RSM Australia

Federal Budget 2019-20 Overview

How will the federal Budget impact SMEs

The 2019-20 Federal Budget was brought forward from May to 2 April with the unabashed motive of improving the Coalition’s election prospects in May 2019.  Roy Morgan’s February 2019 poll puts the ALP at 52.5% and the Coalition at 47.5% of the two party preferred vote.

The question remains - has the 2019-20 Budget done enough to turn around the Government's sentiment in the electorate and bridge the gap held by the Opposition?

The key phrase emphasised eight times in the Treasurer’s Budget Speech was “without increasing taxes”. No new tax measures were announced by the Treasurer. Indeed, further tax cuts and offsets were announced. These points will undoubtedly become a key point of note in the Coalition's campaigning and a contrast to increased tax measures proposed by Labor. Labor is, among other tax reform measures, proposing the removal of negative gearing for existing residential dwellings, a reduction in the capital gains tax (CGT) discount to 25% and the removal of franking credit refunds.

In the lead up to the election, the Coalition will advocate that it is a better manager of the economy than Labor.

The projected 2019-20 budget surplus is $7.1 billion – that’s $5 billion higher than the surplus projected 11 months ago.

If achieved, this will be the first time in 12 years that the budget has returned to surplus. The Government can be thankful for the higher than forecast commodity prices for contributing towards the improvement in the country’s fiscal position and outlook. Budget surpluses totalling $45 billion are projected for the next four years, notwithstanding tax cuts and spending measures.

The Government is aiming to eliminate its net debt by 2029-30.


Major Economic Parameters

 

Outcomes

Forecasts

Projections

 

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

Real GDP

2.8

2.25

2.75

2.75

3

3

Employment

2.7

2

1.75

1.75

1.5

1.5

Unemployment Rate

5.4

5

5

5

5

5

Consumer Price Index

2.1

1.5

2.25

2.5

2.5

2.5

Wage Price Index

2.1

2.5

2.75

3.25

3.5

3.5

Nominal GDP

4.7

5

3.25

3.75

4.5

4.5

Real GDP is projected to increase to 2.75 %, the CPI is projected to increase to 2.25 % and the unemployment rate is projected to remain constant at 5%.
Some economists are projecting a slowdown in the world economy in the immediate horizon, and should this occur, the foundation on which this budget has been based would look shaky.

This Budget contained very few newly announced tax related measures.

The low and middle-income tax offset will more than double to $1,080 from 2018-19. Taxpayers earning up to $126,000 will be entitled to the offset. More than 10 million Australians will benefit from this offset. From 1 July 2024 the 32.5% rate, covering income bands between $45,000 and $200,000, will be reduced to 30%. This will result in 94% of Australians paying tax at a rate of no higher than 30%. The cost of these two measures is $158 billion to 2020-30.

Small to medium sized businesses will be assisted by an extension of the instant asset write-off. With effect from 2 April 2019 until 30 June 2020, businesses with a turnover of up to $50 million will be able to immediately write off for tax purposes a depreciable asset costing up to $30,000 (previously $25,000). This measure will have a $200 million impact on the 2019-20 budget but interestingly no impact over the forward estimates.

 

The Australian Taxation Office (ATO) will receive an extra $1 billion of funding over four years to expand the Tax Avoidance Taskforce that monitors compliance and undertakes reviews of multinationals, large public and private groups, trusts and high wealth individuals. The ATO will receive additional funding to develop data analytics tools that will enable them to get new perspectives on taxpayer data. Taxpayers should expect more regular and focused ATO reviews.

On the debit (expenditure) side of the budget the Government has announced a myriad of spending measures. Newly announced infrastructure spending on rail and road projects will cost $4.5 billion taking infrastructure spending to $100 billion over the next decade. Medicare is here to stay (to thwart Labor’s big scare tactic at the last election). New health spending announcements will cost $2 billion over the forward estimates.

Only time will tell whether this Budget, and in particular the increased tax cuts and offsets to low and middle income Australians, will deliver the election triumph the Government is seeking. Labor’s Budget reply is on Thursday. At that point, the punters [ie the electorate] will be able to contrast the differences in Labor and Coalition tax policy. If Labor wins the May election, this Budget becomes nothing more than a passing shower.

 

Simon Aitken

 


Major Economic Parameters

 

Outcomes

Forecasts

Projections

 

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

Real GDP

2.8

2.25

2.75

2.75

3

3

Employment

2.7

2

1.75

1.75

1.5

1.5

Unemployment Rate

5.4

5

5

5

5

5

Consumer Price Index

2.1

1.5

2.25

2.5

2.5

2.5

Wage Price Index

2.1

2.5

2.75

3.25

3.5

3.5

Nominal GDP

4.7

5

3.25

3.75

4.5

4.5

 

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AUTHORS

Simon Aitken

Simon Aitken
Director, Tax Services