Last year, many individual taxpayers received small “cake and coffee” tax cuts (so called because they averaged around $6) which were touted as an important first step to addressing bracket creep; but one year later, the government announces that the Medicare Levy will increase by 0.5% to 2.5%, which will surely eat into those tax cuts (for those lucky enough to have received them). The higher Medicare Levy will go towards funding the NDIS and a new Medicare Guarantee Fund.
The government’s higher education reform package has been widely discussed in the weeks leading up to budget night. On the tax front, as predicted, HELP debt repayment thresholds have been lowered significantly. This news will not be pleasing to current, recent and prospective tertiary students, especially in an era of low wage growth and high housing prices. On the education front, the government also committed extra funding for schools.
Medicare levy will increase from 2% to 2.5%.
The Medicare levy will increase by 0.5% from 2019-20 to ensure that the National Disability Insurance Scheme (NDIS) is fully funded. Other tax rates that incorporate the top personal tax rate, such as the FBT rate, will also increase.
The increase in the Medicare levy will swallow the benefits that arose for some taxpayers with last year’s tax cuts for individuals with taxable incomes exceeding $80,000. The increase however has been pushed out to beyond the next federal election.
Medicare levy low-income thresholds increase
The Medicare levy low-income thresholds will increase from 2016-17 (see table below). The increase in the low-income thresholds will provide some relief for lower income earners from the across-the-board 0.5% increase to the Medicare levy that will commence in 2019-20. Ideally, the government will increase the thresholds in line with economic growth or wage growth so that affected taxpayers are not disadvantaged over the years.
|Current Threshold||Threshold in 2018-19|
(plus $3,356 each dependent child)
|Single seniors and pensioners||$33,738||$34,244|
|Senior and pensioners family||$46,966||$47,670|
(plus $3,356 each dependent child)
HELP debt repayments
The Higher Education Loan Program (HELP) debt repayment thresholds and rates will change. The key changes are:
|Current (2017-18)||Proposed (2018-19)|
|Minimum repayment threshold||$55,874||$42,000|
|Minimum repayment rate|
(applies to minimum repayment threshold)
|Maximum repayment rate||8% (from $107,214)||9.5% (from $100,655)|
From 1 July 2019, the indexation of HELP repayment thresholds, currently linked to Average Weekly Earnings (AWE), will be changed to align to the Consumer Price Index (CPI). The new thresholds and rates apply from 2018-19, and the indexation of HELP repayment thresholds to CPI from 2019-20.
This measure is part of the government’s Higher Education Reform Package. Overall, the proposal to reduce repayment thresholds by almost $14,000 will not be welcomed by current university students, high school students who aim to study at university, and former students who are still bearing a HELP debt. The reduction of the minimum repayment rate from 4% to 1% may not offer sufficient relief from the change in thresholds.
Family Tax Benefit Part A
The government will reduce Family Tax Benefit (FTB) Part A supplement payments by $28 per fortnight for each child who does not meet immunisation requirements. The government will also implement a consistent 30 cents in the dollar income test taper for FTB Part A families with a household income in excess of the Higher Income Free Area (currently $94,316).
The measure will apply for the supplement payments from 2017-18, and the income test taper from 2018-19.
The FTB Part A supplement payment announcement is aimed at discouraging parents from not immunising their children. The income test taper proposal ensures that higher income families are subject to the same income test taper rates.