2014 Federal Budget – Short Term Positive but negative in the Medium Term

This has been a topic for speculation for some weeks which finally ended on Tuesday night, thankfully !!

I would like to point out that these are proposed changes which need to be passed in parliament to become effective, and we have already seen further media speculation about a raft of possible outcomes, including a double dissolution election in the future if Tony Abbott feels these measures are being thwarted.

From a macro view the 2014-15 Budget incorporates a $11.6 billion Infrastructure Growth Package that will contribute to an estimated $125 billion of additional infrastructure, including incentives to encourage asset recycling as a catalyst for unlocking significant new infrastructure investment. The government estimates that upon completion, these infrastructure projects will add around 1 percentage point to annual GDP. I think this is very positive in the longer term and shows good use of fiscal policy to address the current state change for the drivers of future economic growth.

The 2014-15 Budget is set against an economic outlook that is characterised by the Australian economy’s transformation as it moves from growth led by investment in resources projects to broader-based drivers of activity in the non-resources sectors. This is occurring at a time when the economy has been growing below its trend rate and the unemployment rate has been rising

2014 Federal Budget summary

The key initiatives in this year’s Federal Budget include:

  • A Temporary Budget Repair Levy of 2% will be payable on taxable incomes over $180,000 pa for the next three financial years.
  • The levy will increase the Fringe Benefits Tax rate to 49% for three years, starting on 1 April 2015.
  • Changes to HELP debts will increase the amount payable and payments will be made at lower income levels.
  • The income thresholds determining the Private Health Insurance Rebate and Medicare Levy Surcharge will not be indexed for three years, starting on 1 July 2015.
  • The Dependent Spouse and Mature Age Worker Tax Offsets will be abolished from 1 July 2014.
  • People who make non-concessional super contributions from 1 July 2013 that exceed the cap will have the option to withdraw the excess amount plus earnings on the excess.
  • The timeframe for increasing the Superannuation Guarantee contribution rate to 12% will be amended.
  • The Age Pension age will gradually increase to 70.
  • The deeming thresholds will reduce from 20 September 2017.
  • A range of changes to Family Tax Benefit – Part A and B will reduce the number of people who are eligible and, for some, lower the entitlements.
  • The Commonwealth Seniors Health Care Card thresholds will be indexed from 20 September 2014.

The definition of income for the Commonwealth Seniors Health Care Card will be expanded. From 1 January 2015, an amount will be included in the income test, based on an account-based pension being subject to deeming

I thought I would add the two articles above just to emphasize how quickly financial predictions change in response to news that has often been widely anticipated and I don’t think that a rate cut is likely!

Best Regards,

Dr Andrew Unterweger MB BS, CFP®, Dip FP, Dip FNS, MFAA, AFA, SPAA, REA

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RBA rate cut expected by year-end

   |  by James Mitchell


The federal Budget has created compelling evidence for the Reserve Bank to cut interest rates – rather than raise them – by year-end, according to a former RBA employee.

The government’s plans to undertake a notional fiscal tightening of 1.3 per cent of GDP in the 2015 financial year represent a weighty argument for a rate cut, Credit Suisse research analyst and former RBA employee Damien Boey told MortgageBusiness.

While residential investment may carry the economy in the next couple of quarters, building approvals have peaked by cyclical standards, he added. 

Read more…

Rates won’t rise until end of 2015: NAB

NAB has revealed it does not expect an interest rate rise until the last quarter of 2015, defying industry predictions the RBA could move as soon as September.

Speaking at a NAB Federal Budget Breakfast in Sydney yesterday, the bank’s global head of research, Peter Jolly, said the bank’s forecasts were that the RBA was unlikely to move on rates for at least the next 12 to 18 months.

Mr Jolly said it would not be Australia’s hot housing market that would be the catalyst for a rise; rather, it would mirror rises by the US Federal Reserve which are not expected until the second half of 2015.

“NAB sees the economy remaining benign for the next few years,” Mr Jolly said, “and that means low inflation, low-interest rates and an unemployment rate bobbing around the six per cent mark.”

The good news for the economy was that domestic housing construction was starting to show signs of growth, reversing an almost decade-long decline, Mr Jolly said. He also said the Australian dollar will drop back to 80 US cents as the US Federal Reserve begins to increase rates.

read more…

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