Who doesn’t like a little bit of extra cash lining their pockets?
And with the release of the Federal Budget on Tuesday night, that’s exactly what Australians got.
Now, the majority of the talk leading up to the announcement of the budget on 8 May focused on the tax cuts for low and middle income earners (those earning less than $90,000).
But higher income earners will also get a tax cut.
Although that’s a way off yet.
While many will bemoan the fact that higher income earners are getting a tax cut, that may actually be an advantage to the economy overall.
First, let’s take a look at the winners and losers of this year’s budget.
Winners and losers
- TAXPAYERS: Those earning between $18,200 and $37,000 will have their tax bill condensed by $200. Taxpayers earning between $37,000 and $48,000 will see their tax bill slowly decrease from upwards of $200 the higher their salary increases, to the maximum of $530 for those earning between $48,000 and $90,000. From there the tax cut slowly decreases until the taxable income hits roughly $125,000.
The tax bracket is also set to change. Those earning between $87,000 and $90,000 will head into the lower tax bracket. Meaning, instead of paying 37% tax, they’ll pay just 32.5%. And while it’s still four years off, the lower tax threshold will be increased from $37,000 to $41,000. That means more will only pay 19% tax.
- SUPERANNUATION: If you have less than $6,000 in your super, then you’ll only be charged a 3% fee. AND all exit fees will be banned.
- SMALL BUSINESS: If you are a small business owner, then that means you are getting an extended 12 months that allows you a $20,000 business asset write off purchase.
- PENSIONERS: Older Australians will be able to gain more funds without it affecting their pension. The Pensioners Work Bonus Scheme will also include the self-employed. According to the ABC: ‘The Pensions Loan Scheme will be boosted to enable everyone over pension age to effectively mortgage their home to the Government to access fortnightly payments.’
- CASH USERS: To fight back against the ‘black economy’, the government is introducing a limit of $10,000 on cash payments concerning goods and services.
- LAND OWNERS: Those that own vacant blocks of land won’t be able to receive tax deductions for their land. Deductions will only happen once building begins on the land.
- WELFARE RECIPIENTS: There will be no increase in the Newstart allowance. The length it takes to receive welfare benefits for immigrants will be extended from three years to four, starting from the beginning of the new financial year.
The biggest winner in this budget is the taxpayer. The government is finally rewarding hard working Australians like you and I.
The more you earn, the more you save
The Australian Institute thinktank believes that higher income earners are the ones who’ll benefit most thanks to this year’s federal budget. Their analysis shows that ‘the top 10% of earners getting 40% of the value of its tax cuts, while the bottom 30% of earners will get just 7%.’
But they won’t be the best off due to the tax cuts handed out on Tuesday. Instead, it’s all to do with the flat tax rate that the Turnbull government will be introducing, and is expected to be in place by the end of 2025.
As explained by The Guardian:
‘It split the taxpayers into three groups: high-income earners (the top 20% of taxpayers), low-income earners (the bottom 30%), and middle-income earners (the remaining 50%).
‘It found the top 20% of income earners will get 62% of the benefit of the government’s proposed income tax cuts, while the top 10% (very high-income earners) will get about 40%.
‘It found the bottom 30% will get 7% of the cut, while the bottom 10% (very low-income earners) will get just 1.5% of the tax cut.’
And while many will wonder why higher earners will receive higher tax cuts, it’s pretty simple. They earn more, therefore their tax cuts will seem larger.
And with their lower taxes comes a bonus, according to Treasurer Scott Morrison. ‘Lower taxes will further strengthen our economy to create more jobs.’
That’s something Australia needs.
Overall the budget was a win for all Australians and taxpayers.
On Friday we saw Labor leader Bill Shorten’s response to the government’s tax cuts, with their own proposed tax cuts focused on low to middle income earners. Labor’s cuts would mean that those earning between $37,000 and $90,000, would receive double the tax cut proposed by the coalition government in this year’s federal budget.
More tax return money in your pocket is nice. Whether you prefer the government’s tax cuts or Labor’s proposed alternative, very likely depends on which would benefit you more. But there are better ways to build your wealth. Money Morning editor Harje Ronngard believes he’s found one of the best of those opportunities, in an Australian company working on something he calls ‘the Everything App’. You can find out more about that here.
This week in Money Morning
In Monday’s Money Morning, Harje discusses the possibility of a US–China trade war. And while the US are doing whatever they can to stop Chinese companies from purchasing US companies, a trade war would cause terrible outcomes for both nations. Previously, China was always trying to catch up to the innovation of the West. But in recent times, China has surpassed Western nations regarding fintech, and are now leading the way in transitional growth for mobile payments. To find out how you could potentially benefit from this, go here.
In Tuesday’s Money Morning, Harje looks at the CEO and founder of Xiaomi (the Chinese version of Apple): Lei Jun. He’s been compared to Apple’s founder, the late Steve Jobs. And is constantly on business trips, trying to get the funding to make his company public. How much does he want? US$100 billion. It’ll be the biggest IPO since Alibaba. To find out more about Xiaomi and other Chinese tech advancements, go here.
On Wednesday, Harje wrote about one of the best traders in the world: Warren Buffett. Previously, Buffett never believed in investing in tech stocks. And then all of a sudden he did. And he now owns 5% of Apple stocks. And Apple is, according to Harje, well on its way to becoming a trillion dollar company. But China’s mobile payments industry is already there. Find out more, here.
China have been going cashless and using mobile payments for years. So much so that the industry is now worth US$16 trillion. And in Thursday’s Money Morning, Harje explores Australia’s intention of cutting back on cash. Treasurer Scott Morrison puts up a case for going cashless, and it’s all to do with saving money. To find out more about Australia’s cashless plans, and how it’s working in China, go here.
In Friday’s Money Morning, Harje looks at the value of moats. A moat, in economic terms, means finding advantages that allows a company to stay competitive and above their rivals. According to Investopedia, it allows a company ‘to protect its long-term profits and market share from competing firms.’ While Tesla CEO, Elon Musk isn’t a fan of moats, legendary investor Warren Buffett built his wealth around them. If you want to find out how you could potentially profit from companies with moats, go here.
Editor, Money Weekend