Fast-tracked tax cuts and wage subsidies for younger workers underline the Federal Government’s budget.
It’s hard to image the year we have had, other than in a science fiction novel! The impacts of COVID-19 have reverberated in ways nobody could have predicted, with over 1,000,000 lives lost worldwide, and more to come until effective and safe treatments/vaccines can be developed and distributed.
The Morrison-Frydenberg Government’s plans for a budget surplus have disappeared in the huge deficit now incurred from the stimulus packages and fiscal policies (tax cuts) being rolled out in response to the impacts on the economy from this extraordinary pandemic event.
Markets and Economic Recovery
Markets have seen the fastest decline and subsequent recovery in 100 years of market events. We are expecting to see continued low inflation (and low interest rates) for some time – possibly years – until economic growth, jobs and business activity kicks back in. It is likely this will be gradual. However, with the effects of very low interest rates (negative in many parts of the world) and the stimulus packages being delivered by central banks in a coordinated way, we do see a growth phase coming in the medium to longer term.
In the meantime, the US Presidential elections in November, the unwinding of JobKeeper/JobSeeker and the end of rent relief/bank loan holidays in March 2021 bring uncertainty. However, overall economic growth in Australia and around the world is set to move ahead. Ongoing technology advancements, infrastructure spending, health care and sustainable energy projects are likely to be key drivers to jobs and overall economic recovery.
Australia’s isolation and relatively low population density has allowed us to successfully control the spread of the virus. It is very pleasing to see the numbers of cases and deaths being brought under control, particularly in Melbourne where the population has been the worst affected. We wish to express our deepest sympathies to those people and families who are suffering through the devastating health affects and loss of life.
Summary of Budget Announcements
Personal tax cuts brought forward
- Immediate tax relief: ‘Stage two’ personal income tax cuts will be brought forward two years, and backdated to 1 July 2020.
- Raised tax brackets: The upper threshold of the 19% tax bracket will rise from $37,000 to $45,000 and the upper threshold of the 32.5% tax bracket will rise from $90,000 to $120,000. This will be worth the equivalent of $41 a week to those earning between $50,000 and $90,000 a year, and about $49 a week to those earning more than $120,000 a year (source: https://budget.gov.au/calculator/index.htm).
- Boost for workers on lower incomes: Workers on lower incomes will gain from an extension of the Low and Middle Income Tax Offset for a further 12 months until 30 June 2021, and increase in the Low Income Tax Offset.
Support for pensioners, low income earners, welfare recipients and job-seekers
- Two cash payments: Aged pensioners, carers, disability support and concession cardholders will receive two $250 payments. The payments will be made progressively from 30 November 2020 and early 2021.
- Incentives for employers to hire: A JobMaker Hiring Credit will be paid for a year to businesses who hire an eligible unemployed worker aged 16 to 35. The rate will be $200 a week for people under 30 and $100 a week for people between 30 and 35, and they must work at least 20 hours a week. The JobMaker Hiring Credit is aimed at filling the gap when the JobKeeper scheme ends next March.
- Support to businesses employing apprentices and trainees: A wage subsidy will reimburse eligible businesses up to 50% of a new apprentice or trainee’s wages. Subsidies are capped at $7,000 per quarter, per eligible apprentice or trainee, capped at 100,000 places
Your Future, Your Super package commencing 1 July 2021
- Making it easier to choose a super fund: Super fund members will have access to a new interactive online comparison tool, YourSuper, aimed to encourage funds to compete harder for members’ savings.
- Transparency around underperforming funds: To protect members from poor outcomes and encourage funds to lower costs, the Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members and refer members to the YourSuper comparison tool. Persistently underperforming products will be prevented from taking on new members.
- Additional trustee obligations: Super fund trustees need to ensure decisions are made in the best financial interest of members and provide better information on management and expenditure.
Business tax changes
- Immediate tax write-off: Businesses with annual turnover of up to $5 billion can write off the full cost of eligible capital assets acquired from 7 October 2020 and first used or installed for use by 30 June 2022.
- Loss carry-back: Companies with aggregated annual turnover of less than $5 billion will be able to apply tax losses from the 2019-20, 2020-21 and 2021-22 income years against previously taxed profits from the 2018-19 and later tax years by claiming a refundable tax offset in the loss year.
- Specific changes for small business: Small businesses with a turnover of up to $50 million will be able to access up to 10 tax breaks, with fringe benefits tax scrapped on car parking, phones or laptops, simpler trading stock rules and easier PAYG instalments.
First home buyers
- Purchase cap lifted: Up to 10,000 more first home buyers will be able to get a loan to build a new home or buy a newly built home with a deposit of as little as 5% (source: https://budget.gov.au/2020-21/content/overview.htm). The purchase cap will also be lifted and varies depending on the State and regional area.
Please contact our office if you would like to discuss any of the above further.
Please stay safe and well.