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FEDERAL BUDGET BRIEFING 2020

Last night the Federal Government handed down its Budget for the 2020–21 financial year.

The Budget’s focus for this year is to regrow the economy by creating job opportunities and encouraging spending.

SOME KEY BUDGET ANNOUNCEMENTS WERE

• Bringing forward the income tax cuts that were scheduled for 2022

• Helping members pay less in super fees and holding super funds accountable for poor performance

• Additional support payments for Age Pension and welfare recipients

• Temporary full expensing to encourage business investment, and tax changes to help businesses offset their tax losses against past profits.

It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they are legislated.

TAX

Personal tax cuts Effective 1 July 2020

The Government has announced it will bring forward, by two years, stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022.

As a result, from 1 July 2020:

• The Low-Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar for taxpayers that have taxable incomes between $37,500 and $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar for taxpayers that have taxable incomes between $45,000 and $66,667.

• The top threshold of the 19% tax rate will increase from $37,000 to $45,000, and

• The top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.

The Government has also announced that the Low and Middle Income Tax Offset (LMITO), which was due to be removed with the commencement of the stage two tax cuts on 1 July 2022, will be maintained for the 2020 – 2021 yearly only

However, it should be noted that the tax cut of $1,080 for individuals earning between $48,000 and $90,000 will only apply for this year and will cease to be apply from 1 July 2021 due to LMITO being phased out from that date. Other individuals earning below $126,000 will also be impacted (to a lesser extent) by the removal of LMITO from 1 July 2021.

SUPERANNUATION REFORM

Effective 1 July 2021

When a person starts a new job and does not nominate a super fund, employers will be required to contribute to the employee’s existing super account, rather than the employer’s default super fund. Under this measure, the existing super account will be ‘stapled’ to the member so that they keep their current super fund when they change jobs.

The aim of this measure is to improve member outcomes by reducing unintended multiple super accounts that erode member balances through unnecessary fees and insurance premiums. This measure implements Recommendation 3.5 of the Hayne Royal Commission. Employers will be able to obtain the new employee’s existing super fund details from the ATO’s online services. It is important to note that the opportunity to nominate a chosen fund is still available under this reform

Your Super Comparison Tool

Effective 1 July 2021

A new, interactive, online YourSuper comparison tool, to be developed by the ATO, will make it easier for members to choose their super fund.

The online tool will:

• Rank MySuper products by fees and investment returns

• Provide links to super fund websites

• Show the member’s current super accounts and prompt members to consolidate.

The Your Super tool will make it easier for members to compare the fees and performance of super funds in the market creating more competition amongst super funds.

Holding Super Funds to account for underperformance

Effective 1 July 2021

By 1 July 2021, APRA will conduct annual benchmarking tests on the net investment performance of MySuper products.

If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021. At this time, members must also be provided with information about the YourSuper comparison tool, which will identify any underperforming funds.

Funds that fail two consecutive annual underperformance tests will not be permitted to accept new members until a further annual test shows that they are no longer underperforming. By 1 July 2022, annual performance tests will be extended to other superannuation products.

The reporting of underperforming funds is likely to encourage members to rollover to a super fund with better performance, hence may lead to a consolidation of a number of super funds in the industry.

New responsibilities for Super Fund Trustees

Effective 1 July 2021

The Government will ensure superannuation trustees are more accountable and transparent as to how they manage the retirement savings of members.

By 1 July 2021:

• Superannuation trustees will be required to comply with a new duty to act in the best financial interests of members.

• Trustees must demonstrate that there was a reasonable basis to support their actions that is consistent with members’ best financial interests.

• Trustees must provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.

This new duty is to act in the best financial interests of the members

SOCIAL SECURITY – ECONOMIC SUPPORT PAYMENT

Effective December 2020 and March 2021

The Government is providing two separate one-off Economic Support Payments of $250 to individuals receiving eligible income support payments or concession cards.

The $250 payments will be paid progressively from December 2020 and March 2021. Eligible individuals must be in receipt of eligible income support payments as at 27 November 2020 and/or 26 February 2021.

• Age Pension (including Age Pension (Blind))

• Carer Allowance*

• Carer Payment

• Commonwealth Seniors Health Card

• Disability Support Pension (including Disability Support Pension (Blind))

• Double Orphan Pension*

• DVA Gold Card

• DVA Payments

• DVA Seniors Card

• Family Tax Benefit (fortnightly recipients) *

• Family Tax Benefit (lump sum recipients) *

• Pensioner Concession Card (PCC) holders (covers non-income and asset test PCC holders and customers who have an extended entitlement to a PCC even though their payment has stopped).

Please note – * If they are not receiving a primary income support payment

Please note that individuals eligible for the Coronavirus Supplement of $250 per fortnight, such as Job Seeker, are not eligible for the one off $250 Economic Support Payment. In addition, if an individual only holds a Low-income Heath Care Card, they do not qualify either for the $250 one off Economic Support Payment.

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Aussie dollar takes a dive as risks rise

Markets
A mixed and topsy-turvy week for equity markets with Aussie and US markets trading sideways whilst European and Asian markets fell. Investors continued to take profits whilst concerns also rose regarding the US election and rising virus infection rates.

In local stock news, Harvey Norman shares rose after the company reported a more than 30% increase in sales in the last 3 months versus the same period last year. 

Westpac will pay the biggest fine in Australian corporate history, $1.3 billion, for its 23 million breaches of anti-money laundering and counter-terrorism financing legislation. The fine is $404 million more than the bank had provisioned for. 

The Aussie dollar fell against the US dollar this week giving up its strong gains over the last few months. Cyclical and more riskier currencies like the Aussie dollar fell against a backdrop of weakening global economic momentum and signs of increased tension between the US and China. 
  Economic
Australian Bureau of Statistics data showed that payrolls fell by 0.7% over the 4 weeks to 5th September, in contrast to their labour force survey which showed a strong lift in jobs in August. Key differences between the 2 data series. WA saw the strongest recovery whilst VIC had data still worsening. Clear winners and losers on an industry basis. Payroll jobs remain 4.5% lower than in mid-March – 8.3% lower in VIC and 3.1% lower in the rest of Australia. 

With the tapering of JobKeeper and JobSeeker from September 28, the number of workers eligible to receive JobKeeper from their employer could plunge from 3.5 million to 1.4 million workers. For those still eligible, JobKeeper drops from $1,500 a fortnight to $1,200 ($750 for those working 20 hours or less), whilst JobSeeker payments will reduce from $1,115 to $815 a fortnight. 

Federal Treasurer Josh Frydenberg has announced new bankruptcy laws, modelled on the American Chapter 11 code, which will allow firms to trade while insolvent if they owe less than $1 million to creditors. No coincidence in the timing, given JobKeeper and JobSeeker are being wound back. Treasury modelling showed the new rules would cover about 76% of insolvent businesses, with 98% of those having less than 20 staff. 

The Commonwealth Bank has upwardly revised their profile for Australian economic growth, based on a significant upgrade in the 3rd quarter where they expect a 2% expansion. That would mean an economic contraction of 3.3% over the full year versus an expected contraction of 4.3% previously. They also expect growth of 2.5% in 2021 with unemployment at 6.5% by the end of 2021.

Speculation is rising that the RBA may have to lower the cash rate further with the interest rate futures market implying a cash rate of 0.1% by the end of the year versus the current rate of 0.25%.

Deputy RBA governor Debelle indicated in a key speech that the central bank had 4 policy options should the economy need a further boost. These included extending its bond buying program, currency intervention, negative interest rates, and lowering the current structure of interest rates in the economy in terms of government bond yields and the borrowing rate the RBA offers to banks. 

The preliminary estimate of Australian retail trade showed a fall of 4.2% in August, following a rise of 3.2% in July. VIC led the fall with retail trade down more than 12% in the month. The falls in August were led by household goods retailing, which remains 20% above last years’ levels. Key here will be the 1st tapering of JobKeeper and JobSeeker next week. 

The US central bank is considering extending constraints on dividend payments and share buybacks it imposed on the biggest US banks, which are due to lapse at the end of the 3rd quarter. The move would disappoint bank investors. The European central bank ban on bank dividends runs through until December. 

US labour market data showed that while fewer people made new claims for unemployment benefits, the number remained very high

Data showed that Eurozone consumer confidence rose slightly in September, whilst other data showed an upgraded forecast for German economic growth this year. 
  Politics
Covid-19 cases continued to rise as many countries begin to experience their “2nd wave” including parts of Europe and Asia, with some considering increased restrictions. Pleasingly, we’re not seeing a corresponding rise in deaths. More testing, better tracing, better healthcare preparedness, and use of drug treatments all helping. Virus cases in Victoria have been falling whilst also falling in other parts of the country. On the vaccine front, Moderna and Pfizer disclosed detailed information about their late-stage trials, whilst Johnson & Johnson indicated they would have a vaccine soon. 

UK/EU trade talks appear to be improving following the UK government’s tantrum last week. Both sides indicated recent talks were useful and that they’re convinced there’s a deal to be made.

US President Trump has extended his concerns regarding Chinese tech companies and their data security protocols, querying some of the biggest gaming companies in the world including Tencent. He further inflamed US-China tensions in his speech to the United Nations General Assembly where he directly called out the Chinese for spreading the virus. 

US politics continued its toxic run with the death of a Supreme Court justice riling tensions as to the timing of a replacement, with the Democrats threatening to launch new impeachment proceedings against President Trump if he proceeds with a nomination. Under the law, he has every right to, and has the votes in the Senate. This coincided with increased violence by protestors after a Louisville grand jury correctly refused to charge 3 police officers with any serious charges resulting from a police shooting.  

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

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