Treasurer Wayne Swan has made no excuses for targeting high and middle-income earners, saying “those who are better off will have to do more”.
As has been widely predicted before the budget, private health insurance rebates will be slashed for individuals earning more than $75,001 or couples earning more than $150,001.
Under the new private health insurance rebate arrangements, the 30% rebate will drop to 20% for those earning $75,001 (couples $150,001); to 10% for those earning more than $90,001 (couples $180,001); and eliminated completely for those earning more than $120,001 (couples $240,001).
To ensure those high and middle income earners do not flee private health insurance as a result of these changes, the Government will increase the Medicare levy from 1% to 1.25% for those earning more than $90,001 (couples $180,001) and to 1.5% for those earning $120,001 (couples $240,001).
These measures will result in savings to the budget of $1.9 billion over the next four years.
The Government will also slash family payments made to higher income families by $1.4 billion over the next four years, mainly by tinkering with eligibility thresholds.
Even bigger savings will be made via changes to superannuation rules. Under existing rules, a worker can pay $50,000 into their super account each year at a concessional tax rate of 15%. The new changes will slash the maximum concessional contribution to just $25,000 in a measure that will save $2.8 billion over the next four years.
A further super change will see Government super co-contributions for low-income earners temporarily cut from $1500 to $1000.
Higher income earners will also be targeted by tax changes. As predicted by SmartCompany, a tax loophole that allowed owners of hobby farms and holiday homes to claim tax losses will be closed.
The Government will also target tax concessions on employee share schemes by changing rules that allow participants in employee share schemes to defer the payment of tax on the discounts they receive on the full value of shares or options they receive. This measure will be aimed at employees earning over $60,000 a year.
Another tax change will be to tighten rules that ensure shareholders of a private company are taxed when they use company assets for private purposes (as employees are under fringe benefit tax laws).
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
