Usually, the Budget is handed down earlier in the year but because of the uncertainty provided by COVID-19, our Government announced in March that the 2020-21 announcement would be postponed until now. Typically, the Budget is focused on older Australians – whether it be slight adjustments to the rules of the Age Pension, superannuation tax, or retirement income. But this budget is less about that and more about stimulus. 

Tax cuts 

This time around, the Government has chosen tax cuts as its big-ticket stimulus measure with the idea that putting more money back into people’s pockets should stimulate the economy – a huge assumption that those with a tax saving would spend their extra dollars.  

In short, people earning between $90,000 to $120,000 per year would now pay 32.5% income tax rather than 37%. Plus, the upper limit of the 19% income tax bracket will rise from $37,000 to $45,000. Combined, tax cuts would deliver relied of $42 per fortnight ($1,092 this year) for an individual earning $85,000 a year and about $99 per fortnight ($2,574 this year) for individuals earning $140,000.  

For more than 5 million Australians, it would mean an annual cash injection of more than $2,000.  

Once the tax scales have been adjusted, it is likely that people who have worked for the entire 12 month period will have had too much tax withheld by their employer as they will have paid tax at the old tax rate for the first few months.

This means that there could be some tax refunds coming your way at tax time.  

First home buyers 

To help young people enter the property market for the first time (and boost construction and property development in the process), the First Home Loan Deposit Scheme has been extended to help an extra 10,000 people, and the value of eligible properties under the scheme will also be increased. 

Under the scheme, eligible borrowers would be able to buy a new house, apartment or house and land package with a deposit of 5% of the property’s value without taking out lenders mortgage insurance (LMI). You usually need to save up a deposit of 20% to avoid LMI. This means a home loan of $570,000 on a $600,000 property would save the buyer around $25,000 in LMI according to lender analysis.  

If you’re buying a house in Melbourne, the cap on the purchase price has been increased to $850,000 (from $600,000). Lower price caps will apply in regional areas and an income threshold will also apply. All applicants must be first home buyers and have earned less than $125,000 for singles and $200,000 for couples in the previous financial year.  

Wage subsidies for young workers 

The most important priority for young people amid this economic downturn is to stay in a job and the budget contained a $4billion wage subsidy aimed at helping that occur. 

The JobMaker package includes a subsidy for employers of $200 per week for employing workers aged 16 to 29, or up to about $10,000 a year. This reduces to $100 a week for those aged 30-35.  

The subsidy is available to businesses for up to the first 12 months of a worker’s employment and is forecast to cost $850 million over the next eight months and a total of $4 billion for the three years to 2022/23.  

For employers to claim the subsidy, new hires must work for at least 20 hours a week and the business must show an increase in its overall headcount. It is estimated that about 450,000 people will be supported by the hiring credit over the next three years. 

Concerns have been raised that prioritising the hiring of people aged up to 35 could come at an expense of older workers who traditionally find it much harder to return to work after a recession. They also worry it could lead to more casual jobs.  

Superannuation 

Have I lost you yet? Bear with me. Contrary to what you may think, although you may be young and have another 30+ years before you have to worry about super, it is still important. Your future self will thank you. 

The super industry was expecting the government to extend its early release scheme allowing members suffering hardship to withdraw up to $20,000. Instead, the government unveiled the following changes: 

1. ‘Staple’ super accounts to members  

This essentially means that when someone changes jobs, their Super Fund follows them across automatically rather than the status quo where the new employee needs to opt into their existing or chosen Fund or else end up in a fund of the employer’s choice. This measure is to effectively stop people from having multiple accounts by accident, which is a major contributor to the absurd $30billion paid in fees each year. 

2. Investment performance 

The government will also introduce a new test for Super Funds on investment performance and a new online comparison tool called YourSuper to be run by the ATO. This makes it easier for a consumer to compare or rank Super Funds and provide reliable information before choosing a super account.  

Whether you are beginning your career, contemplating a career change or even considering retirement, no doubt 2020 has been a challenging year for all. The Hewison Private Wealth team is always available to answer any questions you, or someone you know may have.