Federal budget: Steph Nash Winners & losers

Despite some rather wild speculation, the 2017 budget turned out to be a fairly tame beast

The lead-up to the 2017 federal budget was a whirlwind of on-again, off-again priorities. What we thought was the housing affordability budget, and then the health budget, and then the education budget, turned out to be an all-round affair focused on lowering the cost of living.

There’s a range of new levies and lots of spending (not to mention a few controversies, such as the new Skilling Australians Fund levy and the new $6.2 billion major bank levy) but the overall economic outlook from Treasurer Scott Morrison is optimistic. Although he had to axe $13 billion worth of zombie measures from the previous two budgets, the treasurer expects the budget to return to balance in 2020-21 and to remain in the surplus over the medium term. Wage growth is also expected to increase from 2% to above 3% over the next four years.

Housing

Just before the budget, the treasurer backed off measures to improve housing affordability. He explained the government would not make any changes to negative gearing or the capital gains tax discount to “avoid a housing shock”. Rather, he outlined a range of initiatives to help increase housing supply and level the playing field for first-home buyers. First-home buyers will be able to dip into their super to fund their deposit after all. From July next year, the first home super savers scheme will allow up to $15,000 a year ($30,000 in total) to be contributed to superannuation, within the existing cap of $25,000 per year. These contributions, which are taxed at 15%, along with deemed earnings, can be withdrawn for a deposit. The amount of earnings that can be released will be calculated using a deemed rate of return based on the 90-day bank bill rate plus three percentage points. Withdrawals will be taxed at marginal rates, less a 30% offset, which could boost the savings by at least 30% compared with a standard deposit account.

To improve supply, the government wants to encourage retirees to free up their family homes. If you’re aged 65 or older, from July 2018 a couple can add up to $300,000 each (a combined $600,000) to your super as a nonconcessional contribution from the proceeds of selling the family home. This contribution will be exempt from the age test and work test, and won’t apply to the cap on non-concessional contributions for people with balances above $1.6m. For balances capped at $1.6m, you will need to consider existing contribution rules and concessional and non-concessional caps.

One of the big losers are foreign investors, who have been slapped with a new vacancy levy and also stripped of the main residence capital gains tax exemption. To avoid the annual levy a foreign-owned property must be occupied or leased for at least six months a year.

Education

Education minister Simon Birmingham revealed his $18.6bn “Gonski 2.0” funding model in the week leading up to the budget. From 2018 the base amount for every primary school student will be $10,953, and $13,764 for a secondary student. He says the new funding model, to be implemented over 10 years from 2018, will reach a record $242.3bn of government funding for schools.

Higher education students aren’t as lucky. First introduced by then education minister Christopher Pyne in 2014, the government’s reform package has undergone a radical facelift. An efficiency dividend of 2.5% will be imposed on commonwealth grant scheme payments to universities in 2018 and 2019, which is a significant step away from the previous suggested 20%.

The new package also requires students to pay 7.5% more of the cost of their course fees. This will occur gradually as a 1.82% annual increase over four years from January 1 next year.

The minimum repayment threshold, which under the current system would have been $55,874 for the 2017-18

financial year, will now be $42,000, attracting a 1%pa repayment rate. This would cost about $8 a week. The maximum rate will be 10%, which will apply to incomes above $119,881 compared with the original 8%pa.

Health

Wanting to officially put Labor’s “Mediscare” campaign to rest, Morrison ended the Medicare freeze. The government plans to provide $1bn over four years for the phased re-introduction of indexation for certain items on the Medicare Benefits Schedule. Government incentives to encourage GP bulk-billing for children under 16 and concession card holders will resume from July 1, and standard consultations for GPs and specialists will resume indexation from July 1, 2018.

Labor introduced the freeze on indexation in 2013. Before this, the amount the government would reimburse medical practitioners for items listed on the MBS would gradually increase via an index to reflect wage increases and inflation. Now that indexation is back on the agenda, the government hopes it will lead to more bulk-billed services and, eventually, cheaper consultations for patients.

Additionally, the government will also provide $1.2bn over five years for new and amended listings on the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme, with new drugs available for treatment of heart failure and schizophrenia. Some medicines are set to get cheaper, thanks to a new five-year agreement with Medicines Australia.

Jobs

Infrastructure was a key part of the budget, with the government allocating $75bn to infrastructure funding and financing from July 1 to 2027. Job seekers will likely benefit largely from the commitment to the new Western Sydney Airport, which Morrison says will create between 20,000 and 60,000 jobs, and the Melbourne-to-Brisbane inland rail project, a further 16,000 jobs. And more jobs are likely to come from the new $10bn National Rail Program. Young people can look forward to the establishment of a $1.5bn Skilling Australians Fund, which will support up to 300,000 apprentices and trainees over the next four years.

Tax

There’s good news and bad news. The bad news, in terms of household cash flow, is that the Medicare levy is set to increase by half a percentage point from 2% to 2.5% of taxable income from July 1, 2019. The increase will mean a person on a $100,000 salary will pay an extra $500 a year, taking their levy to $2500. The government will use the $8.2bn expected to be raised to help close the gap in funding for the National Disability Insurance Scheme (NDIS).

Property investors were hit by tax reform, with changes to taxable property deductions. Plant and equipment deductions, which according to BMT Tax Depreciation Quantity Surveyors make up 15%-35% of the construction cost of a residential building, will be limited from July 1. This is your last financial year to claim a deduction for the life of an existing asset; next year, you will not be allowed to claim a deduction for an item on the property that was not purchased by you. Investors will also miss out on deductions for travel expenses. From the next financial year, expenses related to inspecting, maintaining or collecting rent for a residential property will be disallowed as a tax deduction. The government hopes to prevent false or incorrect property deductions and therefore deter property investors to free up housing supply.

Last year’s budget introduced a measure to allow small businesses with an aggregated annual turnover of less than $10m to immediately deduct purchases for eligible assets costing less than $20,000. The good news is that this was scheduled to end on June 30 this year but has now been extended to June 30, 2018. This is expected to improve cash flow for small businesses, providing a boost to business activity for another year.

The Medicare levy is set to increase by half a percentage point from 2% to 2.5%