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Bluechip asks the experts
There were no real surprises in last night’s Budget. Which was itself no surprise. Many of the major initiatives were announced last week, and the general consensus seems to be that Joe Hockey’s aim was as much about lifting the Coalition’s standing in the polls as it was about stimulating the economy and forging a path to surplus. Again, no real surprise, particularly given the outcry after his first Budget last year.
Indeed, far from further belt tightening, the majority of savings put on the table in 2014 have now been spent. Return to a balanced budget has been delayed until the end of the decade, and a return to surplus pushed out to 2021 at the earliest.
It’s a big turnaround. Mr Hockey says it’s simply an example of credible fiscal consolidation. But is really? Or is it, as David Rowe writes in today’s AFR, “barely credible, reliant as it is on just about everything going right”.
In other words, short on serious deficit reduction and long on optimistic economic assumptions.
And what of the impact on business, financial services and retirees? We asked a number of BlueChip’s clients for their take on the likely ramifications of the initiatives which will affect their businesses and clients.
QIC, Chief Economist: Matthew Peter
According to QIC Chief Economist, Matthew Peter the Budget is unrealistic, in that it is excessively optimistic about the revenue levels that the Government can expect going forward. He calls for more expenditure to boost confidence and pointed to what he described as “accounting tricks”, for example, taking $7 billion out of contingent liabilities and moving them into savings.
On the other hand, Mr Peter welcomed the focus on financial services exports as a means of offsetting lost revenue as the mining boom peters out. He pointed specifically to Free Trade Agreements (FTA) as a positive way of making it easier for foreign countries, including China, Korea and Japan to invest in Australia. FTAs also have the beneficial outcome of allowing Australian financial services businesses to open offices in these countries, a crucial step for fund managers looking to gain local knowledge and compete in the local market. He described a closer and more open relationship with Asia as a potential game changer, as Australian financial institutions can compete in a free market environment with foreign financial institutions.
Financial Planning Association of Australia (FPA), General Manager Policy and Conduct: Dante de Gori
Mr De Gori welcomed the fact that superannuation remained untouched in the Budget as a good outcome for both financial advisers and their clients. At the same time he highlighted the fact that the tax discussion paper is looking at tax concessions as they relate to superannuation, so superannuation will remain a talking point between now and the next election.
Mr de Gori also welcomed tax cuts to small business as a positive for financial planners, particularly those in the start-up and growth phase of their business cycle. Both the concessions and immediate deductions for capital expenditure are good news for the sustainability of their businesses.
State Super Financial Services (SSFS), General Manager, Marketing, Product and Advice: Jason Andriessen
Mr Andriessen said there were no real surprises from his perspective, as the changes to pension asset tests were announced last week. He pointed to the challenges that will be faced by the larger number of retirees that will now be required to take money from their financial assets to live on, something which can be difficult in the current low interest rate environment.
He also spelt out the inevitable consequence of the lower thresholds, that more and more investors will need to accept that living comfortably will require spending down more of their assets during retirement. This will have implications for financial advisers and investment managers, as it will require a completely different portfolio management approach.
Centuria Life, General Manager: Neil Rogan
Mr Rogan also stressed the likely consequences of changes to the age pension threshold for liquid assets outside of the family home.
From 2017, retirees with liquid assets in excess of the new threshold will no longer be able to rely on full or part pension payments, or even other concessions that are available today.
This means that investors must ensure that they have enough funds for retirement. If, as is the case for many Australians, investors have already reached their maximum super contribution, they may need to start thinking about investing in a tax effective way outside of superannuation.
The bottom line?
There’s no question that the response to this year’s Budget has been less ferocious than the outrage that accompanied Budget 2014. Laura Tingle, acknowledges that it “minimises the number of voters who might be hurt”, while at the same time stating that the nicest thing you can say about Joe Hockey’s second budget is that it won’t do any harm to the economy.
As for the ramifications for financial services, retirees and superannuation, it may well be a case of wait and see.
Budget 2015: Major initiatives affecting business, super and retirees
Business
- Small business will get 1.5% tax cut, a 5% tax discount on income from unincorporated small business activity and immediate tax write-off for assets $20,000 or less.
- Multinationals will find it harder to profit shift as existing tax laws are strengthened, and they are forced to declare tax paid on Australian earnings
Superannuation, aged pension and retirees
- There are no new taxes on superannuation
- Pensioners with fewer assets beyond the family home will be better off. A single person owning a home will be allowed $250,000 in other assets, up from $202,000 and a couple in the same situation will be allowed $375,000 up from $286,000 and still claim the pension.
- Some wealthier retirees will no longer be able to quality for the aged pension or part pension. Thresholds will be decreased. Currently couples can have $1.15 million in assets on top of the family home and qualify for the part pension. That figure will drop to $823,000.
