Federal Budget 2017: Personal tax changes

Federal Budget 2017: Personal tax changes

Australian doing his personal tax return

Personal tax changes:

  • From 1 July 2017 the temporary deficit levy will lapse;

  • From 1 July 2018 student debts (HECS/HELP, etc) repayments will start at a lower income threshold, and will apply at higher rates at higher levels of income to help the Government to collect the debt much more quickly;

  • From 1 July 2009 the Medicare levy will increase from 2.0% to 2.5%;

  • Despite media scaremongering, there is no removal of deductions for work related expenses or introduction of a ‘standard deduction’.

These changes will most hurt workers who have moderate to higher income and who have student debts. By the 2020 tax year, starting on 1 July 2019 they will be hit with at 25% increase to their Medicare levy (i.e. being the jump from 2.0% to 2.5%) as well as higher/faster compulsory student loan repayments.

Trying to save for a home, with increasing private health insurance premiums and falling (or no) offsetting private health insurance benefit, is going to take a lot of first home buyers out of the market. That will help reduce supply! Not much will be left over, to benefit from the opportunity to make additional / voluntary superannuation continuations, to fund a future potential first home deposit.

And at the higher end of the income spectrum, the removal of the temporary deficit levy will be a relief, but more pain is not too far away. For instance, an individual with a taxable income of $200,000 will save $400 as the deficit levy collected 2% tax only on the incremental income over $180,000. The higher Medicare levy of an additional 0.5% will cost $1000, as it is applied to ‘all income’, not just the increment over $180,000.

In 2001, the tax year in which GST was introduced, the average income was around $45000. By 2020, the average income is expected to be around $87000.

In 2001, the marginal tax rate (including Medicare levy) that applied at $45,000 was 31.5%.

In 2020, the marginal tax rate (including Medicare levy) that is expected to apply at $87,000 is 39.5%.

The great tax restructure with the introduction of the GST and the promised reduction to marginal rates of tax on personal income, has disappeared over the last 10 years.

The extra government spending to ‘protect’ Australia from recession around the global financial crises around 2008, when government spending increased by around 25% as a short-term measure, has stayed and has been added to, with Australians being taxed like never before. Despite all of the additional tax, we have borrowed more and spent the lot and the country is headed toward $600 billion of debt. We’ll need 100 of the projected 2021 budget surpluses, to pay back the debt, with interest.

And along the way, apart from cost of living pressures including the cost of private health insurance premiums, the medical expenses tax offset has been all but eliminated, tax offsets for private health insurance have been wound back and even eliminated for some, and opportunity salary sacrifice income and other superannuation changes to provide for retirement have been dramatically compromised. More people, in future, will not be able to save enough for retirement and will be replying upon a reluctant Government. Anyone who thinks the family home won’t one day be in the assets test is kidding themselves. Why should a couple in a $2m home get the same pension as a couple in a $350,000 home? Why should taxpaying Australians, be paying pensions, to both?

But our politicians of the last 10 years have failed to keep spending within the taxes collected, and the parliament has failed to cut back spending. In the 2017 federal budget, the Government ‘gave up’ on spending cuts that the Senate refused to pass since 2014 and capitulated to increasing tax collections from 23.8% of GDP to 25.2%, not only quietly ripping taxpayers off with bracket creep but boldly bumping up the Medicare levy.

Politicians from both the major parties have continuously been able to control our houses of parliament and are all responsible for these budget outcomes of the last decade, and for so long as Australians vote for these outcomes, we will continue to get these outcomes, and future generations will be paying for the welfare of the present.

With 60% of Australian households contributing nothing to the government as they are not net tax contributors once welfare/government benefits are taken into account, the 40% can’t fund the government enough to keep us continuing budget deficits and accumulating Commonwealth debt. We can’t ‘whir’ back into surplus from a recession. Australia has not had a recession for 25 years, yet we are moving from no debt a decade ago, to $600bn expected by 2020. And ‘the rich’ (apparently, high income earners) can’t be squeezed anymore. The top 10% of income earners, are already contributing 45% of all personal tax paid in Australia. More Australians need to be contributors, rather than leaners, but how it is possible that 60% are now not contributing is a significant voting force, that the major parties are pandering to.

Australians need to demand better of our politicians, or demand better politicians. We cannot afford the political results we have had for the last 10 years. You need to be aware of these changes in the direction of government, work hard, protect yourself, make sensible decisions to properly and legally limit your lifelong taxation exposure, as the current and future governments certainly are not going to be helping Australians in future to be subsidised in their retirement in the way they have subsidised in the past – the money just won’t be there to borrow anymore.

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