The Australian annual federal budget is due out on 13 May, and some "leaks" of the less popular announcements have started to trickle out. The tax cuts promised by both parties prior to last year's election look likely to be introduced without any changes. There had been talk of replacing straight tax rate changes with making government superannuation contributions (with an option to "opt-out" for those that want/need the extra cash in hand), but it appears that this won't happen. Perhaps the previously announced tax cut "intentions" for future years will be re framed as planned increases in superannuation funding. When the previous Labor government introduced compulsory superannuation the intention had been to ramp up towards 15% of salary, rather than the current 9%.
I'm guessing that there will be some extra funding for retirement savings - perhaps an increase in the government co-contribution. Last year the Liberal government made a "one off" doubling of the co-contribution (from $1,500 to $3,000, for those people who made a $1,000 undeducted contribution and had taxable income below the $28,000 threshold). Perhaps the maximum co-contribution amount will be raised to $3,000 and the threshold increased (from around $58,000). It would be nice if they also made the threshold calculation easier to understand (and printed it on your tax assessment notice).
The pre-budget leaks have mainly been regarding "means testing" of some government handouts. For example, the $5,000 "baby bonus" and the "family tax benefit (B)" will probably no longer be paid out where the family income is too high (a figure of $250,000 was mentioned). We wouldn't be affected by such a high cut-off threshold, but I'm not too impressed by the idea.
Although there's no need to provide government handouts to high-income individuals (or families), the cost of gathering and compiling the data required to means test ALL payments, just to eliminate a tiny fraction of the total number or recipients is often not cost-effective. In the worst-case it could end up like the family tax benefit (A) situation, where a family has to estimate it's assessable income (which is different to both total income and taxable income) for the next financial year, and is then penalised if the estimate proves to be inaccurate and they've been paid too much during the year.
There have already been announcements regarding increases in tax on alcohol and tobacco, and it will be interesting to see what current "middle class welfare" programs are cut in order to meet the government's target of a 1.5% of GDP surplus.
There will probably be some funding announcements relating to climate change initiatives - probably wind, solar, and tidal energy generating research and commercialisation funds (they need another catchy "future fund" hollow log to store future surpluses). Of course there's no chance of any funding or support for nuclear power generation in Australia from a Labor government.
Although Labor had railed against "bracket creep" while in opposition, they are now down-playing the idea of using future budget surpluses to reduce income tax rates. They have also gone very quiet about automatically indexing tax thresholds.
There will be more federal funding for education, such as the "one computer per student" program. The effectiveness of this will depend, as always, on how willing and able the state governments are to pay for the required infrastructure, support and training that such federal initiatives create.
Copyright Enough Wealth 2008