Hot topics in today's finances
Budget expectations
In case you missed it, Tuesdays are really important in Australia. The one event that stops a nation, as the legendary Mark Twain put it - the horse race called the Melbourne Cup - is on the first Tuesday in November. And on the second Tuesday in May, the country's number one bean counter - the Treasurer delivers the Federal Budget.
This year the annual monetary show and tell event has been dubbed the Robin Hood Budget! For those who never got into Robin of Loxley and Maid Marian, the wily outlaw stole from the rich to give to the poor.
The Government's plan
Before explaining how they intend to hit the rich, you must remember that the Government is going into deficit to offset the collapsing demand from business and consumers because of the global financial crisis that has given birth to a full-blown great recession overseas and a milder version of it here. (Don't believe those who say we will have a deep recession. If you don't want to take my word on this as an economist, then take it as a journalist!)
The nation's deficit could hit $70 billion by next year because tax collections could fall by $200 billion as less people spend and workers lose jobs and don't pay taxes. And then there will be dole payments to those out of work and other social welfare payments.
The Government knows it has to spend to keep demand high enough to keep people in jobs, but they can't just let things stay as they are, so they will try and save money that won't hurt job-making demand. That's why the Treasurer will play Scrooge with the tax on superannuation.
Super focus
One area in particular the Budget will focus on is salary sacrifice where employees decide to sacrifice spending chunks of their salary by putting it into super, which means the income is only taxed at 15%. This helps turbo-charge someone's super nest egg and is great for people who are in their 50s and realize they need to save more to retire comfortably.
Some smart under-50s do it too and the Government will target these people in particular. At the moment these people could put up to $50,000 into super this way and avoid normal tax rates that could be as high as 46.5% and only pay 15%. But don't get too down on these people, as they have to do without this money until they retire. They were once praised for being savers when most of us were excessive-spenders racking up a pile of debt, which explains a lot of our current problems.
The story today
But that was then, this is now and a super tax is expected next week in the Budget.
The leaked new limits for salary sacrifice is expected to be $25,000 as a maximum for those under-50 and $50,000 for those over-50 and this extra benefit could be phased out by 2012.
A Government 'deep-throat' says the saving would be $2.7 billion over four years and that's why the Treasurer is doing it. The source says this will hurt those on $221,000 a year and that has been put out there not to scare entrenched Labor voters who generally would draw more support from working- and middle-class Australians.
Increases to pensions
This taking from the 'rich' will also help to fund a promised increase in the pensions for retired Australians dependent on the Government. The promised $10 a week rise will cost the Budget about $1.3 billion and there's no way the Treasurer can go back on this pledge. Besides, pensioners are great spenders and the economy needs spending, so there's an economic reason for this play.
There has been talk of a $30 a week rise and that would hit the Budget by around $4 billion. This should keep older Australians glued to the TV at 7:30pm when the Treasurer starts speaking next Tuesday.
A word of warning that better-off Aussies could be in for a bit of a fright next week with the Government keen to close tax loopholes that the smart and deep-pocketed have used to reduce their tax bills to build up their long-term wealth.
Small Biz assistance
I reckon there will be a bit of help for small business. Generally, Governments always promise to help this important group of producers and job-creators, but they seldom come good. This year should be different if the Rudd Government really wants to create jobs.
For me, I always look for the economic forecasts as these give me an idea of how well my customers will be traveling in the year ahead. I want to see unemployment forecasts under 8% and I want to see some reason for being optimistic, but I am worried the Treasurer might go too negative, which is something that small business and consumers don't need to hear or see.
Planning for next year
Governments sometimes exaggerate how bad things will be so when next year's Budget comes around, they can point to how well they did! And next year is an election year and you can never trust politicians to play fair when their political hides are on the line!
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