Budget comment: Gradual return to surplus as Treasurer promises just about right 

May 20, 2014
Budget comment: Gradual  return to surplus as Treasurer promises just about right

Maggie Tagg, who writes Citadel 'Financial Info on the Go' for GSA, says the key features of this years Federal Budget are:

1. The Budget deficit is forecast to fall to $29.8 billion next year and $2.8 billion by 2017.

2. Retirement age to be lifted to 70 by 2035 and tighter eligibility for certain pension benefits.

3. Eligibility will also be tightened for family assistance, Newstart and Disability Support Pensions.

4. Major spending on infrastructure investment and medical research over the next decade.

The government is planning tax increases for wealthy Australians, a cut to the corporate tax rate and a return to a balanced Budget by the end of the decade.

This years Budget contained spending cuts, tax hikes and other measures to counteract the long-term effects of an ageing population.

Maggie says the Government promised it would make 'no major changes', to superannuation or the age pension in the first term and has largely honored this pledge, she says.

Despite the expected increase in the retirement age to 70 by 2035, there are a few 'minor' surprises. The Government plans to index the age pension to inflation from September 2017 to ensure it remains sustainable. At present the age pension is pegged to changes in male full-time earnings which have outpaced inflation, Maggie Tagg said.

In another move unlikely to be popular with self-funded retirees, untaxed superannuation income will be included in the income test for the Commonwealth Seniors Health Card for new recipients.

This will put superannuation income on the same footing as income from sources outside super.

Additionally, health card holders will no longer eligible for the seniors supplement from January 2015 in order to target payments to those who need them most, she said.

All pension assets and income test thresholds will be fixed for three years from July 1, 2017 rather than being automatically indexed to inflation each July as they are now.

In a move that will please self-managed super fund trustees the Government has further softened penalities for excess superannuation contributions made by individuals after July 1 2013.

If excess non-concessional contributions are withdrawn from super funds, no excess contribution tax will be payable. Excess contributions left in the fund will continue to be charged at the top marginal tax rate, Maggie Tagg said.

One of themes of this years Budget is the need for shot-term pain to deliver long-term nation building.

The centrepiece of this nation building is an additional $11.6 billion infrastructure growth package.

This will boost total infrastructure investment by the Commonwealth, state and local government as well as the private sector to over $125 billion by the end of the decade.

Key projects include the already announced second airport and WestConnex toll road in Sydney and the East-West link in Melbourne, as well as roads, rail and port facilities around the country, she said.

Looking ahead the Government is treading a fine line on the road to balance the Budget. Too much austerity could encourage households to trim spending and promot business to delay investment plans. This could have a negative impact on the sharemarket, she said.

But not delivering on its pre-Budget rhetoric about the need for tough decisions could lead to a fall in business confidence. A gradual return to surplus over the next decade as the Treasurer promises is just about right - fiscally prudent but not so tough that it kills off economic growth, Maggie Tagg said.

Editors Note: Maggie Tagg is an Associate Financial Planner, who holds an Advanced Diploma of Financial Planning. General.

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