The coming financial year should be a wonderful one for Australian investors, especially those who invest for income.
The cut in the company tax rate from 30 to 28.5% doesn’t kick in until July 1st, 2015. That means listed Australian companies have a year to clear their unused franking credits at the higher tax rate.
Any board that fails to take advantage of this will face the wrath of shareholders at next year’s annual meeting. As a result there is little doubt that investors will be showered with dividends this year and next year.
Of course after that both the dividends and the franking credits will dry up, but for the moment investors can make hay.
That’s the good news. The bad news is that the Government is cracking down on use of the Seniors Health Card by self-funded retirees.
The budget contains savings of about $250 million a year by ceasing the “seniors supplement” for holders of the Commonwealth Senior Health Card. In addition to that income thresholds for access to the health card will be indexed, and untaxed superannuation income will be included in the eligibility assessment.
This card has been an important income supplement for self-funded retirees, especially for pharmaceuticals, so the crackdown will be painful for many.
And apart from the good news and the bad news, there’s also a big missed opportunity. Treasurer Joe Hockey has made much in this budget of the $11.6 billion in spending on infrastructure, but it could have been much, much more. He has failed to take any action that would mobilise Australia’s superannuation billions into investing in infrastructure.
Last year, as he prepared for the Coalition’s likely election victory, Hockey was often thinking aloud as well as consulting widely about how to move super – both large funds and SMSFs into infrastructure. As I understand, he had been favouring some kind of Commonwealth guarantee of construction risk to underwrite the projects, so that super funds would only be exposed to operating risk.
But in Government Joe Hockey seems to have baulked, either at the contingent liabilities that would be created by such guarantees, or by the need for more roads to carry tolls to provide a return for super fund investors. Either way, the boost to infrastructure he is trumpeting today comes entirely from Government revenues – $5 billion for what he calls the Asset Recycling Initiative, $3.7 billion for the Infrastructure Investment Programme, which basically comes out of current spending, plus an amount of $2.9 billion over 10 years for Western Sydney, including the new Badgery’s Creek Airport.
But it could have so much more.
As for the overall effect of the budget on the economy - very little. It cuts next year’s deficit by $4 billion, and gradually returns it to surplus over 10 years, assuming the economic forecasts prove to be correct, which they won’t.
It is not a horror budget, or even an austerity budget really. It’s a bit of a pea and thimble budget – savings to pay for election promises. The savings, however, will be painful – some of the most extensive cuts to health and welfare that I have seen in 30 years of covering federal budgets.