Budget 2016 | What it means for you

On 3 May the Treasurer, Scott Morrison, released the Government’s 2016/17 Budget – the Government’s economic plan for Australia’s transition from mining boom to a more diverse economy.

Before any announcements can be implemented, they require passage of legislation and may be subject to change.

Below we provide a comprehensive overview then detailed summary of the key changes.

Overview of the impacts on the Australian economy

The foundation of this year’s pre-election Budget is “jobs and growth” with the Treasurer positioning the message that it has a solid economic plan to transition the economy from the resource boom to a more diversified economy.

The Federal Budget is based on the following platforms which have implications for the economic and investment outlook:

Putting in place “jobs and growth” measures aimed at boosting new investment, creating jobs and supporting small companies.
Cutting the company tax rate for small to medium companies and then progressively to 25% for all companies.
Limiting superannuation tax concessions to the rich and redirecting these to lower income earners and those with lower tax balances.
Controlling spending growth. Government payments as a share of GDP are forecast to decline from 25.8% of GDP in 2016-17 to 25.2% of GDP in 2019-20.

The measures announced aim to create jobs as the mining boom ends and new sources of growth emerge. According to the Budget papers, there were almost 300,000 jobs created in the economy last year, the largest number of jobs created in a single year since 2007.

The Government’s view is that a key to higher economic growth is through supporting innovation with a $1.1 billion National Innovation and Science Agenda and other new measures to boost investor confidence and take advantage of the rising Asian middle class and ageing populations to export more services.

The Budget deficit is forecast to continue to fall. The Government forecasts it will deliver a balanced budget surplus in 2020/21. The underlying cash balance is expected to improve from a deficit of 2.4% of GDP in 2015/16 to 0.3% of GDP in 2019/20.

Overview of key financial planning implications

The budget largely focused on superannuation with changes creating greater flexibility to contribute to super but less opportunities due to reductions in contribution caps. Company tax incentives focussed on small businesses over the next ten years. Social security and aged care remained largely unchanged, having undergone major reforms in recent years.

The main changes announced were:

Reduction in annual concessional contribution caps, but an ability to carry forward unused caps
A lifetime non-concessional contribution cap of $500,000 to replace the annual caps and bring-forward rules
A limit on pension phase balances of $1.6million per person (for new and existing income streams)
Ability for everyone up to age 75 to make contributions to super and to also make personal deductible contributions
Reductions in small business company tax rates and increased turnover thresholds to qualify
Increased eligibility for the spouse super tax offset
Removal of earnings tax exemptions for transition to retirement income streams.

Key changes in detail: