The federal budget for 2016-17 was pitched to popular issues such as superannuation, budget creep, company tax, multinational tax and infrastructure. In this budget forecast, the economy is expected to grow at 2.5 per cent, unemployment is expected to be 5.5 per cent and the budget deficit is estimated to $37.1 billion.
Reduction in Income Tax
From 1 July 2016, income threshold will be increased from $80,000 to $87,000 at which marginal tax rate rises from 32.5 per cent to 37 per cent. This will deliver a tax cut of up to $6.04 a week or $315 a year to the wealthiest 25 per cent of the population, leaving 75 per cent of Australians with no tax cuts. The cost to the budget for these tax cuts will be $3.95 billion over 4 years. From 1 July 2017, the budget deficit repair levy of 2 per cent on those earning above $180,000 a year will be abolished which will effectively deliver two tax cuts to rich Australians.
From 1 July 2016, the annual income threshold at which concessional contribution tax of 30 per cent applies will be lowered from $300,000 to $250,000. Annual threshold on concessional superannuation contribution is lowered from $30,000 to $25,000 for all Australians. Australians earning less than $37,000 a year will continue to receive an automatic superannuation rebate of up to $500 per annum to compensate and augment their superannuation income accumulation. From 1 July 2017, there will be a cap of $1.6 million that can be transferred from a superannuation accumulation account into retirement account, where earnings are tax free when the age of superannuant is 60 or over. Only 4 per cent of Australians will be affected by this measure of $1.6 million cap. From the budget night (3 May 2016), there will be a life time non-concessional contribution cap of $500,000 which are made from after tax incomes. The superannuation measures will cost the budget $2.9 billion over 4 years.
Reduction in Company Tax
From 1 July 2016, small business tax rate will be reduced by 1 per cent from 28.5 per cent to 27.5 per cent. The annual turnover threshold for small business will be increased from $2 million to $10 million. Approximately 870,000 companies employing 3.4 million Australians will be eligible for this reduced rate of tax. The annual turnover threshold will be gradually increased with a gradual decrease in company tax rate. By 1 July 2026, all businesses including multinational large corporations will pay a company tax rate of 25 per cent. The current tax cuts to small businesses will cost the budget $5.3 billion over 4 years.
A Slug on Multinationals
If multinational corporations with global revenue of more than $1 billion per annum are caught shifting profits offshore, they will be hit with a 40 per cent penalty rate of tax on that income. This tax avoidance measure will raise $3.9 billion over 4 years from multinational companies.
Budget has allocated $1.2 billion for school finding over the next 3 years, with new quality conditions on literacy and numeracy. It has scrapped the full deregulation of university fees but left the door open for fees on certain elite courses to increase in the future. The budget released a new Discussion Paper retaining a 20 per cent cut to university course funding, allowing universities to set their own fees for certain courses, recovering HECS debt from deceased estates and shelving federal funding for private colleges and sub-bachelor degrees.
From 1 July 2017, public hospitals will receive an additional $2.9 billion over 3 years, of which NSW will receive $652 million. Budget cuts an amount of $1.2 billion from complex healthcare provided by aged care providers. It will continue to freeze Medicare rebates for all PGs, medical specialist and allied health services till 2020 which will save $925 million over the period. The private insurance rebate and Medicare levy surcharge will also be freezed till 2021, saving $744 million for the budget bottom line. Over the next 4 years, restrictions will be placed on Medicare Benefit Schedule and Veterans Benefit Schedule, saving $51 million.
Sydney’s proposed airport at Badgerys Creek received $115 million in this budget; $3 billion to build Melbourne’s East West Link; $57 million for Melbourne Metro Rail project; $594 million to build an inland freight rail link through Victoria, NSW and Queensland and $2 billion in loans for dams and water infrastructure.
Defence and Security
In the next financial year, Defence budget will reach 1.88 per cent of GDP, totalling $32.3 billion. The budget allocated $153 to Australian Federal Police and Australian Crime Commission for upgrading their security systems. The fight against IS in Iraq and Syria is allocated $351 million in the next year. A $4 million allocation is provided for a new hotline for parents to get advice and counselling if they are concerned their kids are succumbing to religious extremism.
Government will offer premier border Clarence for certain passengers with fast tracked border Clarence and separate lounges, initially at Sydney, Melbourne and Perth airports. It will close 4 onshore detention centres located in Sydney, Melbourne, Perth and Darwin. Christmas Island centre will be mothballed from 2018. New Zealand citizens will be granted a streamlined path to Australian residency from 1 July 2017.
Over the next 4 years, a new $840 million Youth Employment Package will assist an estimated 120,000 vulnerable young people to find work. The budget established a $96 million fund to help identify groups at risk of long-term welfare dependency and move them into employment. From 1 September 2016, government will cut carbon tax compensation from new welfare recipients, saving $1.3 billion over 5 years.
Other Budgetary Measures
Climate Change Authority is unfunded from 1 July 2017. The Great Barrier Reef received $171 million over 4 years. From 1 July 2017, excise on tobacco will increase by 12.5 per cent raising $4.7 billion over 4 years. A pack of 25 cigarettes that now costs about $25 will cost $41 by 2020.