After the election - what now?
As Labor takes over the reins and the Rudds move into the Lodge, we take a look at some of the major policies announced during the election campaign.
How will Labor's proposals affect your financial planning?
NOTE: It's important to remember that none of the measures we've covered have yet been legislated and it's not expected that Parliament will resume until early in 2008.
The constitution of the Senate will also be important in relation to the passage of new legislation, with the Coalition still retaining its Senate majority until 1 July 2008.
Reducing your taxHelp with education and child care
Boost for first home buyers
Super's still a winner
More allowances
Reducing your tax
The Labor party supports the personal tax cuts announced in the 2007 federal budget and intends to make further reforms over a six year period with the main impacts being:
- A personal taxation regime with only three marginal rates - 15%, 30% and 40%
- An increase in the low income tax offset to eventually lift the effective tax-free threshold from $11,000 to $20,000 by 2013/14
These significant reforms will increase your level of disposable income (after tax). What will you do with this extra money?
Help with your kids' education...
Labor have announced the introduction of an "education tax refund". Eligible parents will be able to claim:
- a 50% refund each year for up to $750 of education expenses for primary school children (a maximum benefit of $375 per child per year), and
- a 50% refund each year for up to $1,500 of expenses for secondary school children (a maximum benefit of $750 per child per year).
- Laptops
- Home computers and associated costs
- Home internet connections
- Printers
- Educational software and
- Student school books
...and child care
The child care tax rebate will be lifted to 50%, covering a maximum of $7,500 per child per year of child care costs.
Also, investments will be made in having more child care centres available at education sites, e.g. TAFE and University, allowing parents to train to re-enter the workforce if they so desire.
This increase in both the rebate and availability of child care centres may lead to higher levels of disposable income for your family. Might be a good time to seek some investment advice!
Boosting your first home deposit
To help people more effectively save towards a deposit on their first home, Labor have announced they will introduce "First Home Saver Accounts" (FHSA).
These will be available to people over 18 who meet the eligibility criteria for the First Home Owners Grant (FHOG).
The FHSA will be a superannuation style account, although it will operate independently of any super account you may have. Up to $10,000 (indexed annually) can be contributed to the account, with:
- a maximum of $5,000 (indexed) being contributed from pre-tax income. This will operate like a superannuation salary sacrifice arrangement, with 15% tax being deducted from these contributions; and
- the balance able to be contributed from after tax contributions. This may be made by you or a third party.
Earnings in the account will be taxed at the superannuation rate of 15%.
If invested in shares paying franked dividends, the FHSA will receive the benefit of imputation credits, reducing the effective rate of tax payable.
And because the post-tax contributions can be made by third parties, it's a way for parents (or grand-parents) to be able to provide some assistance to children (or grand-children) in a tax advantaged method with some certainty on how the money will be spent.
Future contributions could be specified in a person's will - to be made to the FHSA of specific beneficiaries once they turn 18.
Super's still a hot ticket!
The Labor party supported the Simpler Superannuation reforms and it's not expected that any significant changes will be made to the new rules that have been in place since 1 July 2007.
However, there are other initiatives that have been mentioned by the Labor party in relation to superannuation and its operation.
Clearing house - easier when you change jobs
Rather than employers making super guarantee payments to different super funds for different members, Labor has proposed the establishment of one central 'clearing house' to receive these payments. The clearing house would then distribute these amounts to the relevant funds for each employee.
The operation of this account may make it easier for you if you change jobs, as your "choice of fund" election is always made to the one clearing house, rather than potentially changing each time you change employment.
Free for small business
The service would be free for small businesses (those with 20 employees or less) with a charge for larger businesses. Labor believe this facility will reduce the incidence of lost superannuation accounts.
Changes to superannuation guarantee arrangements
There is general agreement that the current 9% super guarantee (SG) level is insufficient to allow Australians to be truly self-funded in retirement. and that 15% of annual pre-tax income is a more appropriate level.
The Labor Government has said before that it would look to increase the SG to 15%, with the increase funded by employers (lifting the SG requirement to 12%) and employees (by introducing a compulsory personal component of 3%).
The cost of this measure would be significant and it's not expected that such a change will be introduced by a Labor Government, at least not in its first term in office.
Changing how the SG is calculated.
Currently, SG is payable only on the "cash component" of your wage - that is, after reducing a base salary for any salary packaged amounts. Labor has said it anticipates changing how SG is calculated so that it becomes payable on a base salary amount before any packaging is done.
This change would be beneficial, not only in helping you build your superannuation savings, but also in making it simpler to understand and will ensure consistency between employers in how SG liabilities are calculated.
More allowances for some
Labor has announced its intention to introduce:
- a quarterly Utilities Allowance of $125 to older Australians in receipt of income support payments like the Age Pension and Veterans Service Pension. This equals a total annual payment of $500 for singles and $500 for a couple;
- a similar payment for people receiving Carer Payment or the Disability Support Pension. This equals a total annual payment of $500 for singles and $500 for a couple; and
- a quarterly Seniors Concession Allowance of $125 per person to eligible self-funded retirees. This equals a total annual payment of $500 for each eligible individual.