Next Tuesday 2 April heralds Canberra’s annual spotlight with the 2019 Federal Budget handed down. With timing earlier than usual, many are predicting it will generate fierce debate given the pre-election significance.
Spending
In line with a predicted budget surplus, significant spending measures are expected with some of these potentially pre-announced as per previous years. Some infrastructure spending proposals, such as high-speed rail links have already been canvassed.
The allowance of $738m for unannounced spending in 2019-2020 (released in December as part of the Mid-year Economic and Fiscal Outlook for 2018-2019) is likely to be primarily reserved for infrastructure. Importantly, with the continuing increased government revenue since the mid-year outlook these incentives may end up being even higher.
Tax
With the last six months seeing higher-than-expected economic growth, tax cuts are expected to form the primary counter to the ALP’s Tax reform proposals. Again referencing the Mid-year Fiscal Outlook for 2018-2019, the foregone revenue of $2.5bn in 2019-2020 is expected to rise to $3.7bn in the following year, likely referring to tax cuts.
While economic commentators suggest that favourable iron ore prices and other contributing factors delivering increased revenue are not long-term, it’s expected the government will paint a positive picture by promising significant benefits to taxpayers.
Election
Looming large, however, is the potential of a change in government which brings uncertainty to whether any budget announcements will translate into law.
ALP have been busy with various announcements around their intended policies including removing franking credit refunds, eliminating negative gearing on existing homes, reducing the capital gains tax discount and implementing a flat minimum tax on trust distributions.
These proposed changes have been controversial with fears of negative impact on housing prices, particularly holiday homes, and complaints of “moving the goalposts” for retirees who’ve made financial plans based on the expectation of franking refunds and/or marginal rates of tax being applied to trust distributions.
Despite some uncertainty regarding whether this budget will be implemented, it’s set to be a budget with big tax savings and spending promises.
Who will be the winners and losers? Stay tuned for our follow-up summary a few days after the budget providing you with a bird’s eye view of the most relevant announcements.
In the interim if you have any questions around this topic, please contact our tax Specialist Michael Bode at mbode@prosperity.com.au or your principal adviser.