This Budget is what I call the "fiddly bits budget". From a wealth management perspective there are a lot of little fiddly measures rather than a single theme.
Personal Income Tax Plan
The Government introduced their Personal Income Tax Plan which creates tax relief for Australians over a seven-year time frame, commencing 1 July 2018. The Plan includes:
- the introduction of a new Low & Middle Income Tax Offset of $530 (LMITO)
- increase to the existing Low Income Tax Offset (LITO) in 2022/23fy
- changes to top thresholds for the 19%, 32.5% and 45% tax rates over the seven years
- complete removal of the 37% tax bracket from 2024/25fy
While the Government promised no changes to the taxation of superannuation to promote certainty and stability they have announced various small measures that help improve the integrity of superannuation, and to help retirees boost their retirement savings.
These changes include targeting lost and inactive super balances, capping fees on low balance super funds, banning exit fees and making life insurance for younger Australians and those with low balances on an "opt-in" basis rather than an opt-out basis.
We like the introduction of a 12-month exemption from the work test for those over age 65 up to age 74 who have retired so they can contribute additional funds into super to help boost savings. Whilst our preference is to remove the 40-hour work test altogether this at least provides some ability for retiring Australians to get more into super.
Pensioners will also have a chance to boost income by the expansion of the Pension Loan Scheme to those on full pension and self-funded retirees.
Under the scheme, full pensioners will be able to increase their income by up to 150% of the age pension by unlocking equity in their home.
The debt owed to the Government under the scheme can never be more than what their home is worth so it is a worthwhile option for pensioners to consider to provide more income to help cover living costs. The current loan rate is 5.25%, which has not changed since 1997.
The Pension Work Bonus fortnightly exemption amount is also proposed to increase by $50, to $300 per fortnight. A single pensioner with no other income will therefore be able to earn up to $468 per fortnight in total without impacting their pension under the Income Test.
Increased funding to aged care services and home care packages is also a welcome announcement.
Overall, the 2018 Budget isn't a bad budget. It is obviously an election Budget but that was to be expected.
Clients can view my full 2018 Federal Budget Review here or access more analysis by clicking on 'Wealth Management' in the popular topics list to the right of this page. Alternatively, contact your Morgans adviser or nearest Morgans branch.
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