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An irresponsible Budget

An irresponsible Budget

Every year I do the economics wrap up on Australia’s Federal Budget in Brisbane for the accounting group PriceWaterhouseCoopers where over 900 people flock to find out how their business and personal lives will be affected by the nation’s Treasurer.

And this year I commenced my speech with: “On an historical basis, this is a very irresponsible Budget — thank God, we needed an irresponsible Budget!”

You see, creating a $57.6 billion budget deficit is so big it puts us on a track to over $300 billion of debt in ensuing years and around six years of more deficits down the track. It straddles us with about $3 billion of interest each year, which the

Government will either get from us or will make some of us pay by spending less on us. This is why in the past many would’ve seen this as irresponsible. But that was then, this is now.

Saving jobs

Now, the Prime Minister Kevin Rudd was quoted on Budget day vowing to the people of Australia that he “would save jobs”. The Budget Papers actually showed a chart of what would have happened to the unemployment queue if they hadn’t acted to stop big job losses. The 8.5 per cent unemployment rate tipped for June 2011 would have been over 10 per cent.

The trade-off in this Budget, though Treasurer Wayne Swan didn’t admit it, is that they think saving people’s jobs now are worth it, but we will have to pay for it down the track through higher taxes and less government spending.

It could be argued that we will be helped to pay it off from the production and efficiency that will come from the $22 billion to be spent on our too old and unproductive infrastructure.

Links to China

Also, if and when China gets back to 10-12 per cent economic growth, and it will, our tax base will grow again as mining companies become profitable and that will help pay down the debt.

Because of our close links to China as a supplier of vital resources, our borrowings are like someone on $500,000 a year borrowing $4 million for a house compared to someone on $100,000 trying to buy the same house! We’re in a better position to pay off our debt compared to most other countries.

And even our debt is relatively small. By 2014 our debt will be 13.8 per cent of GDP while Europe, the UK, Japan and the USA will be around 80 per cent of GDP!

What the Budget means for you

That’s the big picture assessment, but what about your or the small picture. There are always winners and losers from a Budget and sometimes you wake up too late to a potential win or loss. I will try to give as many alerts as possible.

The winners

Winners include pensioners, with singles getting $32.49 extra a week, and couples getting $10.14 more a week. The First Home Buyers Grant continues as is until October when the $21K for new homes goes to $14K and the existing home grant falls to $10,500. Small businesses with turnovers less than $2 million can buy business equipment, cars etc. and receive a 50 per cent tax deduction and still be able to claim the usual depreciation.

The tax cut promises from last year were honoured to help spending and create jobs. If you earn $30K you get $2.89 a week, $60K gives $5.77 and a $100K gives $10.58 a week.

In 2011, parental leave of 18 weeks at $544 a week will come in. And if you are in the infrastructure sector with $22 billion to be spent, there will be jobs and profits, and some companies’ share prices will do well.

The other side of the coin

On the loser side, if you earn between $75K-90K, the private health insurance rebate is cut from 30 per cent to 20 per cent. Between $90K-120K, the rebate drops to 10 per cent and if you earn over $120K, the rebate disappears. If you are a two-income family, these income levels double.

If you plan to get even with the Government by dropping out of private insurance, you will be slugged a higher Medicare surcharge. This will push the surcharge from 1 per cent to 1.25 per cent or 1.5 per cent (Retirees in these income brackets will lose part of their rebate but not as much a workers.)

Further changes

Family Tax Benefits income limit of $150K has been frozen to try to reduce overall payments as recipients’ incomes rise. If this affects you, go to www.budget.gov.au to see how you are affected.

People who salary sacrifice to bump up their super have been restricted with the amount you can put into super reduced from $50K to $25K for those under 50 years of age and from $100K to $50K for those over 50.

Anyone earning more than $250K and who owns a loss-making hobby farm, horse stud or yacht hire business won’t be able to use the losses to reduce their income tax. If this affects you, talk to your accountant, as one expert told me that losses can be ‘ring-fenced’ and used if the loss-making business starts to make profits.

Also, most Aussies working overseas will now have to pay our tax rates and receive the lower tax they paid overseas as a rebate. Those affected should look more closely at this one.

Do the research

These are some of the stand out Budget giveaways and slugs but for those who like to be forewarned and forearmed, I reckon this weekend should be spent on the search engine. 

Published on: Friday, May 15, 2009

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