The federal government has announced measures in the 2018-19 Budget that may incentivise uptake of financial advice and investment, though stopped short of permitting tax-deductibility.
Last night, federal Treasurer Scott Morrison handed down the federal budget, describing it as “the best budget outcome since the Howard government's last budget a decade ago”.
‘Lower, fairer and simpler’ tax
Tax cuts were the expected centrepiece of the federal budget, targeting low and middle-income earners who will receive up to $530.
The tax code will be "simplified and flattened" with the 37 per cent bracket removed completely, according to Treasurer Scott Morrison.
"This will mean that by 2024-25, around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of no more than 32.5 per cent. That compares with 63 per cent if we leave the system unchanged," Mr Morrison said.
In response, FPA chief executive Dante De Gori issued a statement welcoming the tax cuts and suggesting there may be a flow-on effect for investment and personal finance.
“Offering relief from household budget pressures allows families to imagine a future in which their financial goals are met, and may even open the door to investment,” Mr De Gori said.
“Individuals will have the choice of where to direct this windfall, be it paying critical bills or investing for the future.
“Financial planners would likely encourage clients to accelerate debt repayments, invest this tax saving to meet financial goals or as an additional contribution to superannuation.”
Stop the super tinkering
In comparison with past budgets handed down by the Turnbull and Abbott government’s, last night’s measures contained relatively little changes to superannuation.
The 'Protecting Your Super' package (which has a 1 July 2019 start date) includes a ban on exit fees and a 3 per cent cap on total fees on account balances below $6,000.
Inactive super accounts with a balance of less than $6,000 will be mandatorily sent to the ATO, which will then attempt to reunite the funds with active accounts via a data-matching project.
The government has also announced more changes to concessional contributions.
People aged 65-74 with balances below $300,000 will receive a one-year exemption from the work test for voluntary contributions.
It has also been confirmed that SMSFs will be allowed to have six members, up from the current limit of four.
The Treasurer also announced that default life insurance cover within super will switch from 'opt out' to 'opt in' for members younger than 25 in one of the more controversial changes in the 2018 federal budget.
The Financial Services Council (FSC), whose insurance sector members stand to lose $3 billion in premiums under the change, warned that under-25s with high-risk jobs or young families could end up "slipping through the safety net".
Aged care assistance
The budget also contained measures of interest to advisers specialising in aged care and estate planning.
The My Aged Care website will receive a $61.7 million boost and $14.8 million will also be used to “streamline the assessment process for aged care services”.$22 million will be dedicated to fighting elder abuse, with plans to trial specialist elder abuse support services
As predicted, the government is set to increase the number of home care places by 14,000. This increase will come at a cost of $1.6 billion and will take four years.
Aged Care Steps director Louise Biti issued a statement describing the budget as "interesting" and said that her organisation was "pleasantly surprised" by the aged care measures announced.
More broadly, the government announced measures to improve Australia’s economic fundamentals.
Though it is not quite on par with the Costello years, Mr Morrison announced the budget is forecast to return to a modest balance of $2.2 billion in 2019-20 and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
Moody’s Investors Service vice-president Martin Petch said the measure bodes well for Australia’s global competitiveness.
“From a sovereign rating perspective, the constraints on fiscal consolidation in recent years have been one of Australia’s key credit challenges,” Mr Petch said.
“If its underlying assumptions hold, the budget is a positive step in improving the fiscal outlook.”
Following the 2017-18 federal budget, ifa criticised the federal government for its “Labor lite” budget that unwisely sought to impose penalties on the big four banks that would be passed on to their distributors and customers.
The 2018-19 budget is a far more palatable approach that puts more of consumers’ own money back in their own pockets, which may in turn increase their ability to engage with and manage their financial lives.
Once again, the government declined to make professional financial advice services tax-deductible (perhaps likely given fallout from the royal commission).
But advisers should continue to lobby for this outcome into the future to increase the number of Australians being professionally advised and improve their financial health.
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