The 2015 Budget, handed down yesterday by the Treasurer Joe Hockey, contained few surprises for the financial planning community – either as business owners in their own right or for clients.
The technical analysis of the changes and the impact on advice strategies and investments will emerge over coming days and Professional Planner will provide summaries and links to material published by leading analysts and experts as it comes to light.
Click the links below to access the full analyses.
Colonial First State:
Key announcements included in this year’s Budget include:
• reforms to the age pension assets test
• a families support package with a focus on child care and
• a suite of measures to support small business, including tax cuts and increased depreciation allowances.
However, the Budget also held a few minor surprises including an important change to the assessment of rental income from the former home under the age care means test.
It is important to note that the Budget announcements are still only proposals at this stage.
Aged Care Steps
After the major changes to aged care that started on 1 July 2014, we hoped aged care might have made it through this year’s Budget without any negative reforms but two means-testing changes are likely to make funding aged care more difficult for clients.
It should be remembered that the announcements made in the Budget are only proposals and legislation is required to be passed to make them effective.
(Paper corrected)
Crowe Horwath
When interest rates were cut to record lows last week, Treasurer Joe Hockey said “There are many green shoots in the Australian economy, this interest rate cut will help facilitate these green shoots”. He encouraged businesses to borrow and invest and suggested consumers do the same by spending.
Green shoots and optimism were also broadly the theme for the Budget. However, the national accounts tell a different story. With unemployment at 6.5% and economic growth at 2.75%, a sluggish economic trajectory seems likely. To counter this, the Government handed down a Budget that is expansionary in nature, complementing an already expansionary monetary policy to kick-start business investment and consumer spending.
This Budget sets government expenditure at 25.9% of GDP, which is higher than all the Budgets of Joe Hockey’s predecessors, bar one. It marks a lurch from austerity and paying down Government debt to big spending stimulus. What remains a huge challenge for the Government is how this change in tack can be achieved while maintaining a ‘credible path’ back to surplus.
It seems the Government hopes that the green shoots will lay the foundations for economic growth – and lots of it. Without it, the credible path to surplus is unlikely. The Budget assumes that economic growth will ratchet up to 2.75% next year, then to 3.25% and 3.5% in the following years. Exactly how this will be achieved without a mining boom nudging it along is not clear.
To achieve this economic growth, business and consumer confidence must improve. Whether the measures outlined in the Federal Budget achieve this goal remain to be seen.
Rice Warner
The lead up to last night’s federal Budget carried industry expectations of a government delivering a far-sighted pension policy barricade against the turbulence of short-termism. However, hopes for a comprehensive package to stabilise Australia’s pension system were not met. What we got instead was a small step in the right direction. Michael Rice was in Canberra, and filed this blog.
Alphington Private Wealth
As widely anticipated, this year’s budget contained initiatives for small business and families and is focused on reducing the economic deficit by stimulating growth via job opportunities. Topics addressed in this budget include:
1. Budget deficit will be reduced to just under $7 billion by 2018-19
2. Small business incentives used to bolster new job creation and investment by the way of instant tax write offs and abolishing FBT on items for small business.
3. Childcare featured heavily with reforms
4. Spending on youth unemployment a major focus
Credit Suisse
Nothing much new delivered in terms of new stimulus, at a time when the cycle probably demands more. If anything, the budget is supportive of Australia’s AAA-rating and the AUD/USD, but not economic growth. Indeed, the government intends to shrink the underlying budget deficit to 2.1% from 2.6% – notionally a 0.5% drag on GDP growth. We note that the government is putting a lot of faith in the consumer to do the heavy lifting in FY16 – but interestingly, there is nothing material delivered in this budget to support the consumer.
In this context, we believe that the RBA needs to do more. Shallow RBA rate cuts are supportive of the dividend trade in the equity market and de-equitisation. Deep RBA rate cuts are a hard landing signal, consistent with more defensive positioning.
