Wayne Swan recently provided the 2012 Mid Year Economic and Fiscal Outlook (MYEFO) update which shows deterioration in government revenues as a result of a reduction in business and mining tax receipts of up to $4bn from budget estimates from earlier in the year. Despite the economy growing at around trend levels, the recent falls in commodity prices has lowered the expected receipts from the recently introduced mining tax which is expected to result in a greater reduction in government tax receipts in the 2013-14 financial year.
In order to achieve the government’s objective of maintaining a budget surplus for the 2012-13 and 2013-14 financial years, Wayne Swan has announced a number of proposals.
The government has announced that “in-house” salary sacrifice arrangements will be scrapped. Currently employees can purchase goods or services from their employer concessionally up to $1,333 in value without incurring a Fringe Benefits Tax liability. This measure will mean that employees looking at purchasing in house assets will be subject to Fringe Benefits Tax on any purchase. Employees that currently utilise this arrangement should review their remuneration packaging strategies as the change in taxation status of the ‘in-house’ salary sacrifice arrangements may result in a lower net income.
Baby Bonus Reduction
For children born from the 1st July 2013, the payment for the ‘Baby Bonus’ has been reduced from $5,000 to $3,000 for second and subsequent children.
Health Insurance Rebate
The government has announced that the rate of inflation applied to the Health Insurance Rebate will be pegged to the Consumer Price Index (CPI) or the commercial premium increase rather than the current Health Inflation Indicator. The percentage rebate payable will stay the same, however the impact of this measure which starts from the 1st April 2014 will see the actual health insurance rebate dollar payable reduce compared to the current system.
Business Tax Payments
Business tax installments for larger businesses have also been changed from quarterly installments to monthly installments.
As part of the MYEFO, the ATO is being allocated an extra $390 million in funding to better assist with compliance enforcement, targeting high wealth individuals and late lodgements.
The proposals outlined in the MYEFO are expected to result in a slight reduction in GDP and may result in the RBA looking more closely at further rate cuts as early as November. The announcements coupled with budget announcements made in July result in a number of changes affecting wealth creation and retirement strategies and individuals who think they are affected are encouraged to review their planning requirements.