What's in the budget for MillennialsAustralian Financial Review
Aleks Vickovich, Sally Patten, Duncan Hughes and David Marin-Guzman
Oct 7, 2020 – 12.46pm
Treasurer Josh Frydenberg handed down a federal budget on Tuesday night that was unthinkable before the coronavirus pandemic — a $213.7 billion deficit and $700 billion in net debt from a government that only last year promised it would be "back in black".
Often, the budget can be focused on elderly people, with tinkering to the rules around the age pension, superannuation tax and retirement income a common feature of the annual cash splash.
But against the backdrop of the pandemic, and with the government focused on "temporary and targeted" measures to get working-age people through to the other side, this year there were some key measures that could make a big difference for the hip pockets of taxpayers and voters under 40. Here's what they need to know.
1. Tax cuts for middle income earners
Income tax cuts formed a central plank of the government's plan to keep the economy moving, the idea being that putting more of people's money back in their own pockets should stimulate the economy by fuelling socially distant shopping sprees.
First, it will backdate the tax cuts it has already announced to July 1 this year and lift the threshold at which the 37 per cent tax rate applies, as revealed by The Australian Financial Review's political editor Phil Coorey in the days before the budget.
That means people earning between $90,000 to $120,000 now pay 32.5 per cent in income tax, rather than 37 per cent. Plus, the upper limit of the 19 per cent personal income tax bracket will rise from $37,000 to $45,000.
Combined, the tax cuts will deliver relief of $42 a fortnight for an individual earning $85,000 a year and about $99 for individuals earning $140,000.
Check out the graphic below to see how much "tax relief" you can expect. For more than five million Australians, including many Millennials, it would mean a cash injection of more than $2,000.
When the tax scales have been adjusted, it is likely that people who have worked for the entire 12-month period will have had too much tax withheld by their employer – because they will have paid tax at the old rate for the first few months.
That means there could be some juicy tax refunds coming your way.
However, the government chose not to bring forward its "stage three" tax package, which abolishes the 37 per cent rate and applies a flat rate of 30 per cent to all income between $45,000 and $200,000.
But that should still be coming in the next few years from July 2024 at the latest (assuming there is no change in government before then).
2. First home buyer scheme boosted
To help young people get on the property ladder (and boost construction and property development in the process) the government made changes to its first home buyer deposit scheme.
Under the scheme, eligible borrowers will be able to buy a new house, apartment or a house-and-land package with a deposit from 5 per cent of the property’s value, compared with the usual 20 per cent, without taking out lender’s mortgage insurance.
That means a home loan of $570,000 on a $600,000 property will save the buyer about $25,700 in mortgage insurance, according to lender analysis.
The number of places available has been hiked by 10,000 and the purchase price threshold has also been increased.
The Sydney threshold has been lifted from $700,000 t0 $950,000, Melbourne $600,000 to $850,000 and Brisbane now up to $650,000 from $450,000.
Economist Andrew Wilson of property data platform Archistar said the measure would "allow substantially more young people to realise the great Australian dream of home ownership".
But builders and real estate agents have slammed the decision to limit the policy to new builds, pointing out that fewer than 20 per cent of first time buyers purchase new properties.
3. Wage subsidies for young workers
Perhaps the most important priority for young people amid the downturn is to stay in a job and the budget contained a $4 billion wage subsidy aimed at helping that occur.
The JobMaker package included a hiring subsidy of $200 a week for workers aged 16 to 29, or up to about $10,000 a year. But it will fall to $100 a week for those aged 30-35.
The subsidy is available to business for up to the first 12 months of a worker's employment and is forecast to cost $850 million over the next eight months and a total of $4 billion for the three years to 2022-23.
For employers to claim the subsidy, new hires must work for at least 20 hours a week and the business must show an increase in its overall headcount.
Treasury estimates that about 450,000 will be supported by the hiring credit over the next three years.
Some have raised concerns that prioritising the hiring of people aged up to 35 could come at the expense of older workers, who traditionally find it much harder to return to the labour market after a recession. They also worry it could lead to more casual jobs.
4. Big superannuation changes
The superannuation industry was expecting the government to extend its controversial early release scheme allowing members suffering hardship to withdraw up to $20,000 (and were already preparing to push back).
Instead, it unveiled a trio of shock measures that could shake up an industry still reeling both from the early release scheme — under which $33 billion has been pulled out of retirement savings — and the still-lingering findings of the banking royal commission.
The first is a proposal to "staple" super accounts to the individual member. That means when someone changes jobs their super fund follows them across automatically, rather than the status quo where the new employee needs to opt-in to their existing or chosen fund or else end up in a fund of the employers' choice (often sneakily linked to a friendly bank or trade union).
Super comparison tool will be a fraught affair
The PBO estimates that the impact of COVID-19 is likely to result in government net debt being between 14 and 24 per cent of GDP higher by 2029-30 than it would have been otherwise.
Dud super funds face fresh crackdown
The point of the measure is to crack down on the rampant problem of people having multiple accounts by accident, which is a major contributor to the shocking $30 billion we pay in fees each year.
But critics say it would dent the workplace default system which some believe has been in the best interests of members. Plus, it could increase the chances of being stapled to a poor-performing fund.
The government will also introduce a new test for super funds on investment performance and a new online comparison tool called YourSuper to be run by the Tax Office.
That may not sound like a big deal given the prevalence of product comparison tools on the internet these days.
But there has never been an easy way for consumers to rank or compare super funds and that is partly because the methodology they use — for example, the priority placed on fees and how risky different investments are perceived to be — is very controversial.
Super being super, you can expect a big political fight over this one. But to the extent it allows consumers to get reliable information before choosing a fund, it could be a very positive development.
