Nicole Pedersen-McKinnon outlines what to expect now the carbon tax has arrived.
Not since the GST was introduced in 2000 has the ticking over of a financial year held such potential to affect your hip pocket. And not since then has there been so much argy-bargy about by how much.
The fact is that when it comes to the change generating all the debate the carbon tax no one knows. The tax is not on us - it's on our 300 biggest polluters. So it will be up to them to what extent they pass it on.
Here's what you need to know to deal with that and a raft of other big tax reforms that today's new financial year heralds.
CARBON CONFUSION
Lots of pressure groups and organisations have had a crack at estimating how much more we'll pay on electricity, gas and food.
The price of the average $25 birthday cake - the big issue when the GST was introduced - is set to increase less than 10?, says an economist from Murdoch University in Perth.
Treasury estimates costs across the economy will rise only 0.7 per cent but there is at least the theoretical potential for businesses struggling anyway to engage in a bit of price gouging.
Of course, it's up to us whether we will wear all this or, instead, shift our business to more competitive suppliers, encouraging greener production.
There's also the matter of compensation. The government's household assistance package has already delivered payments of $69 to $250 to families, seniors and individuals on benefits. From today, the tax-free threshold will also triple to $18,200, bestowing tax cuts of an average $300 a year on everyone earning below $80,000 (people on above that will get just $3). In addition, some government payments will increase from March 2013.
All up the government, supported by recent independent calculations, puts the likely total weekly cost per family at $9.90 ($3.30 for electricity, $1.50 for gas). The average assistance is said to be $10.10.
In terms of job security, industries deemed to be put at risk by the cost imposition, such as the steel industry, will also receive assistance.
But all the fuss might be for nothing anyway - the Coalition has vowed if elected to repeal the tax on day one.
SUPER SLUG
Big changes come into effect today when it comes to your retirement savings.
First, the golden giveaway that was the co-contribution scheme - a matched super contribution of up to $1000 for lower-income earners - is being scaled back. The maximum will halve to $500 and the top-income limit for qualification will drop from $61,920 to $46,920. It's still money for nothing, so worth trying to find a spare $500.
Then there's the large, unexpected cut to the amount fiftysomethings with super balances less than $500,000 can pay in before tax each year, from $50,000 to $25,000. This is supposed to be a temporary, balance-the-books measure, but do you really believe it?
The GFC-battered group now faces an uphill battle to rebuild its retirement kitty. For the rest of us, the inability to tip in large amounts at the last minute means we need to save the maximum $25,000 (including employer contributions) each year from age 35 to reach the magic million.
On the positive, if you make below $37,000, you'll get an automatic $500 a year in your fund from the government to redress the 15 per cent tax on super contributions. Meanwhile, very-high-income earners (more than $300,000) are also contending with a 100 per cent increase in tax on contributions: from 15 per cent to 30 per cent.
HEALTH HIT
The cover carrot has been slashed and the stick enlarged. The 30 per cent rebate for having private health will phase down from $84,000 for singles and $168,000 for couples, disappearing entirely at $130,000 and $260,000 respectively. But if this tempts you to leave, the Medicare levy surcharge with which you'd be slugged is ratcheting up from 1 per cent to 1.5 per cent by those $130,000 and $260,000 incomes.
What to do? Switch to a more competitive product. Chances are you could keep your premiums the same and increase cover quality. Remember that no waiting periods apply in a new fund if you already qualify for treatment with an old.
SPOUSE EXPENSE
The dependent spouse and mature-age rebates were a budget casualty. If your spouse was born from July 1, 1952, you will no longer get the former, and the latter will be phased out for July 1, 1957, birthdays on.
LEVY LEVITY
The flood and cyclone levies: gone.
Nicole Pedersen-McKinnon is the editor of Smart Investor magazine, afrsmart investor.com. Twitter @NicolePedMcK.
Frequently Asked Questions about this Article…
What is the carbon tax and who will actually pay it?
The carbon tax introduced at the start of the financial year is levied on Australia’s roughly 300 biggest polluters, not directly on households. Those businesses may choose to pass some or all of the cost on to consumers, so the actual impact on your bills depends on how individual companies respond.
How much will the carbon tax push up my electricity, gas and food bills?
Estimates vary, but Treasury projects economy‑wide costs to rise about 0.7%. Independent calculations put the likely total weekly cost per family at about $9.90 (roughly $3.30 for electricity and $1.50 for gas) and the average household assistance at about $10.10. Some analysts expect modest rises (for example, a <10% increase on an average $25 birthday cake in one estimate), though some businesses could pass on more if they choose.
What compensation or tax changes will offset the cost of the carbon tax for households?
The government has put in place a household assistance package that has already delivered one‑off payments of $69 to $250 to families, seniors and individuals on benefits. The tax‑free threshold has tripled to $18,200, which the article says provides average tax cuts of about $300 a year for people earning under $80,000. Some other government payments are scheduled to rise from March 2013.
Will the carbon tax put jobs at risk in particular industries?
Some energy‑intensive industries considered at risk — the article cites the steel industry as an example — will receive targeted assistance to protect jobs and ease the transition. The level of support depends on government programs for affected sectors.
Could the carbon tax be repealed, and should investors factor that into their plans?
The article notes political risk: the Coalition has vowed to repeal the carbon tax on day one if elected. That promise introduces uncertainty about the tax’s longevity, so investors should be mindful of policy risk when making long‑term plans.
What are the key superannuation changes that everyday investors need to know?
Major changes include the co‑contribution being cut from a maximum $1,000 to $500 and the top income limit to qualify dropping from $61,920 to $46,920. The concessional (pre‑tax) contributions cap for some people over 50 with balances under $500,000 has been reduced from $50,000 to $25,000 a year. The government will automatically add $500 a year to the funds of people earning below $37,000 to help offset the 15% tax on contributions, while very high earners (over $300,000) face an increase in tax on contributions from 15% to 30%.
How have private health insurance incentives changed and what should I consider doing?
The 30% private health insurance rebate is being phased down: it starts to taper from $84,000 for singles and $168,000 for couples, disappearing entirely at $130,000 and $260,000 respectively. At the same time the Medicare levy surcharge for those thresholds is increasing from 1% to 1.5%. The article recommends shopping for a more competitive private health product — you may be able to keep premiums similar while improving cover — and notes that there are no waiting periods in a new fund if you already qualify for treatment under your old fund.
What practical steps can everyday investors take now to protect finances and retirement savings?
Practical actions mentioned in the article include: comparing suppliers and switching to more competitive or greener providers if businesses pass on carbon costs; considering making use of the reduced co‑contribution (try to find a spare $500) and the government’s $500 top‑up if you earn under $37,000; reviewing private health cover to avoid surcharge hits; and, because concessional contribution caps have been lowered, planning to maximise the new $25,000 annual cap consistently (the article suggests saving the maximum each year from about age 35 to stay on track for long‑term retirement goals).
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