A sharp rise in revenue over the next three years is expected to lift the Federal budget back into surplus within three years according to Treasury projections released today. Although the underlying deficit is likely to remain high at around $40.7 billion during FY11, a strengthening of the economic recovery is tipped to shrink the deficit to $13.0 billion in FY12 and to produce a small surplus in FY13.
Key measures announced in the Budget
50% discount on interest received from 1 July 2011
The Government has announced plans to provide a 50% tax discount on up to $1,000 of interest earned by individuals, including interest earned on bonds, debentures and annuities. The discount will be available for interest income earned directly as well as indirectly, such as via a trust or managed investment scheme, and is expected to benefit around 5.7 million taxpayers in 2011-12. At an interest rate of 6%, a taxpayer would need savings of $16,667 to generate $1,000 of interest.
Personal tax cuts
Personal income tax rates for FY11 will see the 38% rate drop to 37% and the income threshold on the 15% rate lifted to $37,000 per annum.
Low income tax offset will be increased
The Government has announced that the low income tax offset will be lifted from $1,350 to $1,500 and the upper income threshold raised from $63,750 to $67,500.
Standard tax deduction introduced
From 1 July 2012, the Government plans to introduce a standard deduction for work-related expenses and the cost of managing tax affairs. The standard deduction will be $500 for FY13 and then increase to $1,000 for FY14 and subsequent years. The standard deduction will not be compulsory so where a person’s deductible expenses exceed the standard amount, they will be able to claim these higher expenses. Moreover, the standard deduction will be available irrespective of whether the expenditure was actually incurred.
Medicare and medical expense changes
The Medicare levy low income threshold will increase to $18,488 for individuals and $31,196 for families. The additional amount of threshold for each dependent child or student will also increase to $2,865.
On the minus side, the net medical expenses tax offset will be lifted from $1,500 to $2,000 from 1 July 2010 and indexed to the Consumer Price Index (CPI) on an annual basis.
Superannuation Co-contribution less generous
There will be a permanent reduction in the matching rate and maximum payable superannuation co-contribution. The matching rate will be 100% and the maximum co-contribution payable on an individual’s eligible personal non-concessional contribution will be $1,000.
Child Care Rebate capped
From 1 July 2010, the Child Care Rebate will be capped at $7,500 per child from the current annual cap of $7,778 per child and indexation of the cap will be paused for four years. from 1 July 2010. The out-of-pocket reimbursement of child care expenses will remain at 50 per cent up to the annual cap.