Federal Budget 2009: Benefit to Working Australian Family – Tax Cut Still There

This federal budget will need a special mention. It is the first deficit budget after so many year of surpluses. The culprit will be the Global Economy Crisis that not only tighten the credit situation but also drive the commodity down together with the strength of Australian Dollar. But what will be the direct impact for working Australian Family?

Why do we care ?

Wayne Swan, Australia's Treasurer

When the budget is surplus, it means that the tax we paid to government is enough to cover all the cost and expenditure and still have extra money to keep. When the budget is deficit, meaning the tax money is less than the expected spending, then the question will be how do we get the balance of the money ? Do we want to borrow to cover that spending or just cut our spending to match the income ?

Running a country is like running a business but totally different with running family. In a family if the income is diminishing, then all spending will be have to be cut to the level it cannot be cut anymore. This is because most of the family expenditure is consumptive (not productive, i.e: not for making profit). So, if there is less income, gone those pay TV, magazine subscription, movies, die out, etc…

But in business (or a country just like Australia), when the income is slashed, there is alternative to borrow money to finance the spending. Since the borrowed money is used to make profit (more money), then the drawback of having to pay the interest is justified. That’s  exactly what the government of Australia has chosen.

The government chose to make the budget into deficit and borrow money to finance the expenditure. The government decided to keep spending billions of dollar on infrastructure, health and  education.

In my opinion, the decision by government is a very good decision as cutting spending will mean the longer the economy can bounce back.  By keep spending (especially on infrastructure), the economy will be still stimulated (Well, imagine hundreds of people will be need to be hired to do a local construction for example, then they will need to travel go/to work, they will need to have lunch,  have proper gear, pay tax and finally will earn salary to buy family need, etc). That will eventually affect the larger population.

Also considering the low interest rate that we have at the moment, it makes perfect sense just to go borrow the required money.

Benefit & Pitfall for Working Australian Family

While the big “winner” for the budget is the pensioner who got $30 per week increase for their pension money, there are 5 items that worth mentioning for working Australian family:

1. Paid Maternity Leave: up to 18 week paid paternity leave at
2. Another Tax Cut
3. Private Health Insurance Change
4. Family Tax Benefit Change
5. First Home Buyer extension

Paid Maternity

This is probably a landmark decision that will be very good precedent for all other country as well.

For child born or adopted on or after 1 January 2011, the primary carer can choose between getting paid maternity leave (have to be currently working at that time) or get a baby bonus (if not woking, stay home mum)

The official eligibility for the parent of this scheme are:

• be in paid work;
• have been engaged in work continuously for at least ten of the 13 months prior to the expected birth/adoption;
• worked at least 330 hours in that ten month period (an average of one day a week), and
• have received an income of $150,000 or less in the previous financial year

An eligible person will receive taxable payments at the level of the Federal Minimum Wage, currently $543.78 a week, for a maximum period of 18 weeks. In most cases, the person will receive the payment through their employer

If you are some of the lucky one that have the current employer have some kind of paid paternity leave as well, then this payment will be on top of the existing payment

Tax Cut is Still There

And far from big publication, the Australian working family will get another tax cut next financial year. This plan actually come from previous budget that has been a legislation and have little coverage. Below is the comparison of the income tax:

This time the cut is not that significant, but it’s still a tax reduction.  People earning $60,000 will be better of around $150 -or- around $3 a week.

To help you with the calculation, below just download a small spreadsheet that will calculate your tax cut on your actual income. Just right click and ‘Save As’ or click to open on your bowser (xls on IE only)
Excel format:austax.xls, Open Office format:austax.ods

Private Health Insurance Change

This is one thing that commonly misinterpreted by a lot of people, so I will thread it more carefully.

Currently, on top of income tax, all tax payer in Australia will have to pay 1.5% of your income as “Medicare Levy”. This is the money that finance your “free bulk billing” when you go to the doctor for example.

If you don’t have a private health insurance, you will be slugged by another 1% of your income as “Medicare Levy Surcharge” (so total you pay is additional 2.5% on top of your income tax). Those who has a private health insurance cover do not have to pay this. This is a way for government to encourage people to have private health insurance.

Imagine if you earn $60,000p.a, $600 of your salary will be taken annually to pay for this surcharge. The basic private health insurance probably cost you about $100 a month, or $1200 per year. From this $1200, the government give 30% rebate, so you just need to pay $800. Therefore your choice is between give away $600 without any benefit to government -or- add $200 only from your pocket and you have cover of private health insurance for your whole family (if you are family of 4, then it’s end up $50 per person per year – a very cheap premium)

So, what change in this budget is if you as family earn a total of $240,000, the government will not give that 30% rebate (fair enough, isn’t it?), between $180,000-$240,000 you get 10% rebate,  $120,000-$180,000 still get 20% and below $120,000 just no change – 30% rebate still apply.

And if you chose not to get the private health insurance, the “Medicare Levy Surcharge” is actually increased. It become 1.5% (instead of 1%) for household income above $240,000, and 1.25% starting $180,000.

I would reckon invest on the health insurance still the most value of money….

Frozen Family Tax Benefit Threshold

Currently, if you have 2 children under 13 years old, you will still eligible for Family Tax Benefit A as long as your combine income is not more than $111,082. Usually this limit will be indexed based on the inflation. Basically the limit will keep going up. But because of the deficit budget, this limit is frozen and will remain unchanged at least until 2012.

While it’s not really a big deal, but this means that more and more family who got pay increase at work will not eligible anymore to received this benefit.

First Home Buyer Extension

Normally, if you buy the first home for yourself, the government will help with a grant of $7000 to help with the purchase.  Late last year, to stimulate the economy, the government make that grant double to $14,000. And if you buy “off the plan” (buy a property before it’s actualy completed) the money is increased to $21,000.

This scheme has been extended by the budget for another 3 months to 30 September 2009.  Then it become $10,500 / $14000 for another 3 months before back to normal of $7000.

So, if you are still undecided, this is the last chance to enjoy free money to help with the mortgage and buy your first home. Remember the first home should not be your dream home, make it the first step toward the real dream home of yours.

Still to be legislated

Although announced, this budget need to be passed as legislation through Federal House of Representative and Senate. So, there is still a cance that some of the content of the budget will be altered based on the discussion/debate in the parliament.

For further information about below item, just click the link:

• Paid Parental Leave Scheme
• Change on Family Tax Benefit
• Official Budget Paper