You may have heard or seen something about Treasurer Joe Hockey and the Australian Federal Budget last night. Well, here's where you can get the simple facts affecting you and the companies you own shares in.
Financial independence more important than ever
If you are a wealthy pensioner watch out. An estimated 326,000 self-funded retirees will lose part-pension benefits as the means testing for assets limit falls from above $1 million to $823,000. Those with less than $400,000 in savings will receive a boost in pension payments.
Basically, it means that Australians need to be better prepared to fund their own retirement and not rely on the government for part or all of their income. Many self-funded retirees would not be impacted by the above measures.
Big business targeted
Look out BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), the government is coming after you. It's been in the media for some time now, and while the likes of Apple, Starbucks and Google have mostly been targeted, it's some of our most well-known companies that might also face huge tax bills. The big miners are alleged to sell their ore to Singapore marketing arms – which then on-sells the product at higher prices to customers – and pays much lower Singapore tax rates. Now the ATO is targeting 30 multinational companies suspected of diverting profits from Australia. If found guilty, the companies will be liable to pay double the amount of tax they owe, plus interest.
Work-related car expenses
Work-related car expense claims are also being targeted, with the government aiming to save $845 million over the next 3 years. Basically the government has cut the three different kilometre rates down to one – but it's unlikely to have a major impact on employees salary packaging their cars – and also no impact on the likes of McMillan Shakespeare Limited (ASX: MMS), SG Fleet Group Ltd (ASX: SGF) or Smartgroup Corporation Ltd (ASX: SIQ).
Healthcare
An additional $1.6 billion is going towards new and amended listings on the Pharmaceutical Benefits Scheme (PBS), helping Australians received subsidised access for better treatment. That is good news for chemists as well as the drug manufacturers – although most of them are international companies.
Small Business
Small businesses with less than $2m in turnover will see their tax rates cut to 28.5% from 30%. Sole traders will also get a 5% tax discount of up to $1,000. Small business can claim an immediate tax deduction for each and every item they purchase up to $20,000. It can be written off to reduce tax liability. That is estimated to help more than 2 million businesses or 96%.
It's designed to drive jobs growth, innovation and kick start economic growth. Those small business measures should be great news for small business lenders such as Silver Chef Limited (ASX: SIV), Thorn Group Ltd (ASX: TGA) and Flexigroup Limited (ASX: FXL),
FBT on portable electronic devices abolished
Work laptops, tablets and phones are now exempt from fringe benefits tax. Retailers of those devices such as JB Hi-Fi Limited (ASX: JBH) and Dick Smith Holdings Ltd (ASX: DSH) will be beneficiaries.
Employee share schemes
Employees who receive shares under employee share schemes also won't have to pay tax until they receive a financial benefit from those shares – previously, workers had to pay tax when they received the shares, no matter when they sell them in future.
Child care
$3.5 billion extra over 5 years to reform the child care system to make it simpler, more affordable, accessible and flexible. A new Child Care Subsidy (CCS) will be introduced from 1 July 2017, which sounds like great news for child care centre owners including G8 Education Ltd (ASX: GEM), Affinity Education Group Ltd (ASX: AFJ) and Think Childcare and Education Ltd (ASX: TNK). The new CCS will replace the child care benefit and child care rebate programs currently in place.
It's all designed to help get more Australians back into the workforce, including those who undertake shift work, such as nurses, firefighters and the police.
Honey
Ok, so it's small – but the government has agreed to increase the levy on honey from 0.7 cents per kilogram (c/kg) to 2.9 c/kg, but has also shifted the threshold from 600kgs to 1,500kgs. It will affect Capilano Honey Ltd (ASX: CZZ), but is unlikely to be material.
Foolish takeaway
All in all, it's a dull budget. A few sweeteners for small businesses should help drive economic growth up a bit, but it's clear the government is not prepared to take the hard steps of significantly reducing government spending and debt and bringing the budget back into surplus. Simply, we continue to spend beyond our means, which will likely come back to bite us down the track.
