The 2014-15 Federal Budget will hit low and middle income earners hard if it is passed by the Senate in its current form.
Research by the National Centre for Social and Economic Modelling (NATSEM) shows that families in the bottom quintile (or 20%) of income earners will see an average 5% reduction in disposable incomes while those in the top quintile will only experience a 0.3% decline. A single-income family with two kids earning between $50,000 and $100,000 per annum could lose up to $6.000 a year. Sole parents stand to lose up to $3,000 per year.
Key Budget measures
- Personal income tax thresholds in 2014-15 will be the same as this year although the proposed ‘Temporary Budget Repair Levy’ will take the effective top marginal rate to 47%. The previously announced increase in the Medicare Levy from 1.5% to 2% will begin from 1 July this year.
- Untaxed superannuation income streams will be taken into account in determining eligibility for the Commonwealth Seniors Health Card (CSHC) from 1 January 2015. The assessment of superannuation income will be the same as for Age Pension recipients – i.e. deemed on the account-based superannuation pension balance. All superannuation account-based income streams held by CSHC holders before the implementation date will be grandfathered under the existing rules.
- The qualifying age for the Age Pension will increase to 70 by the year 2035 as per the table below. The current pension age for both men and women is 65.
- Individuals will have the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to instead be taxed at the individual’s marginal tax rate.
- Employers can receive up to $10,000 in Government assistance if they hire a job-seeker aged 50 or older. Under the proposed Restart program, eligible employers will receive $3,000 if they hire a full-time mature-age job-seeker who was previously unemployed for a period of six months and employ that person for at least six months. If the job-seeker is still employed after twelve months, the employer will receive another $3,000, and similar payments of $2,000 at eighteen months and twenty-four months respectively.
- Instead of pausing the Superannuation Guarantee rate at 9.25% as previously announced, the Government will increase the rate to 9.5% on 1 July 2014 and leave it at this level until 30 June 2018.
- The company tax rate will be reduced by 1.5% to 28.5% from 1 July 2015. For companies with more than $5,000,000 in taxable earnings, this reduction will be offset by a 1.5% levy to fund the paid parental leave scheme which also commences from 1 July 2015.
- Most dependant tax offsets will be scrapped from 1 July 2014. This includes those relating to housekeepers, invalid spouse, carer spouse, parents and parents-in-law. The mature age worker tax offset has also been abolished.
- The Paid Parental Leave Scheme will commence from 1 July 2015 and mothers will be entitled to receive up to 26 weeks of salary to a cap of $100,000 per annum. This translates to a maximum leave payment of $50,000.
- A raft of social security changes that will slash the entitlements of many welfare recipients and disadvantaged groups. These include:
- cutting the asset test deeming thresholds by 35% from 20 September 2017 to $30,000 for singles and $50,000 for couples;
- using the CPI as the indexation benchmark rather than Average Weekly Earnings growth or the Pension Living Cost Index;
- terminating support for Pension Card and Seniors Card concessions on utilities, council rates, public transport and so on;
- tightening eligibility to Family Tax Benefit A & B, the Newstart Allowance, Youth Allowance, Sickness Allowance and Disability Support Pension; and
- reducing Medicare rebates by $5 for standard GP consultations and out-of-hospital pathology and imaging services, and allowing providers of these services to collect patient contributions of $7 per service.
Of course, many of these proposals could be modified or scrapped before they are passed by Parliament. The ALP, Greens and Palmer United Party have already signaled their intention to block many of the changes, particularly the increase in the Age Pension age, welfare cuts and the lift in the fuel excise.
Full details on the Federal Budget are available here.