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Was this a budget balls up or a beauty?
If Malcolm Turnbull can pull off an election victory after a budget week like this week he will be in the Harry Houdini great escapist class!
And it’s such a pity because if he and his Treasurer were able to pull off the political piece better than they have, they would have been in the box seat for an easy election win. But after this week I don’t know.
Small business masterstroke
Listening to his Budget Speech, my old economics student from University of New South Wales, pulled off an early masterstroke, which I tweeted, with his redefinition of who is a small business.
Lifting the threshold from $2 million to $10 million and linking this to a lower company tax cut and an extension of the $20,000 immediate tax write off for equipment, machines, etc. not only helps the businesses, which are already pretty confident, given the NAB surveys, but powers overall economic growth.
The CEO of MYOB, Tim Reed, on my Sky News Business show, gave the budget a nine out of ten for small business and he really knows the sector.
The plan for youth unemployment — PaTH — was even given a tick by the former economics adviser to Kevin Rudd, Andrew Charlton, so that was a ringing endorsement of this innovative idea.
So far, so good for the budget.
Tax time
The tax trick of raising the threshold for when the 37% tax bracket starts from $80,000 to $87,000 is a good idea to bolster consumption and it will cement a group of middle class people who might be thinking about voting Labor at the election.
The promise to reduce the company tax over 10 years sounded OK but the debacle over not being willing to say how much it will cost has been a bad political look. What were they thinking?
It looks like they’re covering up a bonus to the big end of town, which Labor will play up over the election campaign.
For God’s sake, they could have put a good guess number out there but then talked up the economic pluses of a lower company tax rate, the jobs created and how lowering tax rates actually increases the tax take! That was crazy politics.
Super changes
And on that subject, their super changes have sent the telephone boards at radio stations such as 2GB, 4BC and 3AW into meltdown. These super changes were said to only hurt 4% of the population but that’s plainly wrong.
For starters, lowering the concessional cap from $35,000 for over 50s and $30,000 for under 50s to $25,000 means everyone can put less into super. That hurts everyone putting money into super.
Putting a $500,000 lifetime cap on your non-concessional contributions means where once upon a time you could have sold your house on retirement and say rolled a million dollars into your low balance super, now you can only put $500,000 in.
If you are married it would be $1 million but under the old rules you each could put in $540,000 every three years.
This will hit a lot of small business people who have little super but were planning on selling a business or property to build up their super.
The maximum of $1.6 million in super after which the 0% tax rate disappears and you have to find another home for the rest of your money will stress out a lot of people in this boat.
It will probably be the 4% Scott was referring to but these people are classic Coalition voters with families, friends and employees.
Also, how these people reduce their super balances and will it bring forth a capital gains tax slug, are all questions we don’t know answers to right now.
Election issue
Another election issue will be the change to how earnings are taxed inside a super fund where the trustee is on a transition to retirement pension. This will lose the Government a lot of votes. Why?
Well these people’s earnings are now taxed at the best rate of all — 0% — but will go to 15%. That’s a real vote killer idea.
Politically these super changes look sensible to an economist, debt ratings agencies and the social welfare lobby, but to the people affected, it looks like a super betrayal.
Good super changes
There was some good super stuff such as the ability to put money into super until you are 75 without a work test for those over 65.
The ability for a mum who left work for five years and who now will be able to contribute more super up to her unused concessional cap was good for those wanting to play catch up with their super.
They also supported Labor’s love affair with the Low Income Super Tax Offset, which means anyone who earns up to $37,000 will have any tax on their super rebated up to $500 and this will be rolled into their super fund.
Also the low-income spouse rebate income threshold was raised from a pathetic $10,800 level to $37,000, which will mean more spouses will be able to build up their partner’s super.
It’s the economy
On the economic front, the 2.5% economic growth number used for the budget will prove too low but this means the deficit falls more quickly as greater growth brings in more taxes and means less spending is necessary as the jobless find work.
However, that improvement might mean diddly-squat to Malcolm Turnbull if this budget kills their chances of being re-elected. And if Bill Shorten softens the slug on super trustees he could easily get votes he never expected.
This budget should have been a beauty with an improving economy and a rate cut to boot but right now it’s looking like a budget balls up.
The election campaign ahead better bring out the best in Malcolm and Scott or else there could be a personal income fall for both of them that they hadn’t budgeted for!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.