5 ways the new Budget could affect you

Last night liberal treasurer Scott Morrison handed down the 2017/18 Budget. As Commonwealth Budgets go — and I’ve sat through my fair share over the past twenty years — it was remarkably uncontroversial, with many of the key initiatives being widely telegraphed in the weeks leading up to budget night.

We’ve combed through the papers and pulled the top 5 Budget announcements that we think our clients should know about.

While it might not be an annual tradition that you look forward to, budget night is an exciting and interesting time for us finance nerds. There’s nothing like the thrill of being the first to come across an expenditure or significant revenue measure buried deep within one of the lesser Budget papers…

Budget night for finance nerds!!!!!!

…or perhaps we just need to get out more.

Anyway, we’ve combed through the papers and pulled the top 5 Budget announcements that we think our clients should know about.

#1: Key Economic Forecasts

The Government is forecasting a return to surplus in 2020/21 (albeit a modest $7.4bn), eliminating a forecast deficit of $29.4bn for 2017/18.

Inflation is forecast to stay constrained at a modest 2% for the next two financial years, while wage growth is forecast to grow from the current sub-2% per annum rate to 2.5% for 2017/18 and 3% for 2018/19.

What it means for you:

Australia’s economic conditions are forecast to be relatively benign over the next two years. Reducing the deficit should help to maintain the Commonwealth government’s AAA debt rating, which in turn would assist in keeping general interest rates (including mortgage rates) constrained. That’s good news for mortgage holders everywhere.

On the flip side however inflation, as experienced by many Australians, is far from benign, particularly for those trying valiantly to enter the property market.

Perhaps more troubling however is wage growth. It stalled during the Global Financial Crisis of 2007/08, has yet to recover and, combined with rising living costs, is putting enormous pressure on family budgets across the nation. Wage growth currently is at a 20 year low, and in the absence of productivity improvements, it’s hard to see wage growth rebounding to 3% during 2018/19.

#2: Paying Back University Fees

The government is reducing funding to universities by some $2.8bn, with a 2.5% ‘efficiency dividend’ (i.e. budget cut) being imposed over the next two years. It is estimated that these measures will add between $1,000 and $3,900 to the cost of a basic undergraduate degree.

As for those who’ve left their uni days behind but haven’t yet managed to shake the accompanying HELP debt, repayment rates on HELP loans are set to rise effective 1 July 2018, while the income thresholds for making mandatory repayments will reduce.

What it means for you:

The threshold for repayments will reduce from $52,000 to $42,000, meaning that people on this lower salary will be some $420 worse off. According to consumer group CHOICE, those with outstanding HELP debt on incomes of $80,000 will be some $800 worse off each year, while those on $120,000 will be some $2,400 worse off each year.

#3: Raising a Family

The government has reaffirmed its commitment to providing more accessible and affordable child care through its recently legislated Jobs for Families child care package. It is set to spend roughly $37 between 2017/18 and 2020/21 on child care, including before and after school care.

A Child Care Subsidy is set to replace the range of existing child-related benefits, including the Child Care Benefit and Child Care Rebate. This single, means-tested payment will come into effect from 2 July 2018.

What it means for you:

Under the new Child Care Subsidy, the subsidy you (and your spouse/partner) receive will be dependent on combined family income. For those with combined family incomes under $65,710 the rate of subsidy will be 85%, tapering down to 20% for those with combined family incomes between $340,000 and $350,000.

For a ‘typical’ two income family (combined family income between $65,710 and $170,710) the Child Care Subsidy will taper to 50% at that upper income limit.

#4: Buying Your First Property

If there’s one issue that’s absolutely dominated the headlines in the past year, it has to be housing affordability. And with some justification, too, particularly in Sydney, Melbourne and, to a lesser extent, Brisbane. Residential property price rises in these cities, especially since 2012, have been nothing short of stratospheric, impacting both renters and those seeking to buy.

The government has clearly been taking the pulse of the electorate, and has moved to introduce a scheme to assist first home buyers to break into the market. It has announced a First Home Super Saver Scheme (FHSSS) in the Budget, which will allow individuals, from 1 July 2017, to contribute up to $15,000 each year to a superannuation account to purchase a first home.

The scheme will be capped at $30,000 of contributions per individual, such that an individual might contribute $15,000 each year for two, or look to make smaller contributions for longer.

What it means for you:

First home buyers may benefit from the use of such a scheme, as the government has indicated that individuals may be able to negotiate with their employers to salary sacrifice their contributions, thereby putting pre-tax dollars to work in saving for a deposit.

While we applaud the government for taking action on housing affordability, we’re going to reserve judgement on this new FHSSS until we see more details, preferably the enabling draft legislation. Delving into the details released on Budget night, it would appear that the contribution will form part of an individual’s concessional cap for super contributions ($25,000 for 2017/18) that includes an employer’s Super Guarantee contributions.

One remaining question is the rate of return on these investments. On first glance, it appears that contributions will be ‘deemed’ (i.e. assigned) a 4.78% rate of return. We’re investing further, and will follow up with additional commentary as more details become available.

#5: Health Matters

The government is expecting to lift its spending on health from $75.3bn in 2017/18 to $82.6bn in 2020/21. In order to encourage GPs to bulk billing children under the age of 16, bulk billing incentives will be indexed from 1 July 2017, with fees for GP and specialist consultation items indexed from 1 July 2018.

What it means for you:

For the most part, the health measures announced in Budget are net neutral to positive for most of our clients. The one measure that will however be an additional burden on the household budget is the lifting, from 2% to 2.5%, of the Medicare Levy (from 1 July 2019) to help pay for the National Disability Insurance Scheme (NDIS). The NDIS is on track to be fully rolled out by 2020.

So, that’s our take on Budget 2017/2018. As I mentioned before, the new budget was fairly uncontroversial and most of the major announcements were expected. The most interesting announcement, the First Home Super Saver Scheme, is one we’ll keep looking into, and continue to keep you updated as more details are released.

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