What the mini-budget means to you

The MYEFO included some changes to super … and a range of spending cuts.

PORTFOLIO POINT: SMSFs were in the firing line from today’s mini-budget, with the supervisory levy being lifted 35%.

The federal government’s Mid-Year Economic Fiscal Outlook (MYEFO), or ‘mini-budget’, announcement earlier today caught many analysts off guard as Treasurer Wayne Swan made a surprise cut to the forecast 2012-13 budget surplus – from $1.5 billion to $1.1 billion – and introduced a wide range of small targeted cuts to achieve what is now regarded as a highly political objective.

Swan said the surplus was “very important given global economic concerns” and that Labor had been running a tight ship on a “responsible middle course between those who say we should cut hard in the budget and … those who say don’t cut at all”. Opposition finance spokesman Joe Hockey said the MYEFO was a “continuation of the cook the books strategy” and Opposition Leader Tony Abbott said it suggested more taxes were on the way.

In recent weeks the government had let it be known it was considering an overhaul of superannuation, but then reportedly shied away from making big changes after an outburst of protest from both industry groups and consumers.

Nonetheless, superannuation did not escape entirely. The government announced a hike in the SMSF Supervisory Levy, to $259, paid by the 478,000 self-managed funds. This levy, which is collected in arrears through the SMSF annual return, will jump 35% from July 1, 2013, from the previous $191. The levy was just $45 when Labor took office in 2007. Reports also say the government is bringing forward the levy to be collected in the year of operation, as with APRA-regulated funds, and the move represents $319 million extra for the government over the forward estimates period to 2015-16.

However it’s not entirely bad news for SMSFs, as the government also said it was amending the law around pension exemptions on death. SMSF specialists DBA Lawyers explained that a 2011 tax ruling suggested that if an SMSF member receiving a pension died with assets carrying unrealised capital gains, then the pension would cease (barring certain specific provisions) and the SMSF would face CGT implications if the assets were then sold or transferred.

The MYEFO stated the government would change this, to allow pension exemptions to continue until the deceased member’s benefits have been paid out of the fund.

Separately, the government introduced a range of changes that will impact many Eureka Report members.

The key changes are:

Private health

The private health insurance rebate will be cut by $1.1 billion over the forward estimates, as the government only pay the rebate on premium rises in line with inflation from April 2014.

This is expected to save $700 million over three years, and the changes could cost an individual with average hospital cover around $13 a year while families could be $26 worse off.

Rebates of up to 30% on penalty loadings paid because people didn’t take out private cover when they turned 30 will also be cut, from July 1, 2013, saving a projected $390 million.

Baby bonus

The baby bonus for second and subsequent children will be reduced to $3,000 for $5,000 from July 1, 2013.

That’s bad news for young families, but the move will save $461 million, including $169 million in the 2013-14 financial year, and follows a cut to the baby bonus from $5,400 roughly this time last year.

Fringe benefits tax

Robert Gottliebsen explains: Changes to tax arrangements for corporate Australia will affect the ability of companies to invest in their enterprises and create employment.

One of the most common ways to reward executives is to allow them to salary sacrifice and receive products or services that the company provides.

From today, the government will remove the concessional fringe benefits tax arrangement (FBT) if they are accessed by way of salary sacrifice. From April 1, 2014, it will cover all the prior arrangements.

Apart from corporate products and services, this will also affect salary sacrifices to use corporate boxes at sporting events.

Lost super

Finally, the government has hit the industry and retail superannuation fund managers.

From December 31, 2012, the threshold for transfer of “uncontactable” accounts will be raised from $200 to $2,000, and the period of inactivity will be reduced from five years to one. This is expected to provide more than half a billion dollars in revenue.

That means revenue from the management of dormant or lost funds is to be transferred to the government. This not only provides a temporary boost to the budget, but intensifies the squeeze on the big retail providers as they’re caught between self-managed funds and the industry fund movement.

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