Budget 2015: The investor’s guide

In case you missed it: Here's what an investor needs to know.

Just in case you missed our coverage of last night's Federal Budget, we are reprising the key takeaways from the Budget papers in the feature below. Scanning the coverage in this morning's press and internet services I wish I could report that the Eureka Report team "missed" some key aspects of the Budget which investors need to know, but sadly it's not the case. The Budget lock-up 2015 was a humdrum affair - in as far as the outstanding aspects had been either leaked or formally pre-announced by the Treasurer Joe Hockey.

For our subscribers the top issue will be restrictions to part paid pensions and the broader macro implications of the government's forward estimates. Today you can read Robert Gottliebsen's take on a major Budget initiative (Budget 2015: A future digital bonanza?) while you should also make sure to catch up on Alan Kohler's feature from Tuesday evening's special edition (Fiscal pussycats play it safe) and Adam Carr's analysis of the economic numbers that matter (A budget that clears the decks for growth and underpins Australia's AAA rating and Could iron ore deliver an unexpected boost?).

And of course the Budget is a great time to get up to date on just what is happening in our ever-evolving and ever more complex tax system.

To catch up with team and find out a lot more about the Budget please join me tomorrow (Thursday May 14 12.30 ) for our Budget webcast with Alan Kohler and Max Newnham (click here for more details).

- Managing editor James Kirby

Joe Hockey’s 2015 Budget does two things for Australian investors – first, it seeks to paint a landscape of slow but relatively benign economic indicators – second, it offers a selection of cuts and initiatives across the government sector which may stimulate ‘small cap’ stocks with substantially improved settings for small business.

For most investors the sight of a $41 billion budget deficit this year, dropping to a lower-than-expected $35 billion next year and returning to within sight of a surplus by 2019 with a deficit of just $7 billion will be good news.

The return of GDP growth in the forward estimates to a healthy ‘trend or better’ level of 3 per cent from 2016 will also be welcome and put to bed fears of the nation losing its triple A status.

More broadly, investors looking for anything new in this Budget which has not been pre-announced or leaked will have to dig deep.

For active share-market investors, small cap stocks may benefit from a substantial move to boost small business with digital initiatives and a promised 1.5 per cent cut in company tax to 28.5 per cent. But we are talking about small operations here with revenues of less than $2 million. If there is any impact on the market it will be in microcap stocks.

There is also the chance that childcare stocks will be stimulated with the government expanding its spending in this sector by a total of $3.1 billion – however the cold reality is that these childcare measures will be threatened by the Senate, while the pension access cut measures are likely to go through the Senate unscathed.

For retirees the one very big – and very well flagged – change is the cuts to pension access. The government will reduce the amount you may have in investible assets (excluding your family home) to get access to a part-pension. 

For couples the dollar figure to note is that the cut off level drops from $1.15 million to $825,000. In tandem the taper rate doubles from $1.50 per $1000 to $3.00 per $1000.

The merits of the cuts will be debated for some months – at their best they will be seen as a fair rebalancing of an over-generous superannuation system inherited from Peter Costello. However, at worst, the changes are deeply flawed because in aiming to achieve reforms for the greater good the government has isolated one strata of the community for exceptional penalisation.

Analysts are suggesting those with around $700,000 in super will be the worst hit. The logic of this argument is that you are better off with a little super – and get a full government pension – or a lot of super where you are truly wealthy and will not be affected. The worst position is to be stuck in the middle: An estimated 327,000 people will lose benefits with this move. There may well be more trouble about this enormous savings measure in the Senate. The value of the cuts come in at $2.4 billion over the period of the Budget estimates, this is the single biggest saving outlined in the estimates.

For experienced investors – and Budget watchers – there is some comfort in what did not occur in the Budget.

For the record:

  • The family home remains completely off limits from all tax reform or pension cutbacks
  • There was no move on a Bank Deposit Tax
  • Negative gearing was not questioned
  • Dividend imputation was not mentioned
  • Any further changes to super or pension access were not highlighted.

For the majority of investors the Budget leaves an undisturbed regulatory regime. Changes to small business and attempts to tax offshore multinationals will get a lot of airtime but apart from pension access there in nothing here to upset investors.

As you might expect there are a number of ‘dot points’ throughout the budget papers that will be of specific interest to some investors, savers and high salary earners. Here are some of the most interesting:

  • There was some incremental improvement to employee share schemes already highlighted in the mid-year economic statement including excluding eligible venture capital investments from the aggregated turnover test.
  • There are moves to expand the commercialisation of ASIC (Australian Securities and Investments Commission), a precursor perhaps to an eventual float of ASIC’s companies register.
  • Analysts who have been baffled by some misleading – and no doubt embarrassing – statistics issued by the Australian Bureau of Statistics will be relieved to hear the agency has got a very substantial $221 million.
  • Early access to superannuation has improved for the terminally ill: Previously there had to be medical certification a patient was likely to die within one year… this has now been changed to a two year time period, giving people longer to sort out their affairs.
  • Crowd funding, a potential alternative to expensive fund raising in public markets, will get investigated by ASIC under a $7m program.