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Federal Budget 2014

13/5/2014

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Federal Treasurer Joe Hockey has handed down his first Budget which confirms a range of recently announced changes to income tax, health care, family payments and social security.

Key announcements
  • Introduction of a temporary budget repair levy
  • Fuel excise indexation reintroduced
  • Family tax benefit payment reforms
  • Changes to the Medicare system
  • Paid parental leave changes
  • Superannuation guarantee rate to increase to 9.5% from 1 July 2014
  • Changes to HELP repayment thresholds, indexation and loan fees
  • Pension age to increase to 70 from 2035
Temporary budget levyThe Government will introduce a three year temporary levy of 2% on those whose taxable income is in excess of $180,000 from 1 July2014 until 30 June 2017.

This means that individuals with taxable income of:

  • $180,000 or below will not pay the levy
  • $200,000 will pay 2% of $20,000 or $400 in levy; and
  • $300,000 will pay 2% of $120,000 or $2,400 in levy.
Reintroduction of fuel excise indexationThe Government plans to restore indexation of federal petrol excise in line with inflation from 1 August 2014. This will add up to four or five cents a litre to the price of fuel within four years, which would be on top of the other factors that have been driving petrol prices up.

Federal excise was frozen at 38.14 cents a litre in 2001 when the Coalition government at the time cut fuel excise by 1.5 cents and then froze it in perpetuity at the 38 cent rate.

Family tax benefit amendmentsFamilies may feel the pinch with a raft of changes to family tax benefit payments to apply from 1 July 2015:

  • Family Tax Benefit (FTB) Part B primary earner income limit will be reduced from the current $150,000 pa to $100,000 pa.
  • FTB Part B payments will be limited to families whose youngest child is younger than six years of age. A transitional arrangement will ensure families with a youngest child aged six and over on 30 June 2015 remain eligible for the payments for two years.
  • A new allowance of $750 per child aged between six and 12 years will be introduced for single parents on the maximum rate of FTB Part A whose youngest child is between six and 12 years of age from the point when they become ineligible for the FTB Part B.
  • The FTB Part A Large Family Supplement which is currently $313.90 per child per year will be limited to families with four or more children and will be paid in respect of the fourth and each subsequent child in the family.
Medicare co-paymentsThe Medicare Benefits Schedule (MBS) rebates will be reduced from 1 July 2015 by $5 for standard general practitioner consultations and out-of-hospital pathology and diagnostic imaging services, while providers of these services will be allowed to collect a patient contribution of $7 per service.

For patients with concession cards and children under 16 years of age, the MBS rebate will only be reduced for the first 10 services in each year, after which it will return to current benefit levels. A new Low Gap Incentive will replace bulk billing incentives for providers of these services.

The Low Gap Incentive will be paid to providers where they provide services to patients with concession cards or children under 16 years of age and only charge the $7 patient contribution (in the case of the first 10 services in a year), or where they charge no patient contribution (for additional services in that year).

Paid parental leaveFrom 1 July 2015 the Government will introduce a Paid Parental Leave scheme payable for 26 weeks with an income cap of $100,000 per year, which will include superannuation.

Superannuation guarantee changesThe Government will change the schedule for increasing the superannuation guarantee rate to 12%.

The SG rate will increase from 9.25% to 9.5% from 1 July 2014. Then the rate will remain at 9.5% until 30 June 2018 and then increase by 0.5% each year until it reaches 12% in 2022-23.

Higher Education Loan Program changesFrom 1 July 2016 the income threshold at which students commence repayment of their Higher Education Loan Programme (HELP) debts will be reduced.

The new minimum repayment threshold will be set at 90% of the minimum threshold that would otherwise have applied in 2016/17. Treasury estimates the new minimum threshold to be $50,638 in 2016/17.

A new repayment rate of 2% of repayment income will be applied to debtors with incomes above the new minimum threshold. Also there will be no other change to current repayment rates.

Currently the minimum repayment threshold for the 2013/14 income year is set at $51,309 and the minimum repayment rate is 4%.

The interest rate applied to HELP loans will be changed to a rate that reflects the cost of Government borrowings, with a maximum rate of 6%.

Pension age to increase to 70 from 2035From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035.

People born before 1 July 1958 will not be affected by this measure.

It is important note that these announcements need to be passed by Federal Parliament before they become law.

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Statistics Snapshot

11/5/2014

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Here’s a round-up of interesting statistics you might want to know about:

Australians are worried about not having enough money for retirement:

Over half the participants of the 2014 MLC Retirement Survey expect not to have enough money to retire on. One in three people expect a sizeable financial shortfall at retirement and only 3.5 per cent think they will have more than enough money to maintain a desired lifestyle. Around 70 per cent said they did not have a fall-back plan for financial setbacks like health issues and unemployment.

Borrowers should be paying less for their home loans:

The official Reserve Bank of Australia cash rate has been at a historic low of 2.5 per cent since August 2013, yet some borrowers are paying up to 9 per cent for their home loans simply because they haven’t shopped around for a better deal. There are hundreds of products on the market so it pays to review your loan on a yearly basis. Speak to your mortgage broker for assistance.

The value of residential property is on the rise:

The estimated total value of residential properties in Australia hit $5 trillion for the first time, according to the Australian Bureau of Statistics (Dec quarter 2013). House prices are expected to keep growing in the next 1-2 years, particularly in Queensland, reports the recent quarterly NAB Residential Property survey.

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Squeaky Clean Credit

6/5/2014

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Paying your loans and bills on time has taken on a new level of importance thanks to reforms to Australia’s credit reporting system.

On 12 March 2014 a ‘positive’ system was introduced to give lenders more detailed information about a customer’s credit risk and ability to repay debt. Previously, only negative information such as defaults and bankruptcies was permitted to be held, whereas the new system rewards good repayment behaviour, giving consumers the chance to improve their credit score and borrowing prospects.

Lenders are now able to see the full picture, including how many other accounts their customers have and what credit limits are attached to them. This more detailed information gives lenders a better understanding of whether a further loan would make the borrower even more overcommitted. It also means they can distinguish between high and low risk borrowers and potentially offer more competitive products to low risk clients.

Here’s some of the information that will be held in your credit file for debts like personal loans, car loans and credit cards.

  • The dates which you opened and closed credit accounts
  • Credit card limits and the type of card
  • Whether you are five or more days late in paying. This and other repayment information (like whether you have made payments on time) stays on your file for two years.
  • If a repayment of over $150 is more than 60 days late, it will be listed as a default. This stays on your file for five years.
  • The number of credit enquiries you have made.
A good credit rating is an important part of securing a home loan so the impact of the changes will depend on how well you manage credit.

  •  If you commonly pay bills late by five or more days you might have difficulty obtaining further credit.
  • If you have a good credit score you can use this to shop around and get the best deals. Your mortgage broker can also use this as an additional tool to assist in negotiations with lenders.
  • If you have a black mark on your record, you will at least be given the chance to show lenders that your more recent behaviour shows that you are in fact a reliable credit risk.
Visit veda.com.au to access your credit report and check the information is correct. You can even monitor changes through Credit Alerts and help protect your identity.

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Interest Rate Bulletin May 2014 - Unchanged at 2.5%

5/5/2014

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Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a better outcome this year, helped by firmer conditions in the advanced countries. China's growth appears to have slowed a little in early 2014 but remains generally in line with policymakers' objectives. Commodity prices in historical terms remain high, though some of those important to Australia have softened further of late.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding.

In Australia, the economy grew at a below-trend pace in 2013. Recent information suggests moderate growth is occurring in consumer demand and foreshadows a strong expansion in housing construction. Some indicators of business conditions and confidence have improved from a year ago and exports are rising. But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.

The demand for labour has been weak over the past year and, as a result, the rate of unemployment has risen somewhat. More recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably and this has been reflected more clearly in the latest price data, which show a moderation in growth in prices for non-traded goods and services. As a result, inflation is consistent with the target. If domestic costs remain contained, that should continue to be the case over the next one to two years, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, while dwelling prices have increased significantly over the past year. The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.



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