Never before have I seen a greater difference in the two major Australian political parties and their respective tax policies. Ordinarily, both parties want (or at least they say they do), lower taxes. The difference tends to lie in where those lower taxes should be. Recently, treasurer Josh Frydenburg handed down his budget for the 2019-20 financial year. While this budget acted as the proxy “first act” of the 2019 federal election campaign, it lays out the way the Coalition views the Australian economy and the way they see that it should be.
Some of the taxation highlights include:
Tax cuts for low and middle income earners
- An increase to the low and middle income tax offset from $530 to $1080 per annum and the base amount will increase from $200 to $255 per annum for the 2018-19 to 2021-22 years.
- From 1 July 2022 the Government will increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000
- From 1 July 2024, the Government will reduce the 32.5% marginal tax rate to 30%, they will also remove the 37% tax bracket which means the 30% bracket will go up to $200,000 in taxable income.
The Medicare levy low income thresholds will be increased slightly to align more appropriately with the changes to the above tax rates
Instant asset write-off
The instant asset write off will be increased from $25,000 to $30,000. All the previous rules about the instant asset write off remain however the Government has increased the number of businesses that are eligible to make this claim, extending the turnover threshold to $50 million.
Division 7A changes
This is an announcement that requires more fanfare. The Government has recognised that there is more consultation with expert bodies required around their proposed Division 7A changes and has consequently pushed the start date back. This will allow them to consider these changes in greater detail. A very welcome change for many small businesses.
Aside from the tax specific announcements, the biggest announcement and the theme of the whole budget was that it’s back in surplus. There has been some scepticism around whether Australia can actually pay homage to AC/DC quite yet and say that we are back in black. The Government is a little guilty of a marketing ploy here as the 2018-19 financial year actual figures are looking like they will be in a slight deficit, but to the Treasurer’s defence he doesn’t announce the actuals on budget night, he announces the budget.
So how credible is this budgeted surplus? Obviously, the calculations behind the budget for the entire Australian economy is incredibly complex. One thing changes and there are hundreds of flow on effects. Keeping that in mind, from the analysis performed so far, the assumptions going into this budgeted surplus look sound. There aren’t any significant movements in the underlying figured from where things are at now. And consequently, the Government has been able to minimise as many unintended consequences (from taxation or spending changes) as possible.
A surplus and what it means is rarely explained and sometimes can get lost in the Billions that are thrown around in promises. Having the government in surplus is all about having excess funds to pay down Government Debt. This is important because Australia’s interest bill is about $1 Billion per month. That’s approximately half of what we spend on education. So as you can see, it’s pretty important.
With the election so close its unlikely whether this budget will actually happen or not . Especially with Labor admitting they will have another budget announcement should they win the May 18 election. So for now, this Budget is going to either be the example of fiscal responsibility that the Coalition is selling in their campaign, or the measuring stick as to what the Australian public would have got if the Coalition lose.