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How the 2008 Budget will affect you
You've had a day or so for the budget to sink in. There's been alot of talk of razor-shard cost cutting, of means testing, and tax cuts. But when you wipe away all the complexities, what still remains? Are you going to have more or less money in your pocket? We spoke to Chris Batten of InvestorOne, tax expert and champion of the individual investor, to get the real budget story.
1) What will be the main impact of this year's budget on the "person in the street"?
There'll definitely be some "winners" and some "losers" from the Federal 2008/09 Budget.
Amongst the winners will be low to middle income-earners, because they'll be getting income tax cuts that'll total $47-billion over four years. For a person earning a wage of around $40,000 a year, this means that they'll be receiving an additional amount of about $20.19 a week from 1 July this year, $25.96 from 1 July next year and $34.62 per week from 1 July 2010. The announcements also means that families with young children will benefit because the Baby Bonus and the Child Care Tax Rebate will rise, and they'll also be able to claim tax refunds for a half of some of their childrens' education expenses on things like new computers.
Other winners will be first home buyers, after the clarification of the details of the Government's New Home Saver accounts. This means that people can have the Government contribute up to $12,750 toward the cost of the purchase or construction of their first home, which is on top of any State/Territory stamp duty concessions they may be entitled to.
The losers, however, will be families on more than $150,000 a year. This is because Family Tax Benefit Part B payments as well as the Baby Bonus won't be available to them with the introduction of a new means-test.
These people will also potentially lose any entitlements they may have had to claim Dependent Spouse, Housekeeper, Child Housekeeper, Invalid relative, as well as Parent/Parent in law tax offsets. Of course, in pre-Budget announcements, we'd already heard that buyers of luxury cars and ready-to-drink alcohol drinks were also going to be penalised.
2) What, in your opinion, would be the impact of the budget on inflation and interest rates?
Even prior to the Budget, the Governor of the Reserve Bank had been indicating that interest rates are likely to be "higher for longer". In fact, although the economy will probably slow during the rest of this year due to a global turndown and unemployment will consequently rise, the Reserve Bank has been saying that inflation is troublingly high and is likely to stay that way for a while. Add to this the impact of continued strong demand for Australian commodities from the booming Chinese and Indian economies and it all means that the indicators for interest rate movements seem to be equivocal at the moment and just too difficult to predict.
3) Can you explain the tax changes in a simplified form? Are these going to put more money in my pocket?
Everybody should be taking some sort of an advantage from the Budget announcements, at least in the form of a cut to their income tax. But as we saw earlier, some low to middle income-earners will benefit to a greater degree, because they'll receive a higher Baby Bonus, Child Care Tax Rebate or be able to claim their kids' education expenses.
If you're part of a family that earns more than $150,000 a year, however, then you're probably going to find that those tax cuts and other benefits will be swallowed-up by the loss of your Family Tax Benefit payments.
4) With the government's so-called "razor cost-cutting", how is this going to affect me?
There were a reported 600 items of expenditure that the Government is said to have cut from its annual programmes. Although these cuts are unlikely to directly effect the hip-pocket of most people (unless you're one of the 1,200 public servants whose job is to be abolished), the measures will more likely affect some of the services you've already been receiving in various ways. Interestingly, all of these government spending cuts also need to be thrown into the interest rate equation, as they're likely to have the effect of easing inflation as the government slows its own demand for domestic goods and services.
5) Won't the Medicare levy change put even more pressure on public hospitals?
The changes to the Medicare Levy Surcharge are that the threshold at which private health insurance is required to be maintained will increase from $50,000 to $100,000 for singles, and from $100 000 to $150 000 for couples.
At the same time, the Medicare Levy low-income thresholds will also rise to $17,309 for singles and to $29,207 for couples. The additional amount for each dependent child or student will rise to $2,682, and for pensioners below pension age the Medicare Levy low income threshold also rises to $22,922.
The concern is that if fewer people will be compelled to take-out private health cover, then they'll surely be putting greater strain on the public system when they need health services. Although that argument makes a lot of intuitive sense, some people are also saying that those taking-out compulsory health cover are generally healthier working-age people who don't often need health services, and that if they now let their policies lapse there won't be a tremendous catastrophe facing our hospitals. At the same time, its worth pointing-out that the Budget creates a $10-billion fund to invest in medical infrastructure and technology.
Check out our easy to understand budget overview for more info.
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