There were no surprises here with the highly publicised and anticipated acceleration of tax cuts formally announced. Tax cuts originally slated for 1 July 2022 will be brought forward and backdated to 1 July 2020. The Government intends to rush this through Parliament and the Opposition has already voiced its support, meaning the tax relief could be felt by taxpayers within weeks.

The tax cuts will be achieved through an increase in the upper bound of the 19% tax bracket from $37,000 to $45,000, and an increase in the upper bound of the 32.5% bracket from $90,000 to $120,000. In numbers, this means an extra $1,080 in the pockets of those earning between $45,000 and $87,000, (capturing the median wage) and those on higher incomes receiving the maximum dollar benefit of $2,565. Consequently, the cuts are expected to benefit more than 11 million Australians.

Pulling this together with the business incentives and JobMaker package also announced, the hope is that individuals and families will spend, stimulating the economy.

While we welcome the general lowering of a tax regime that is one of the highest amongst the developed world, we reserve some doubt as to the efficacy of the cuts. Given the current uncertain environment for many, these tax cuts may not prove to be as stimulatory if used to increase savings or pay down debt, as was the case following the 2019 tax cuts.

Assuming the tax cuts are legislated, the Government is expecting to lower the tax withheld rates immediately to deliver the full-year tax benefit over the remaining months of the financial year. This gradual tax benefit based on the taxpayer’s wage cycle may also dampen the stimulatory effect compared with a larger one-off payment which would be more likely spent.

For now, the next ‘stage 3’ round of tax cuts remain as scheduled from 1 July 2024.

The Budget also provided continued support for low and middle-income taxpayers with the Low and Middle-Income Tax Offset (LMITO), worth up to $1,080 for individuals earning up to $126,000, being extended for another year. The low income tax offset (LITO) will be increased from $445 to $700, providing $255 in tax relief. Combined, this increases the effective tax-free threshold to $23,226 (excluding any applicable Medicare Levy).

The JobSeeker COVID-19 supplement scheme was extended earlier in the year until 31 December 2020 at a reduced rate of $250 a fortnight. While there were no changes to this scheme in the Budget, it is speculated that this supplement may continue into 2021.

Those on tax-free Government payments such as the age or disability pensions or carers are set to receive two further supplements of $250 each over the next six months. This follows two previous payments of $750 paid earlier in the year.

A sector plunged into disarray during COVID-19 will undoubtably face resistance from older Australians needing care. Over the next four year, a total spend of $1.6 billion has been allocated for additional home care packages providing more people with independent living options.

The Government has also committed close to $3 billion to address findings out of the Aged Care Royal Commission, to be allocated and spent once the final recommendations are handed down.

The much-debated freeze on the scheduled increase in the Superannuation Guarantee rate was not a feature of Tuesday night’s Budget, meaning it is expected to proceed as already legislated from 1 July 2021.

While it was a quiet Budget for self-managed retirees, and to be fair it ought to have been – you can’t cut taxes when you’re not paying tax – a host of reforms have been announced that will affect the broader, publicly-operated superannuation industry. Through the ‘Your Future, Your Super’ package, superannuation funds will be required to meet annual performance tests and report underperformance, with serial offenders being barred from accepting new members. An online YourSuper comparison tool will be launched to assist members evaluate their fund’s performance and fees, and super accounts will follow members as they change employers, thereby avoiding the creation of multiple accounts and reducing fees.

Of particular interest to self-funded retirees was how the Government intended to address the immediate fall in retirement incomes due to corporate dividend and interest rate cuts. Unfortunately there was nothing to report for this overlooked group of the population, reinforcing the need for these Australians to take a more active, advised approach to their investment strategy to ensure it continues to meet their income requirements.

Cameron Harrison have been advising individuals and their families on asset allocation strategy and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.

As partners in your investment journey, it is important to us that we take the time to share key aspects of our approach and philosophy.

This article is part of our 2020 Budget commentary and one such starting point in our highly considered investment strategy and wealth management process. For further reading of our 2020 Budget series, please click one of the links below:

• Small and Medium Business

• Economic and Fiscal Implications

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