Budget 2014: More losers than winners

High income earners, health and pensioners have been hit hardest, while investors get little.

Summary: The federal budget contains a range of changes impacting most Australians in areas including the age pension, youth unemployment, health and superannuation.
Key take-out: Benefits to investors may come from a few areas such as the drop in the company tax rate and the increase in infrastructure spending.
Key beneficiaries:  Individuals and companies.

The first full-year budget of the Coalition government is attempting to considerably cut fiscal spending, with almost every Australian impacted in some way as pain is shared around.

Out of 10 key election promises, only four have been met: no change to the GST, more money for trades training, increased funds for dementia research and a cut in the company tax rate.

The negative implications are more severe for high income earners, health sector users and pensioners.

Although the impact on most Australians (except for higher income earners who will start to pay more tax in the 2013-14 year) will not be felt until after 2014-15, it is the most contractionary budget since 1996-97.

The benefits to investors may come from a few areas such as the drop in the company tax rate and the increase in infrastructure spending. But, generally, there are few surprises for investors – positive or negative.

Taxes

Higher income earners on more than $180,000 a year will fund a temporary budget repair levy, which will see a personal tax increase of 2% starting on July 1, 2014 until June 30, 2017. An increase in the fringe benefits tax rate by 2% to 49% will offset any shifting of income, to avoid the increase in personal taxes.

Tax benefits such as the Dependent Spouse Tax Offset and Mature Age Worker Tax Offset will be abolished, and the Medicare levy threshold for families will be raised.

Family Tax Benefits will be harder to get with lower personal income cut offs and removal of indexation.

There will a reintroduction of fuel excise indexation with the excise indexed twice a year. Fuel will rise about one cent a litre to 39 cents this year.

Pensioners

Fewer retirees will qualify for the pension with income and assets thresholds frozen, rather than keeping pace with inflation, for three years after 2017. Those that do qualify may receive less with the indexation of pensions to inflation, instead of the pensioner cost-of-living index.

The pension age will increase to 70 by 2035 (for those born after 1965). There will no longer be the seniors supplement and eligibility of self-funded retirees for the Seniors Health Card will be more restrictive, with untaxed superannuation income included in the income test.

Health

GP visits, and out of hospital radiology and pathology, will incur a Medicare co-payment of $7. After 10 visits a year this will be waived for children under 16 years old and those on concessions.

Patients will pay an extra $5 for prescription drugs on the Pharmaceutical Benefits Scheme, with the government contributing $5 less.

Welfare

Those under 30 years old seeking unemployment benefits for the first time will be subjected to a waiting period of six months.

A lower Youth Allowance, rather than Newstart, will kick in for the unemployed under 25 years old.

Superannuation

The super guarantee will rise to 9.5% (from the current 9.25%) on July 1, 2014 and remain there until June 2018. After that it will eventually rise to reach the target of 12% by 2023.

The excess contributions penalties will be less tough and if the new cap of $180,000 is breached then there is the ability to withdraw the excess payments. There will be no excess contributions tax payable, with any related earnings taxed at the marginal tax rate.

First Home Saver Accounts Scheme

The Government is abolishing the First Home Saver Accounts scheme, using a phased approach.

The Government said the reason behind this was move because the scheme had limited effectiveness in improving housing affordability due to the low take-up of accounts since their introduction by the former government in 2008. At December 2013 there were 46,000 accounts open with a combined balance of $521.5 million.

Any new accounts opened from budget night will not be entitled to the existing co-contribution or any tax or social security concessions. For existing accounts, the co-contribution will cease on 1 July this year and any tax and social security concessions will be withdrawn from 1 July 2015.

Benefits to Investors

The benefits are few and far between. But as Alan Kohler discussed in his summary of the budget, the cut in the company tax rate from 30 to 28.5% may be a bonus for dividend seeking investors in 2014-15. After that, however, dividends may become more scarce.

Also, the $11 billion committed to infrastructure spending may be a positive for some infrastructure related companies but will be more medium term than near term.