Budget 2016: Scott Morrison unveils business, income tax relief in nip-and-tuck fiscal blueprint
Updated
Upper-middle Australia is set to reap the greatest rewards from the Turnbull Government's election eve budget, while high-income retirees are facing a surprise hit on their earnings.
Key points:
- Wealthy retirees' tax free super capped at $1.6m
- 25 per cent flat company tax rate by 2026
- New $10m turnover ceiling for small business tax breaks
- Tax receipts down $6.4b next year
In his first budget as Treasurer, Scott Morrison has announced business and income tax relief while wrangling with a climate of modest economic growth.
Apart from a few pre-announced savings like the lucrative hike in tobacco taxes, and a 'Google tax' crackdown on multinationals, the budget appears to be largely a nip-and-tuck exercise as the Government seeks to avoid upsetting the larger voter base with less than nine weeks until polling day.
In handing down his first budget Mr Morrison told Parliament now was not a time to be "splashing money around", and noted international "headwinds and fragility".
The projected deficit for next year has blown out by $3.4 billion since the mid-year financial update to $37.1 billion.
In the four years that are laid out in the budget the Government predicts the deficit will shrink to just $6 billion.
The Coalition is not expecting to balance the budget until 2020-21, which is beyond the timeframe that can be accurately predicted by Treasury.
"If estimates and parameters change, we're hostage to those events," Mr Morrison told 730, seeking to defend the Government's record, adding "there have been many challenges" in a "difficult economy" inhibiting it from returning the budget to the black.
He also denied he was overly optimistic about the state of the economy.
"I'd say realistically optimistic — 300,000 jobs, and 3 per cent growth. We're up there [with] South Korea and Canada."
Company tax rate flattens to 25 per cent in a decade
The budget includes plans for the small business tax rate to drop 1 per cent to 27.5 per cent this year, and for a small business to be redefined as having turnover of less than $10 million, five times the current turnover to qualify.
By 2023-24 all companies big and small will enjoy the 27.5 per cent rate, and three years later it will drop to a flat 25 per cent.
The Government is also providing a personal income tax break for middle income earners by increasing the upper limit for the middle tax bracket from $80,000 to $87,000.
That will ensure about 500,000 taxpayers avoid moving into a higher tax bracket because of inflation, known as "bracket creep".
In practical terms it will mean the most tax someone in that income range pays is 32.5 per cent. Without the change they could be paying up to 37 per cent.
The Coalition has timed that measure to kick in the day before the election, but may decide against trying to rush the measure through Parliament in the short time that remains this week.
Instead, it could promise to retrospectively implement it after the election.
Robin Hood super hit on wealthy
The biggest budget surprise, which is likely to be interpreted as a "Robin Hood" measure, is a retrospective hit on wealthy retirees, whose tax-free superannuation accounts will be capped at $1.6 million.
"The transfer balance cap will be applied to both current retirees and to individuals yet to enter their retirement phase," Mr Morrison told Parliament.
He argued the measures would affect fewer than 1 per cent of superannuation fund members, and would earn $2 billion over three years.
Conversely the Government has abandoned plans to remove the low income superannuation tax offset. The offset was Labor policy, which the Coalition previously opposed.
Mr Morrison was pressed about whether low-income earners missed out in this budget, but maintained 25 per cent of low-income earners would be "better off" by keeping the super tax offset.
He also argued the boost to small and medium businesses will have flow on benefits for their staff.
Government revenue forecast downgraded
The worst news for the new Treasurer is the reduction in money coming into the economy. Tax receipts, while still growing overall, are expected to be $6.4 billion lower than mid-year estimates.
The Government is moving to counter the combination of lower receipts, modest growth and the continuing commodity earnings slide with a job creation package.
Work for the Dole will be remodelled and there will be a new program designed to generate 100,000 jobs for "vulnerable" young people, including to find internships.
The other jobs drivers will be the new $50 billion submarine building program and new industries expected to flow from the Government's focus on innovation.
The budget also makes reference to a list of decisions worth about $1.6 billion that are "not yet announced", and lists an undisclosed saving in 2019 of almost $2 billion.
It is understood those measures would need to announced by the Government within 10 days of the start of the election campaign, before the pre-election budget update (PEFO) is released.
Hangovers from the Abbott era
The Government will continue with the deadline set by former prime minister Tony Abbott to remove the budget repair levy next year, but keep a number of other measures.
The centrepiece of last year's budget for "Tony's Tradies", the instant asset write-off, has been expanded to include businesses with a turnover of up to $10 million.
The Government always promised to keep the carbon tax compensation, despite dumping the tax itself. That money will stay in place for existing recipients but new welfare clients will not be able to access it.
- Check out our dedicated budget 2016 news site
- Take a look back over our blog to see how budget night unfolded
- Winners and losers of the 2016 budget
- Budget sliced and diced: Where every dollar comes from
- Work through the waffle with our budget jargon buster
- Take the world's hardest budget quiz
- Cut through the BS (budget spin) with our pass notes
Topics: budget, federal-government, federal-parliament, federal-elections, government-and-politics, australia
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