The Federal Budget 2011/12 – From a Small Business Operators and Their Families Perspective
"The core of this budget is about building a bigger and better trained workforce ... the centre piece of this budget is jobs, jobs, jobs" - Wayne Swan
The Budget is strong on supporting jobs, training and growth to cope with the anticipated mining boom, but short on the level of expenditure cuts expected by some commentators.
There is plenty missing, there always is. For example there is no new money for innovation nor for exports and no incentive based grant programs to help fast-growing companies and make Australia a really clever country.
The Economy - a Summary
- Real GDP growth to almost double from 2.25% in this year to 4% in 2011-12 and ease to 3.75% in 2012-13.
- Budget to return to surplus in 2012-13 ($3.5 billion), from deficit of $22.6 billion in 2011-12 and $49.4 billion this year. More than a few commentators have suggested that, the plan to get the budget back in surplus, only(?) about $2bn results from government policy. The rest, about $50bn, will come from expected improvements in the economy. The surplus is, therefore, very dependent on the strength of the economy - these days read China
- Jobless rate to drop from 5% in June 2011 to 4.75% a year later, then to 4.5% by June 2013
- Inflation rate projected to ease from 3.25% in June 2011 to 2.75% by June 2012 before rising again to 3% by June 2013
- Wages to rise 4% this year and in 2011-12, and then 4.25% in 2012-13
- Impact of natural disasters at home and abroad will lop 0.75 percentage points off growth in 2010-11
Small Business
The government plans to introduce legislation to give effect to the following - they may need some luck with some of them:
1. Small businesses (turnover less than $2m) will qualify for an instant tax write-off for the first $5,000 of any business vehicle purchased after 1 July 2012. This could mean a tax benefit of$1,275 on a $33,960 Ute in addition to a deduction for depreciation on the balance of $28,960.
2. An immediate write-off of all assets purchased after 1 July 2012 valued at less than $5,000 (now at $1,000)
3. A reduction in the company tax rate from 30% to 29% from 1 July 2012.
4. The current Entrepreneurs Tax Offset, which applies to individuals in business with a turnover of under $70,000 will be abolished after 30 June 2012.
5. Pay As You Go income tax instalments will be raised on a lower amount in 2011-12 - 4% only above your previous year's taxable income (half the rate that would otherwise be applied).
6. Cars - if you carry on a business in a Company or a Trust, and you use a car in that entity and you use the Statutory Method of calculating your Fringe Benefits Tax (FBT) liability, you may face a higher FBT liability for contracts entered into after 7.30 pm on 10 May 2011.
Over the next 4 years the rate to determine your FBT liability will move to a single 20% rate, regardless of how many kilometres you travel in that car. This may be a problem if you currently travel more than 25,000 kms in a year (11% or 7% rates) but a benefit if you travel less than 15,000 kms in a year (*26% rate at present).
Consider now:
- encourage more employee contributions to reduce the FBT liability
- consider using a log book to record your business use of the car.
- talk to your accountant now to get this in place asap.
- possible conversion to a more fuel efficient car
7. After July 2011, the government plans to provide $7.1m over 4 years to continue the Small Business Support Line service - gives advice on, for example, access to finance and managing cash flows.
8. Apprentices and Training:
- $558m to be allocated to a Workforce Development Fund to deliver 130,000 training places over 4 years.
- $101m to a national mentoring program to help apprentices finish training and better meet the needs of industry and regions.
- an additional $1.7bn over 5 years to the states to drive reforms of the vocational educational training system.
- to fund 30,000 more places in Language, Literacy and Numeracy Programs to provide the basic skills needed to get a job.
- to invest $233m to get the very long term unemployed to work- i.e. to provide 35,000 wage subsidies and work experience programs.
- $281m for additional tax free payments to encourage apprentices to complete their training. this will mean payments of up to $5,500 being made to apprentices over the term of their apprenticeship.
Some Less Than Happy News
1. Personal tax rates for 2011-12 remain the same as for 2010-11 - except for the flood levy, which may apply to you if your taxable income exceeds $50,000.
2. Trust distributions to minors (children under 18 years) will not be able to access the Low Income Tax Offset (LITO) - effectively reducing such tax effective distributions from $3,333 to $416 per child each year. Minors who earn a wage will still be eligible for the LITO.
3. A claim for a Dependent Spouse Rebate for spouses under 40 will be phased out from 1 July 2011 (unless the spouse is a carer, invalid or permanently unable to work).
4. Low Income Tax Offset (LITO) - as the employer, you may adjust an employee's tax withheld by allowing 70% of the LITO when calculating his or her pay and tax (up from 30%).
5. Family Tax Benefits (FTB) - indexation of the income threshold amounts is to be frozen for 3 years. But - FTB A payments will rise by up to $4,208 p.a. for households with 16-19 year olds in education or training.
6. From 1 July 2011 individuals who receive Youth Allowance (students), will not be able to claim a tax deduction for expenses incurred in gaining that payment for the year ended 30 June 2011 and beyond. (i.e. Anstis' case is negated).
7. Private Health Rebate - income tests - the government will re-introduce legislation to reduce or deny the 30% Health Rebate to:
- singles with income from $75,000, reducing the rebate to nil for those with income over $120,000
- families - with income from $90,000, reducing the rebate to nil for those with combined incomes over $240,000.
8. Excess Superannuation Contributions - not much joy here - excess contributions of up to (only) $10,000 will be taxed at your marginal rate of tax. If you make excess contributions of more than $10,000 you will face a 46.5% tax rate on those contributions.. This will apply to contributions made on or after 1 July 2011.
9. Some Better News
If you are over 50 and the total of your Super Fund balances is less than $500,000, you may be able to continue to make contributions of up to $50,000 each year, even after 30 June 2012, instead of reducing them to a maximum of $25,000 like everyone else.
That ends the good news
Broader Budget Matters - Summary
Welfare
- $233 million for new support programs for the long-term unemployed and 35,000 targeted wage subsidies
- Strict new work tests for the disability support pension brought forward
- Participation plans to get teen parents back to work and new requirements for jobless families
- $460 million to extend the Education Tax Refund to cover school uniforms.
- Additional payment of $500 a fortnight for POW from WWII and Korea
Health
- $16.4 billion in additional growth funding for public hospitals from 2014-15
- $3.4 billion over four years for emergency departments, elective surgery and 1300 sub-acute hospital beds
- $1.8 billion in investments in hospitals and health care for the bush
- $717 million over five years to expand access to diagnostic imaging services and make medicines more affordable
- $1.5 billion over five years for mental health initiatives including a new national mental health commission
- $139 million over four years to continue the national bowel cancer screening program
- $53 million over four years for dental internships to improve access to dental services
- Saving of $581 million over five years by slashing the Medicare rebate for GPs drawing up mental health treatment plans and restricting patients to 10 instead of 12 treatments
Schools
- $425 million to reward top performing teachers.
- Teach Next initiative will provide $18 million for new pathways into a teaching career
- $200 million to support disabled school students
- $222 million to extend National School Chaplaincy program
The Bush
- $4.3 billion of investments in regional hospitals, health care, universities and roads
- $232 million in new strategic investments, including $100 million for suburban employment hubs and $61 million for smarter motorways.
- 16,000 skilled migration places to the regions, complemented by Regional Migration Agreements for communities with skill shortages. This might be the major issue for the future, not just in the regional areas, but also finding skilled labour in most areas.
Indigenous affairs
- Half a billion dollar boost to education, employment and health services for indigenous Australians
- Includes $171.3 million boost in targeted assistance for indigenous students
- 6400 indigenous students will benefit from a new $50.7 million Youth Career Pathways Program
- Govt will spend $16.1 million extending and expanding the Cape York Welfare Reform Trial
Defence
- $1.1 billion not spent in the new equipment program in 2010-11 to be handed back to the government.
- $1.3 billion cut from the equipment program over next four years.
- No cuts to uniformed defence work force but civilian side will be cut by 1000 positions
- Defence to spend $1.9 billion on ongoing operations in Afghanistan, Middle East, Solomons and East Timor.
Climate
- $100 million for renewable energy and energy efficiency projects
- Saving of $156 million over four years by closing the national solar schools program two years earlier than expected in mid-2013
- Saving of $970 million over four years by reforming tax breaks for company cars in order to remove the incentive for people to drive further
- No details on planned carbon tax: budget impact to be released mid-year when the scheme's design has been finalised
Other initiatives
- $36 billion for roads, railways and ports, like the Moreton Bay Rail Link in Queensland, the Gateway Project in WA, the Western Ring Road upgrade in Victoria, and duplicating the Pacific Highway.
- Increase in public service efficiency dividend, saving $1.1 billion.
- $1.06 billion for managing asylum seekers in 2011-12, a more than four-fold blowout
- $300 million to boost sport from the community level up to elite competition
- $24.9 million over four years to establish an independent Parliamentary Budget Office to help scrutinise budget and fiscal policy.
Budget savings
- better targeting of family payments ($2 billion)
- temporary flood and cyclone levies ($1.7 billion)
- increasing public sector efficiency ($1.1 billion)
- tightening car fringe benefit rules ($954 million)
- deferral of infrastructure projects ($945 million)
- phasing out of dependent spouse tax offset ($755 million)
- removing access to low income tax offset for unearned income of minors ($740 million)
- annual real growth in spending capped at 2%, targeting 1% rise
- government spending as share of GDP projected to fall to 23.5% by 2014-15 from 25.2% in 2010-11
- total savings from 2010-11 to 2014-15: $22.2 billion.