This week we bring you our analysis of the ways in which the recent Budget will impact on households. The main impact will be for working people who will enjoy a series of tax cuts, but there is also some relief for people on income support due to age or disability and some incentives for employers to hire people on income support due to unemployment.
Next week, we will examine what the Budget makes available to businesses.
To learn more about the 2020 Budget, please feel free to visit here: budget.gov.au. Unless we state otherwise, this is where we have obtained our data from.
Personal Income Tax Cuts
The 2019 Budget detailed a series of tax cuts that were going to be rolled out between then and 2024. This year’s Budget has brought some of these changes forward.
The ‘stage two’ cuts discussed in the 2019 Budget have been brought forward by two years and will actually take effect from 1 July 2020. These cuts involve changes to the income points at which higher rates of tax kick in (typically known as tax brackets). The new brackets for the 2020/2021 year are as follows (source: ATO):
|Income thresholds||Rate||Tax payable on this income|
|$0 – $18,200||0%||Nil|
|$18,201 – $45,000||19%||19c for each $1 over $18,200|
|$45,001 – $120,000||32.5%||$5,092 plus 32.5% of amounts over $45,000|
|$120,001 – $180,000||37%||$29,467 plus 37% of amounts over $120,000|
|$180,001 and over||45%||$51,667 plus 45% of amounts over $180,000|
The low and middle income tax offset will remain in place for the current financial year. Under this offset, people with incomes below $126,000 will receive some level of offset. The exact amount varies greatly according to the amount of income being earnt, as shown in this graphic sourced from the Australian Tax Office:
Cash Payments to Pensioners and Other Social Security Recipients
Pensioners and various other social security recipients (carers, disability support and concession cardholders) will receive two payments of $250. These will be made in December 2020 and early 2021.
First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme is a scheme which makes it possible for first home buyers to secure a home loan, without needing mortgage insurance, with as little as 5% deposit. We wrote extensively about this scheme in January 2020, but to recap: the scheme works by having the recipient take up a bank loan to purchase a first home. The Commonwealth will then guarantee an amount equal to up to 15% of the value of the home. The idea is that the recipient’s personal liability is capped at no more than 80% of value of the property. Usually, there is mortgage insurance to pay if you borrow more than 80% of the value of a property (this insures the lender, not the borrower. But the borrower pays the premium). This will still be the case – but the Government will pay this insurance for members of the scheme.
The initial scheme provided for 10,000 first home buyers and could be used to purchase either a new or existing home, up to a certain value. The scheme has been extended to provide for a further 10,000 buyers, but the property they buy must be a new one (thereby also boosting the building industry).
JobMaker Hiring Credit
For households with members who are eligible, the JobMaker Hiring Credit has been introduced. This benefit is actually paid to employers as an incentive to hire new staff – but we include it in this analysis because individuals who are employed as a result of this scheme will also benefit. In many ways, it is a benefit for households that is delivered through business.
Where employers expand their staff by taking on an eligible employee aged between 16 and 29, they will receive a credit of $200 per week for the new staff member. If they take on an eligible employee aged between 30 and 34, they will receive a credit of $100 per week.
The new job must be for at least 20 hours a week. It must also be demonstrably a new job – this will be assessed by the employer needing to show either that the number of employees employed within their business is higher than it was on September 30 or that their total payroll is greater than it was during the September 2020 quarter. (NB: the total headcount criterion has already raised eyebrows as something that could be reasonably easily manipulated, so these assessment criteria may be refined).
The credit is not available to companies who are also claiming JobKeeper. The new employee must have been receiving JobSeeker payments in at least one of the three months preceding their commencement with their new employer.
This credit is clearly designed to target that large group of people who have become unemployed due to the pandemic. It will last until October 6 2021 (that is, the new employee must commence before then and the credit will only be paid until then).
The new JobMaker credit is similar to the Restart Wage Subsidy, which is paid to employers who take on a staff member aged over 50 and who has been on income support for at least six months. This benefit remains in place and, again, is obviously targeted at moving people over 50 off income support.