Yahoo Finance Federal Budget 2015 jargon buster: What do all the big words mean?
Treasurer Joe Hockey will unveil the Federal Budget tonight at 7:30 pm, and whether all the jargon-loaded talk interests you or not, it’s highly likely that the announcement will impact some aspect of your life.
FOR THE COMPLETE COVERAGE OF BUDGET, FOLLOW OUR LIVE BLOG FROM 7 PM AEST HERE
So if you’re among those who can’t tell your debt from your deficit, we’ve put together a handy jargon buster. It will not only help you understand key economic issues and how they affect your hip pocket, you will also be well-equipped to sound really smart at social gatherings.
But before we get into the serious stuff, take a look at a few fun facts about budget 2015.
If the #Budget2015 papers were piled on top of each other, they would be 500m high! http://t.co/AZTkfPw6lX pic.twitter.com/hi2UqVcNwb
— Australian Treasury (@Treasury_AU) May 11, 2015
Did you know that at least 6 kilos of M&Ms are consumed by staff in our Budget division in the wks leading up to #Budget2015?
— Australian Treasury (@Treasury_AU) May 10, 2015
Preparations are underway for #Budget2015. Over 1,000 ppl will attend a lock-up event today http://t.co/AZTkfPw6lX pic.twitter.com/pF62Thf0FF
— Australian Treasury (@Treasury_AU) May 12, 2015
Photos: The best memes from last year's budget
FOR THE COMPLETE COVERAGE OF BUDGET, FOLLOW OUR LIVE BLOG FROM 7 PM AEST HERE
BUDGET 2015 JARGON BUSTER
Budget
The word budget originated from the French word bougette, meaning a pouch or wallet.
In the mid 18th century, the Chancellor of the Exchequer, in presenting his annual statement, was said ‘to open the budget’. In the late 19th century the use of the term was extended from governmental to other finances.
Debt vs deficit
Politicians across the spectrum compare the budget to a family's finances, but this often leads to confusion.
When a politician says they are balancing the books and returning the budget to surplus, it gives the impression that they are clearing the government's debt.
The reality is that the deficit is just the amount of money that the government spends beyond what it receives in a financial year.
Just because you return the budget to surplus does not mean that the debt incurred by the previous deficits disappears.
Also read: Happy Hockey flags smaller deficit
Negative gearing
Negative gearing allows property investors to write the interest costs of their mortgages off as an income tax deduction against other sources of income, and has been blamed for soaring property prices as it subsidises loss-making real estate investments.
But despite an estimated $12 billion-a-year savings that could come from scrapping negative gearing, Prime Minister Tony Abbott has said it won’t be touched in this budget. “The government I lead wants taxes to be lower, simpler, fairer,” he said.
Nearly 1.2 million Australians who use the tax rebate to cover expenses of investment properties, such as mortgage payments and repairs.
Also read: Pensioners, it's time to sell your holiday shack and upsize
Superannuation concessions
@sebeckmas @dovmoran @edhusicMP Australia GDP 67,458.36 USD. Israel GDP 36,051.15 USD.
— Nicole Williamson (@NicoleWill100) May 11, 2015
Super concessions are tax breaks designed to encourage people to put more money into superannuation, in theory saving the government money down the track by reducing the burden these people will have on the public purse when they retire.
The superannuation concession allows people to voluntarily contribute more to their superannuation and still be taxed at the rate of 15 per cent, well below the majority of tax rates.
The concessions have been criticised for disproportionately benefiting the wealthy, who get a much bigger discount on their normal income tax rates than those in lower tax brackets.
With many wealthy people likely to be ineligible for the pension on reaching retirement anyway, critics argue that the concessions cost the government far more in lost revenue than it would cost to support wealthy individuals with the aged pension.
Also read: Poorest retirees to get $30 benefit
The federal government is being urged to find more cuts to the $45 billion Age Pension and to tackle the growing cost of superannuation tax breaks after confirming a budget plan to tighten pension eligibility for wealthier retirees.
Hockey has stated his budget won’t be increasing taxation on superannuation.
“Now is not the time to hit superannuants who are facing potentially many years of lower returns on their savings in bank accounts," Hockey told reporters in Canberra.
This announcement comes despite research from the Parliamentary Budget Office revealing that $6 billion could be saved in the budget if there was a crackdown on superannuation tax concessions for high-income earners.
Forward estimates
The forward estimates are a series of projections released alongside the budget predicting revenue and expenses for the next four financial years.
As they rely on assumptions about revenue and indicators, they are often subject to change - as the mining boom unfolded the estimates often undervalued the amount of revenue, and after commodity prices peaked they have had to be revised downwards.
But the estimates are seen as a useful way of showing the government's longer-term plans for spending.
GDP
The gross domestic product (GDP) is the annual value of goods and services produced by a country. GDP is generally recognised as one of the key indicators of the state of a country's finances.
Tax expenditures
Tax expenditures are sources of revenue the government goes without due to tax concessions. While they are not government spending, they represent significant losses of potential revenue for the government.
In 2013-14 expenditures hit the budget bottom line to the tune of $115 billion, and while some of this is offset by increases in productivity and increased spending, it remains a significant source of potential revenue the government is missing out on.
Among the most well-known examples of tax expenditures are superannuation concessions and the capital gains tax exemption on the family home.
