500 for those born before 1 July 1957 will however be abolished.
- This adds to the tax exemption of previously announced measures where Australians aged between 18 and 30 who have been unemployed for 12 months or more and are on Newstart or youth allowance receive a $2500 commitment bonus if they get a job and remain off welfare for 12 months. This increases to $4000 if they stay in the job and off welfare for 24 months.
- A curtailed Parental Leave Scheme is still on the table, although details have not been provided. Eligible working parents of children born or adopted on or after July 1 2015 gain access to 26 weeks of parental leave pay at a rate based on their wage, capped at $100,000 a year. This is to be funded by a 1.5% levy on large companies.
- Family tax benefit B, which provides payments to single parents and families with one main income, will cease after the youngest child in the family reaches six (rather than 18) and has a lower primary earner income threshold of $100,000.
- Disability Support Pension recipients aged 35 years and under who were granted the pension between 1 January 2008 and 31 December 2011 will have their eligibility reviewed. Those found eligible will be required to complete activities to built their work capacity.
- Job seekers under 30 must participate in employment services support and display job search activity for six months before receiving Newstart or Youth Allowance (which those under 25 now receive instead of Newstart), unless they have already been working for significant periods. After six months, claimants will be required to complete 25 hours per week of Work for the Dole to receive income support. This comes into place on 1 July 2015. Eligibility thresholds for the dole have been frozen for a further three years.
- Nearly all the dependent tax offsets will be abolished from 1 July 2014.
Skills and education
Skills have been pinpointed in the past by the Productivity Commission as a key driver of productivity.
The budget has reduced funding for schools, stating that the states should carry the burden for education. It has also reduced funding for university places by 20%, but deregulated the fee structure so that universities can charge more. The eligibility for government subsidies has been expanded to include “sub-degree” courses such as those that can be completed at TAFE or private colleges. Loans for trainees of $20,000 at concessional interest rates that are to be paid back after completion have also been confirmed.
Executives and Directors will approve of the 1.5% reduction in the company tax for those organisations not affected by the levy for the parental leave scheme.