2018-19 Federal Budget Report: Executive Summary


Treasurer Scott Morrison handed down the 2018-19 Federal Budget on Tuesday 8 May 2018 announcing it is a whole package for all Australians.

The Treasurer emphasised the need to set a “tax speed limit” and respect taxpayers (due to too much tax revenue being pulled out of people’s pockets) noting that half of the tax base is coming from people getting in jobs.

Mr Morrison added that the tax take is increasing rapidly due to Australians moving from welfare receipts, getting jobs and paying tax.

The Government says that it is intent on building a strong economy to create jobs, provide tax relief to encourage and reward working Australians, guarantee essential services and keep Australians safe.

Turning to the numbers, in his Budget speech the Treasurer announced:

  • The 2017-18 budget deficit will be $18.2 billion, less than half of what it was 2 years ago and the best budget outcome for a decade;
  • The deficit will fall again to $14.5 billion in 2018-19;
  • In 2019-20, the budget will return to a “modest balance” of $2.2 billion, increasing to a surplus of $11 billion in 2020-21 and further surplus of $16.6 billion in 2021-22
  • Real GDP is anticipated to grow by 2.75% in 2017-18 increasing to 3% growth in 2018-19 and 2019-20 and consistent with the Governments ambition of lowering unemployment in coming years.

As previously announced, the Government is vowing to push through the Ten Year Enterprise Tax Plan to reduce the company tax rate to 25% for all businesses by 2026-27.

Consistent with the Government’s theme of reducing company tax, stimulating economic activity and creating jobs, the hallmark of this Budget is a major 7-year 3-step plan to reform personal income tax.

This reform is designed to achieve lower, fairer and simpler taxes culminating in the top tax threshold of the 32.5% bracket increasing from $120,000 to $200,000 from 1 July 2024, removing the 37% tax bracket completely.

According to Mr Morrison, by 2024-25, 94% of the taxpaying community are projected to face a marginal tax rate of no more than 32.5% thereby effectively dealing with bracket creep. 

Mr Morrison said the Government has had "significant success already in delivering tax cuts for small and medium-sized businesses and we're looking at being able to continue to pursue the full tax cuts right across the board”.

Revenue measures announced

Excluding personal tax reform, key revenue measures include:
  • Extending the $20,000 instant asset write-off by another 12 months
  • Major tightening of the Research and Development concession
  • Removal of tax deductions for non-compliant PAYG and contractor payments
  • Broadening the reach of Division 7A for Trusts 
  • A range of measures to address the “Black Economy”
  • Restricting tax deductions associated with holding vacant land
  • Reforming concessional tax rates for minors and testamentary trusts
  • New integrity rules for family trust circular distributions
  • Removing the CGT discount at trust level MITs and AMITs
  • For stapled securities, increasing withholding rate from 15% to 30%
  • Various measures to cover multinationals and the shifting of profits to tax advantaged jurisdictions including broadening of Significant Global Entity definition
  • Various measures to protect superannuation
  • Broadening GST arrangements for offshore on-line suppliers of hotel accommodation in Australia

Conclusion

On the face of it, the Budget is consistent with that expected in a pre-election environment. The successful long-term roll out of this Budget package is uncertain and will ultimately depend on how Australians go to the polls.