Mortgage Choice 2016-17 Budget Analysis

The Federal Government unveiled its 2016-17 national Budget last night, with small business owners and middle income earners touted as the big winners.

The Federal Government unveiled its 2016-17 national Budget last night, with small business owners and middle income earners touted as the big winners.

If the 2015-16 national budget was considered ‘benign', this year's Budget could be considered ‘boring'.

According to Treasurer Scott Morrison, this year's Budget centred on two key themes: ‘growth and jobs'.

And while all of the Budget initiatives unveiled by Mr Morrison will no doubt help the Government deliver to these two key themes, the initiatives were neither surprising nor exciting.

Indeed, this year's ‘unsurprising' and ‘unexciting' Budget could be considered a clever ‘PR stunt' by the Federal Government. The Government clearly believe a non-threatening, unexciting Budget will help them to clinch victory at the next election.

And they may well be right.

As promised weeks ago by the Federal Government, negative gearing was kept firmly off the agenda, with the Treasurer stating that any changes to this particular policy would only serve to ‘undermine the value of their [Australians'] investments'.

But while negative gearing was kept off the table for now, changes to superannuation, income tax and small business tax were delivered.

Below are some of the highlights from the 2016-17 Federal Budget:


The government announced its plan to introduce a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.

While this initiative will put a limit on taxpayer support for tax-free retirement phase accounts, it does not limit the savings that can be accumulated outside these accounts or outside superannuation.

In addition, the Government announced it would lower the income threshold at which the 30% (rather than 15%) tax rate kicks in on superannuation contributions from $300,000 to $250,000.

It is also lowering the annual cap on contributions entitled to the concessional tax rates to $25,000, from the current $30,000 for under-50s and $35,000 for those aged 50-plus.

The Treasurer also announced the Government's plans to introduce a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning.

Finally, Mr Morrison announced the Government's plans to introduce a 'Low Income Superannuation Tax Offset' to replace the 'Low Income Superannuation Contribution' when it expires on 30 June 2017.

This will allow individuals with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500. It is also intended to assist women to build their superannuation savings.

Speaking about the proposed changes to superannuation, the Treasurer said all planned initiatives would either benefit or have no impact on approximately 96% of all Australians.

Indeed, it would seem as though these changes will only impact high income earners, which is good news for most.

Small Businesses:

In last year's Budget, the Government announced that small companies with annual turnover of less than $2 million will have their tax rate lowered, from 30% to 28.5%.

This year, the Government went one step further, once again reducing the tax rate for small business owners and increasing the small business annual turnover threshold.

From the beginning of the new Financial Year, small businesses with a turnover up to $10 million will pay a reduced company tax rate of 27.5%. Furthermore, businesses with a turnover of $100 million will gradually receive the 27.5% tax rate by 2020.

Finally, businesses with a turnover up to $10 million will receive $20,000 instant asset write off, expiring in June 2017.

These changes are great news for small business owners who will now have more money in their back pocket to re-invest in their business, people and assets.

Income Tax:

The next change announced by the Government revolved around average full time wage earners. As detailed in the Budget, the 32.5% tax threshold will be increased from $80,000 to $87,000. This equates to a saving of $6 per week for those earning between $80,000 and $86,999 (inclusive).

Tax Avoidance:

The Government announced its plans to establish a Tax Avoidance Taskforce. The Taskforce will crack down on tax avoidance by multinationals, private companies and high-wealth individuals.

Announcing the creation of the taskforce, Treasurer Scott Morrison said it would be made up of 1,300 ATO officials, including 390 new specialised officers.

This particular initiative is expected to raise more than $3.7 billion in tax liabilities by 2020.


All in all, the Government's 2016-17 ‘growth and jobs' Budget should be well received by consumers. While it is still too early to tell what exact impact the Budget will have on consumer sentiment, I believe it will help to improve confidence (if only slightly).

From this year's Budget it is clear that the Government clearly wants Australians to feel confident and comfortable in the national economy.

That said, the Government's robust attitude surrounding the state of the economy is in stark contrast to the attitude of the Reserve Bank.

At its latest Board meeting, the Reserve Bank made it abundantly clear that it is has some concerns about the future of the Australian economy – hence the reason it saw the need to cut the official cash rate.

In the future however, the Reserve Bank's decision to cut the cash rate combined with the unsurprising Budget should give the economy, property demand and consumer sentiment a well-deserved boost.

And, with three of the four majors passing on the rate cut in full, it is likely any boost in confidence will come relatively quickly.

Posted in: Mortgage Choice