2016 Budget: winners and losers


Election year budget delivers modest tax cuts for "middle earners", but no shocks.

What does the Budget mean for me?


In his first Budget, Treasurer Scott Morrison has the unenviable task of making the cuts he promised would turn a deficit into a surplus, while also delivering some election-year sweeteners for what is shaping up to be a hard-fought poll.
 
Businesses are the biggest winners, with a meaty cut in the company tax over the next four years. High-middle income earners come in a close second, being handed a pre-election income tax cut.
 
The hits to the hip pocket are spread out across the board, with Australians on lower incomes feeling more of the pinch while getting fewer of the benefits. The loss of superannuation tax concessions are set to impact very high earners, but overall this measure aims to make superannuation fairer.
 
The Government has finally found a way to tax goods bought from overseas, so those online discounts are likely to become less tempting. Continuing freezes on Medicare rebates will lead to higher out-of-pocket expenses for patients. And the fee for getting a new passport is set to go up again, with the cost for passport going up $20 for adults, $10 for kids and seniors, and $54 for a priority application.
 
Read on to find out how the Budget affects you.

Schools and child care

The outcome for families: click here for an accessible text-only version of this infographic.

Child Care Subsidy deferred

The Government's proposed Child Care Subsidy is still on the cards, but has been deferred a year due to government wrangling with the Senate crossbench. It was set to add an extra $2.1 billion to the Commonwealth's assistance package, but that money was supposed to come from cuts to the Family Tax Benefit, which did not pass the Senate.

The existing Child Care Benefit and Rebate will be extended for another year.

School funding

Schools are set to get a $1.2 billion bump in funding for 2018-2020, linked to a series of minimum numeracy and literacy standards for students, as well as needs-based allocation of money. The promised funding falls far short of what the Gonski reform plan calls for in the same years. 

Funding for public schools will increase by 11.1% in real terms between 2016-17 and 2019-20, and 7% for private schools.

On top of this, an extra $118.2 million will be delivered to schools to support students with disabilities.

The controversial School Chaplaincy Programme, introduced under Tony Abbott in 2014, is set to expire in 2017-18 and will not be renewed.

The outcome for youth and students: click here for an accessible text-only version of this infographic.

University reform

Fee deregulation is done – for now. Instead of trying to push ahead with its controversial higher education reforms, the Coalition has decided to take a year and do a bit of public consultation on the issues. 

Most of the other policies – such as reducing the HELP debt repayment threshold – remain possible options, but don't expect to see anything happen until after the election.

The only exception is complete fee deregulation, which the Government has moved away from. Instead, the consultation paper proposes "flexible fees" on high-quality, innovative courses. If this is implemented, it will probably mean that very popular courses at prestigious universities will cost a lot.

Recent modelling suggested that the cost of providing zero-interest loans to students will account for 18.3% of Commonwealth debt in the next decade, meaning that changes to the system are certainly looming.

In a little bonus for students, the Government will begin automatically issuing Health Care Cards to eligible students, instead of requiring them to make a separate application. This cheap measure will give subsidised healthcare to more people, many of whom might not even know they are entitled to it.

Jobseekers 

Youth Employment Package

The Government is putting $751.7 million dollars into its totally hip and radically named "Youth Jobs PaTH". The "PaTH" stands for "Prepare – Trial – Hire", and will aim to develop employability skills and paid work experience for people under 25, and up to $10,000 in cash incentives for businesses to hire them.

$88.6 million will also be invested in programs designed to encourage youth entrepreneurship, and self-employment. As part of the New Enterprise Incentive Scheme, education packs and workshops will help young people explore being their own boss instead of finding regular employment.

Work For The Dole

Work For The Dole will have $494.2 million cut from its budget over four years. Fewer people will be entering the program, as jobseekers will only have to participate after being on benefits for twelve months, instead of the current six months.

Saving for retirement 

The outcome for all working Australians: click here for an accessible text-only version of this infographic.

Finally: an actual definition of superannuation

The Government will at last put forward a law that defines the purposes of superannuation: "to provide income in retirement to substitute or supplement the Age Pension". Hopefully this will put a stop to the regular floating (and popping) of thought bubbles suggesting that Australians could use their super to put down a house deposit, or pay off student loans.

Top-ups for low income earners

While people on middle and high incomes are getting tax discounts on their super contributions, people earning less than $37,000 actually pay a higher rate on their super tax than on their income. To make this is bit fairer, the government is introducing a Low Income Superannuation Tax Offset from July 2017.

If your take-home pay is under $37,000, your super fund will get a tax discount of up to $500, which will minimise or even cancel out your super tax bill. This policy will cost $1.6 billion over four years, and replaces a similar Labor scheme, in which low income earners received top-ups to their super instead of tax offsets.

Restricting super tax concessions for the rich

More high income earners are set to pay more tax on their superannuation contributions, with a range of measures tightening tax breaks for the well-off. Super contributions and earnings are typically taxed at a flat rate of 15%. This means if you have a very high income it can be worthwhile to contribute more to your super, rather than paying a higher rate of income tax.

From July 2017, if you earn over $250,000 dollars, super contributions above that amount will be taxed at twice the rate, i.e. 30%. Previously this threshold was $300,000.

The government will also reduce the annual cap on concessional super contributions – the amount you can put away as a salary sacrifice and pay 15% tax on. Currently this is  $30,000 a year for people aged under 50, and $35,000 for those 50 and over. The new cap will be $25,000 a year for everyone.

Both these measures are aimed at preventing high-income earners gaming the super system to decrease their overall tax bill. Together, they will save the Commonwealth $2.45 billion over three years.

There will also be a $500,000 lifetime cap on non-concessional (i.e. post-income tax) super contributions. This will target the One Percent (literally, since this is how many people this rule actually affects) and prevent them from dumping a big inheritance or property sale revenue into their super fund and paying a comparatively low 15% tax on the earnings.

Catch-up contributions

New rules around the annual concessional contribution cap allow people who are returning to work after a break to put more into their super than the $25,000 annual limit. If your super balance is less than $500,000 you now have a rolling 5-year cap – that is, up to $125,000 over five years. This is particularly targeted at well-paid professionals who may have taken time off work to be a parent or carer, and want to make sure their retirement savings don't suffer because of it.

Superannuation Complaints Tribunal

In an effort to clear out the backlog of customer complaints, this small but important body will get a one-off $5.2 million bump next year. The Tribunal also covers life insurance disputes, an issue that has been big news this year.

Retirees 

More choices on retirement income

In order to give consumers a bit more choice about what to do with their superannuation once they retire, the Government is going to remove tax on earnings for some products during the retirement phase. This means that you'll start to see new financial products like deferred super annuities – which manage retirement incomes for their members – and they'll be more attractive to buy. It will also lessen the burden on the age pension, since these products are designed to prevent you from outliving your savings.

The outcome for older Australians: click here for an accessible text-only version of this infographic.

Health 

The states can expect to see $2.9 billion extra flowing from Canberra over the next four years for their public hospitals. But not everything is peachy in the public health system.

Medicare Benefits Schedule indexation pause

Medicare Benefits Schedule fees were frozen in 2014. They were due to be thawed out in 2018, but now they're going to be kept on ice until at least 2020. This extra two years will save the Commonwealth $925.3 million dollars, but means that the amount Medicare pays for medical services won't increase – even though doctors' fees will.

With the government covering smaller portions of medical bills, the out-of-pocket costs for consumers are going to increase. This will affect all services provided by GPs, medical specialists, allied health and other health professionals.

See our Medicare 101 explainer for more on what Medicare currently covers.

Medicare levy low-income threshold

The income threshold at which you have to start paying the Medicare levy will increase in line with the CPI. This amounts to a small tax cut (the threshold doesn't automatically get increased), although at a cost of $280 million over four years, it isn't as generous a gift as is being given to people on higher incomes.

Children and Adult Public Dental Scheme

The Government plans to scrap two programs Labor introduced to provide subsidised dental care for some children and low income earners.* These will be replaced with an expanded, combined scheme covering all children and Commonwealth concession card holders. However, with about $1.7 billion to spend over four years, the scheme will have to treat more people with less money than was on offer under Labor. 

Tobacco excise increase

Every year since 2013 the tax on cigarettes has increased by at least 12.5%. Originally planned for four years of price hikes, the Government has decided to continue the same increases for another four years.

The excise hike will mean that the about 69% of the cost of a packet of smokes will consist of tax, just shy of the World Health Organisation's recommendation of 70%. The increase will bring in about $4.7 billion over the next four years.

Given that people in the lowest income decile are three times as likely to be regular smokers than the top 10% of earners, increases to the tobacco excise will hit poorer Australians the hardest.

To combat accusations that increasing the tobacco excise will drive more smokers into the arms of black marketeers, the Department of Immigration and Border Protection's Tobacco Strike Team will get $7.7 millions to expand its operations.

Income tax 

If you earn over $80,000 you are in line for an income tax cut. The threshold at which you begin to pay 37 cents on the dollar has been increased from $80,000 to $87,000. This means that more of your income will be taxed at the lower rate of 32.5%. If you earn above the new threshold, this measure will save you up to $315 on your tax bill. All told, this tax cut will cost $4 billion over the next four years.

Temporary Budget Repair Levy

The government has declined to extend this levy, which increased the top marginal tax rate. People earning over $180,000 were taxed an extra 2% on income over this level. 2016-17 will be the final year of this levy, which Labor and the Greens have supported making permanent. The levy was budgeted to raise $3.1 billion over its four-year life span.

Business and the GST 

Company tax rate cut

The company tax rate will be cut for the first time in 15 years. For big businesses it currently sits at 30%, and over the next ten years will be cut right down to 25%. The plan is to do it slowly, with businesses with less than $25 million in turnover paying 27.5% in 2016-17. In the next year the businesses taking in less than $50 million will get the tax cut. In 2024-25 all companies will go down to 27%, then one percentage point per year until it reaches 25%.

For the first four years – when it will only encompass businesses with turnover less than $100 million – this tax cut will cost $2.7 billion.

Big small businesses

The definition of a small business – for the purposes of tax discounts – will also be changed. The turnover threshold will grow from $2 million to $10 million, giving almost 100,000 businesses access to tax concessions.

"Google tax" and combating tax avoidance

The diverted profits tax build on recent laws aimed at combating tax avoidance by international corporations. The new measures, due to come in July 2017, impose a 40% tax on profits sent overseas where there is no sufficient "economic substance" (i.e. no good reason) to do so.

It will target only companies with global revenue over $1 billion who try to shift their profits to low-tax countries. If a company shifts profits offshore and ends up paying less than 80% tax than they would have in Australia, this may be grounds for the company to be taxed here as well.

It will only raise $200 million over two years, but hopefully will encourage big companies to start paying their fair share of tax here.

Another $3.7 billion is expected to be gained from the ATO's new Tax Avoidance Taskforce, which will target high-wealth individuals and international corporations. $678.9 million will be given to the ATO to expand its compliance and auditing work.

GST on low-value goods bought from overseas

Say goodbye to tax-free online purchases. The Government has decided to apply GST to low-value (i.e. less than $1000) goods bought overseas from July 2017.

The plan essentially relies on foreign businesses complying and registering with the ATO, then collecting the tax through the sales process. The Tax Office will embark on an educational program to sign up the biggest vendors. Australia will enlist the businesses' home countries to help with compliance, and if a seller consistently refuses to collect the tax, they might even face having their website blocked.

The tax hike will bring in about $300 million in its first three years.

Financial regulator funding

The Budget contains an additional $127 million to regulate the financial system. But while new money is being granted to the Australian Securities and Investments Commission (ASIC), other measures take money out.

This budget includes an additional 'efficiency dividend', taking the total to 2.5% in 2016-17. This means that ASIC will need to find further savings this year, making cuts even though they've just received additional funding.

*Clarification: a previous version of this article said that the government had scrapped two dental funding arrangements, including the Child Dental Benefits Scheme. It should have said the government planned to scrap them. As the legislation to enact the changes had not passed Parliament before the election was called, these schemes remain in place.


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