Budget 2016: what to expect

29 April 2016 | With barely a weekend between now and Budget Night, it's time to take a look at what's on the table.

What we know so far

The 2016-17 Federal Budget is just days away, and the ins and outs of the first Turnbull-Morrison Budget are beginning to take shape. Enough leaks, rumours and announcements have come out for us to be able to make some predictions about what we're likely to see on Tuesday night, and what's off the table.

  • What's definitely in?
    Dental health cuts, superannuation tax hikes, middle class income tax cuts, investment in infrastructure, ASIC funding.
  • What's possibly in?
    University fee deregulation, changes to Family Tax Benefits, changes to Child Care Subsidy, more taxes on tobacco.
  • What's probably out?
    Changes to the GST, changes to negative gearing and capital gains tax, corporate tax cuts, sugar tax, the Budget Repair Levy. 

Definitely in

Dental health cuts

Less money, but access for more Australians to subsidised dental health care. The Federal Government is throwing $2.1 billion over five years at a partnership with the states, so that more people on low incomes and all children are covered. The plan includes less money than Labor offered when they were in power, and doesn't actually replace the $1.5 billion the Coalition took out of dental health in the last two Budgets. Read more: Dental health funding a kick in the teeth.

Superannuation tax hikes

High income earners will pay more tax on their super contributions. Currently you pay twice the tax on every dollar you earn over $300,000 that goes toward your super. That salary threshold will drop down to $180,000. The idea is to stop high income earners from parking their cash in low-tax superannuation, thus robbing the Commonwealth of the chance to wet its beak with those high-margin income tax brackets. Making super tax concessions a bit less generous will net $2 billion a year. Read more: Are you a super saver or a super sucker?

Middle class income tax cuts

In an election year sweetener, the government looks set to increase the $80,001 income tax threshold. Above this level, wages are taxed at 37c per dollar. The goal of increasing the threshold will be to lower the tax burden on high-middle income earners. This will offset "bracket creep", where wage inflation pushes people into higher tax brackets, without any corresponding increase in purchasing power. The political downside is that the very well-off will also benefit, leading to accusations of tax cuts for the rich.

Infrastructure investment and housing affordability

On Friday the Prime Minister announced Smart Cities, an investment plan to develop transport infrastructure and drive the construction of new homes in Australia's cities. Long-term government bonds – to replace the current grants system – will contribute funding to big projects like fast rail to Sydney's second airport, Adelaide's light rail and the Melbourne Metro Rail. Return on the Commonwealth's investment will come through faster economic growth (tax revenue) and "value capture", where businesses that benefit from the infrastructure are made to pay for it. $50 million will be allocated to run the project.

ASIC funding

The government has restored $121 million of the funding it had previously cut from the financial regulator. This will allow ASIC to get back to its job of surveilling and investigating the financial services sector, although it's a return to a less-than-perfect status quo. The $47 million efficiency dividend hasn't been touched, and rumour has it the public sector will see sharp cuts again this year.

Maybe yes, maybe no

University funding and student debt

The government still wants to deregulate university fees, so they might have another tilt at that this year. A Parliamentary Budget Office report recently warned of ballooning costs of providing cheap student loans. One option on the table is reducing the repayment threshold for HECS debts from about $54,000 to as low as $40,000. This will mean more graduates in early-career or part-time jobs will have to pay back their student loans.

Changes to Family Tax Benefits

Changes to these benefits have been proposed in various iterations since the 2014 Budget, although they have consistently been blocked in the Senate. It's within the realm of possibility that the government will try again.

Child Care Subsidy

The plan to align the amount child care support with how much the parents work or study didn't get through Parliament, although the government tells CHOICE it is still committed to bringing in these changes. Whether or not they'll adjust the policy remains to be seen.

Tobacco excise increase

Labor has proposed an increase in the tax on cigarettes that will raise $3.8 billion over four years. The government hasn't confirmed anything, but rumours are it's considering following suit.

Almost certainly out

The government has declared most of the following topics off-limits for this year's Budget, so don't expect any major reforms in these areas. But who knows? It wouldn't be the first time a politician has changed their mind.

Changes to the GST

Australia took the GST Road to Nowhere over the summer, with the government floating possible changes to the sumptuary tax. Ultimately we ended up right back where we began, with a promise to not do it again any time soon.

Changes to negative gearing and capital gains taxes

The government ruled out changes to these budget levers. Instead it hopes that its infrastructure funding plan will drive home construction, and in doing so bring down house prices. Stay tuned, because this is set to be a critical election issue.

Corporate tax cuts

Last year's budget saw a reduction in the tax rate for small businesses, and there has been talk about bringing down the company tax rate by the same amount. The 'pro' side claim this will spur growth, while the 'anti' camp say it will take away the tax advantage small businesses currently have. Tax cuts for the big end of town would also be a political hand grenade in an election fought around ending international tax avoidance.

Sugar tax

Although the government hasn't addressed it, talking heads and policy boffins have been discussing it after the United Kingdom confirmed it would introduce a tax on sugary drinks. This would be one way to find a bit of revenue for the health system without fiddling around with the GST, and might also lead to positive health outcomes. But according to the head of the peak canegrowers body, there are no plans for it in Australia.

Extending the Temporary Budget Repair Levy

Good news for the wealthy, this 2% tax on income over $180,000 levy will expire at the end of 2016-17, meaning the Budget has finally been repaired once and for all.

Stay tuned

The Budget will be delivered on May 3.

Join us here at choice.com.au for our live Budget Night coverage, with in-depth analysis of what each change will mean for you.

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