Budget 2009
Special edition newsletter

Wayne Swan’s second budget included both spending cuts and areas of increased expenditure. On the spending side are further infrastructure spending, an increase in the age pension, the extension of the First Home Owners Boost Scheme, the introduction of paid parental leave and tax cuts for individuals.

On the other hand, cost-cutting measures have been introduced in areas such as the reduction of superannuation salary sacrifice concessions from 1 July 2009, the progressive increase of the age pension age to 67 and a more stringent age pension income test and the reduction of the private health insurance rebate.

The following summary of the budget is focussed on the changes made in the superannuation and social security areas and is not intended to be a comprehensive assessment. If any of the changes announced in the Budget affect your investment portfolio you should consult a financial planner before making any changes. If you would like assistance from a FuturePlus financial planner please call 1300 883 788.

Superannuation

The Government’s Super Co-contribution Scheme
There will be a temporary reduction in the matching rate and maximum co-contribution that is payable on an individual's eligible personal non-concessional superannuation contributions, with effect from 1 July 2009.

In the next financial year the matching rate will fall from $1.50 to $1.00. Some examples of how this will affect Co-contributions in the next financial year are provided in the table below.

*As the indexed thresholds are yet to be set for the 2009-2010 year we have used the existing lower and upper thresholds of $30,342 and $60,342 in the table above.

The Co-contribution Scheme, even at the reduced rate, remains a generous arrangement for eligible members.

Halving of the concessional contribution cap from 1 July 2009
The Government will reduce the concessional contributions cap to $25,000 per year (indexed), with effect from 1 July 2009. This change has no effect on contributions made in the current financial year and means members will not be penalised for contributing within the existing concessional contribution caps ($50,000 or $100,000 transitional).

The transitional concessional contributions cap (applicable to individuals aged 50 and over or who turn 50 before the end of the 2011-12 financial year) will be reduced from the current $100,000 to $50,000 per year. However, special arrangements will apply to members in defined benefit schemes as at 12 May 2009 whose notional taxable contributions would cause them to exceed the reduced cap.

The annual cap on non-concessional contributions is currently $150,000 per year for the 2008-2009 financial year and will remain at that level in 2009-10. The non-concessional cap will in future be calculated as six times the level of the (indexed) concessional contributions cap.

The transition to retirement (TTR) strategy has remained unaffected by the budget announcement except that the amount able to be contributed to super is affected by the caps detailed above.

50% minimum pension drawdown relief extended from 1 July 2009
The halving of the minimum payment amounts for account-based pensions will also apply in 2009-2010. The minimum annual income payment for an account-based pension is calculated as a minimum percentage of the account balance as follows:

Social Security

Increase in government support pension amount from 20 September 2009
The single base pension will be increased to 27.7 per cent of Male Total Average Weekly Earnings (MTAWE), from its present 25 per cent of MTAWE. This means that from 20 September 2009 the single basic pension rate will be increased by $30 per week. Single pensioners on the full rate of pension will also receive a new pension supplement of $2.49. Pensioner couples on a full rate of pension will receive an increase of $10.14 per week (combined).

New pension supplement from 20 September 2009
The new Pension Supplement referred to above will combine the former GST pension supplement, the Pharmaceutical Allowance, the Utilities Allowance and the Telephone Allowance. The new supplement will be available to all income support payments with the exception of Newstart allowance, Special benefit and Sickness benefit recipients.

From 20 September 2009 a new supplement for seniors will be established for Commonwealth Seniors Health Card holders and veterans eligible for the Gold Card. It combines the former Seniors Concession Allowance and the Telephone Allowance. The single rate of the Seniors Supplement will be topped up with an extra $129 a year, to bring it to two thirds of the rate paid to couples.

Age pension age to increase to age 67 from 1 July 2017
The age threshold for the Age Pension and the Commonwealth Seniors Health Card for men and women will increase to 67 years of age from July 2023. The qualifying age will begin to increase from July 2017, by six months every two years as shown in the table below.

Increase in pension taper rate from 20 September 2009
With effect from 20 September 2009 the income test taper will increase from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents in the dollar for each member of a couple with income above the income free thresholds.

Paid Parental Leave from 1 January 2011
A government funded Paid Parental Leave scheme will be introduced for eligible parents. The parental leave payment will be equal to the federal minimum wage (currently $543.78 per week) and can be for up to 18 weeks.

Extension to the First Home Owners Boost
The government will extend the First Home Owners boost for another six months being $14,000 for the purchase of an established home and $21,000 for a new home. From 1 January 2010 it will revert to the original bonus amount of $7,000 for those buying or building their first home.

Pension Bonus Scheme to close
The existing Pension Bonus Scheme will admit no further participants from 20 September 2009. Existing members of the scheme and those who join before 20 September 2009 will continue to accrue entitlements under the existing rules. It will be replaced by a new pension income test concession for people of pension age. Under this concession, only 50% of the first $500 of employment income per fortnight will be counted for income test purposes.

New carer supplement
A non-taxable $600 per year carer supplement will be payable to all Carer Payment recipients for each person they are caring for.

Commonwealth Seniors Health Card (CSHC) – income test
The Government will adjust the definition of income used for determining eligibility to the Commonwealth Seniors Health Card by excluding gross tax-free superannuation pension income. It will however proceed with the inclusion of income that is salary sacrificed to superannuation in the income assessment.

Taxation

Tax cuts from 1 July 2009
The new personal income tax thresholds for the 2009- 2010 year will be as follows:

The main changes from the 2008-2009 thresholds are the income threshold for the 30% tax rate increasing from $34,000 to $35,000 and the 40% tax rate falling to 38%.

Increased Medicare levy low income threshold from 1 July 2008
The Government will increase the Medicare levy low income threshold to $17,794 for individuals and $30,025 for individuals in families. The additional amount of threshold for each dependent child or student will also increase to $2,757. The Medicare levy threshold for pensioners below pension age will also be increased to $25,299. The purpose of this is to prevent pensioners below pension age from having a Medicare liability when they don’t have an income tax liability.

Private Health Insurance Rebate from 1 July 2010
A means test has been proposed for the 30% private health insurance rebate for middle to high income earners according to age. The reduction in the rebate will be determined by a three tier arrangement where the rebate declines as income rises and cuts out for individuals who earn more than $120,000 or $240,000 for couples. On the other hand there will be an increase in the Medicare Levy Surcharge rate to penalise affected taxpayers who have no private health insurance.