DOSE OF HEALTHY SOCIAL (&) SECURITY
In short, the Budget contained measures which painted it as a socially focussed policy based Budget. The priority areas identified were defence, security, education and health, with tax issues/cuts thrown in as an offshoot of this.
The big end of town gets some support for tax reforms re reduction of tax on certain forms of foreign business income and gains and general international tax reform measures while there are no big gestures towards small and medium business (SME's) but some small changes only.
The follow is a summary together with our comments.
Personal Income Tax Cuts
- From 1 July 2003, taxpayers will share in personal income tax cuts worth $10.7 billion over the next four years.
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Current ($)
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New ($)
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Rate (%)
|
|
0-6,000
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0-6,000
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0
|
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6,001-20,000
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6,001-21,600
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17
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|
20,001-50,000
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21,601-52,000
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30
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50,000-60,000
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52,001-62,500
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42
|
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60,001+
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62,501+
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47
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- Increase of low income tax offset from $150 to $235
- Medicare levy low income thresholds will increase to $15,062 for individuals ($25,417 for families) plus $2,334 for each dependent child or student.
Comment: Unexpected tax reductions but do not introduce an ongoing remedy for the sensitivity of bracket creep. Levels need to be higher and include ongoing indexation of the brackets based on CPI increases (similar to Canada).
International Tax Reform
Aimed at improving competitiveness and reducing compliance costs proposed amendments include:
- Exempting complying super funds from foreign investment funds (FIF) regime.
- CGT exemptions for disposal of non-portfolio interests in foreign companies with an underlying active business.
- Updating Australia's tax treaties
Comment: Some good measures but still has not dealt with anomalies in the dividend imputation system. Under the present rules, dividends paid out of locally sourced income can be issued with franking credits. Foreign source income does not attract franking credits. This created a bias against Australian companies investing overseas. Hopefully, addressed in next budget.
SME related measures
- No deduction for capital protected products as from 16 April 2003, taxpayers will not be able to claim a deduction for the cost of capital feature embedded in a capital protected product.
Comment: Created confusion in the industry as to which products are OK and which products have been deleted as the government has not yet provided detail.
- PSI income - proposed changes will allow taxpayers to claim net PSI losses against other income from 1/7/2000.
Comment: Sensible
- FBT - To avoid double taxation, re FBT and PSI tax liabilities on payments made to associates, the FBT element will be reduced.
Comment: Sensible
Overall Comment: No mention of new measures for the commercialisation of research and development of new ventures or lack of focus on fast growing companies and exports. In summary, a lot of talk but very little action.
Education
- $1.5 billion' over 4 years
- A new Higher Education Loans Programme from 2005 to improve access to higher education.
- From 2005 universities will be able to set their course fees lower, as well as up to a maximum of 30% above standard HECS rates.
- HECS threshold increased from $24,365 to $30,000 from 2005.
Comment: Could provide a bonus for the university sector, but there could be understandable concerns over the potential effect on social equity, as many students in the most sought after courses will be forced into accepting loans. There is therefore a chance this may turn Australian Universities' a bastion of the financial elite rather than the academic elite!
Defence/Security
- Increased spending of $2.1 billion' over 5 years from 2002/2003
- $1.1 billion' over 5 years to augment logistics and support funding for a range of ships, aircraft and land-based specialists military equipment and ordance purchases.
- $645 million' re disarming Iraq and rehabilitation and reconstruction.
- Total of $411 million' directed at security including:
$148 million' to upgrade critical security infrastructure at Australian airports, ports and nuclear research facilities.
Comment: Welcome & required to enhance Australia?s capacity to respond to threats to national security.
Health
- $42 billion' for public hospitals under the new Australian Health Care Arrangements.
- $917 million' over 5 years to make health care more affordable, particularly for concession cardholders and veterans through the 'A Fairer Medicare' package.
Comment: Long overdue assistance no doubt appreciated but more required in next budget.
Superannuation
Comment: Disappointed in the lack of measures to address the tiers of taxation on super. Australia's ageing population is recognised as a major concern, yet the system continues to erode the nation's future savings.
Comment and Opinion by Tony Martin - Director.
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