Tuesday, 13 May 2008

Horror budget?

Most commentators seem to think that the Australia Budget announced this evening was quite good. The Labor government has apparently delivered on it's election promises, has socked a large part of the surplus into various "Funds" ear-marked for future spending, and has moved to close some "tax loop-holes" and reducing benefits for the well-paid.

However, I found the budget to be more obscure than usual, and haven't as yet worked out what the impact will be on our finances and plans for next financial year. There were many announcements such as new income limits for Family tax benefit B and child care rebate eligibility that might, or might not, have a big impact on us. While at first glance it would seem that the income limits won't affect us (I've seen figures of $150,000 highest income earner limit for Family Tax Benefit B and $110,000 combined income limit for the 50% child care rebate), there were other changes that may apply. For example, there was mention that amounts salary sacrificed into superannuation will now be counted as part of your "income". This could mean that DW's "grossed up" income will be too high to be eligible for the Family Tax Benefit next financial year, even while she's only working a couple of days a week.

It would be nice to think that the increase in child care rebate from 30% to 50% may offset this by making it more worthwhile for DW to work an extra day each week. However, we were never able to claim the child care rebate for DS1 (even though it was costing $75 a day at the only centre close to our workplace that had a vacancy) because the child care was only "registered" and not "approved". Chances are that whatever Child Care centre we can find for DS2 to attend two days a week later this year (after we return from our holiday) will turn out to not be an "approved" centre either. Even if we can find an "approved" centre with a vacancy, the new $110,000 household income limit may preclude us from getting a rebate due to the new way of calculating "income" - apparently tax deductions against rental and dividend income won't be counted when working out "income". This will mean that even though we are negatively geared (overall) into property and shares (and therefore have LESS cashflow than our take-home pay would indicate), the gross value of rent, dividends and superannuation contributions would be included when working out our eligibility for the Child Care rebate.

This may be yet another reason for reducing my level of gearing in the new financial year (the main one is that the interest rate on my margin loans has increased so much in that past year that it's now doubtful that total ROI on the geared investment will exceed the borrowing cost). There's no point borrowing to increase my stock portfolio if it simply boosts my "income" to a level that costs us other benefits.

Overall, I shouldn't be surprised that a Labor budget that delivers a $21 billion surplus might well end up costing my "working family" several thousand dollars a year.

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3 comments:

Anonymous said...

I agree...is a strange budget. None of the papers today have the traditional frontpage photos with the 'Who's better off...who's worse off' comparisons.

I am a middle income ($80,000) a year salary earner, with no salary sacrifice arrangements, my wife is at home with our child, who is not in childcare. We don't have PHI, and from what I can tell, there will be absolutely no change to our circumstances except for the tax cuts.

A strange budget indeed...

Rachel @ Master Your Card said...

I am yet to experience a budget that has benefited me greatly. They seen to increase tax in some areas and increase benefits in others and in the end it makes no difference or makes you worse off.

Evets said...

I think you were the type of person they were specifically trying to affect with a tightening of 'middle class welfare' and the use of loopholes to take advantage of benefits that are not meant for you.

Throughout my working life I have received nothing more that a sandwich and a milkshake from budgets.

I am happy with this as long as the Govt starts investing for my future, and this infrastructure/education/health care fund is put to good use, it will provide more benefit to you and your kids than a couple of thousand dollars of family tax benefit.