In about 21 days middle-income Australians will suddenly discover the full extent of the blows that have been rained down on them in the 2012-13 budget.
I have always believed that the carefully crafted government attack on middle-income Australia, which was also evident in the 2011-12 budget, is a key, but unstated reason why Julia Gillard is on the nose with big chunks of the electorate. And they have done it again.
The budget documents show that middle-income Australia will have $1.26 billion ripped out of their pockets in 2012-13 by the means testing of private health insurance subsidies. The taxman plans to write to Australia’s middle class and inform them of their fate in about three weeks. In theory the middle class can abandon private health cover, but if they do their Medicare levy will skyrocket so most will stay in private cover, especially given the poor state of public health facilities in many areas.
According to the budget, for a single person the private health subsidy starts dropping when they earn just $84,000 and by the time they get to an income of $130,000 it’s all gone. For families, the figure doubles so it is single middle-income Australia who will be the biggest contributors to the $1.26 billion middle class impost.
The carbon tax will rip around $7.7 billion (including accrued income) out of Australian households and companies, mainly via higher power charges. Lower income people will be more than compensated but the middle class pays close to the full carbon tax, which will be included in their expected increase of 38 per cent in power prices over the next years. (In the vicinity of 7 to 10 per cent of the rise in carbon taxing).
In the schoolyard, parents who have combined income below $112,000 with two children will be celebrating the kids' bonuses of $820 for a secondary student and $410 for primary school students - it’s a carbon tax/MRRT dividend.
Children whose parents are in the middle class get nothing. The same applies to various family allowances. The middle class will have $370 million extracted from its pocket over the next three years as a result of changes to their medical expense claims, and those with large amounts on deposit will forego $795 million by the decision not to proceed with the 50 per cent tax discount on interest income.
In income taxes, the tax free threshold jumps from $6,000 to $18,200, but after that the next $18,800 is taxed at 19 per cent (previously 15 per cent), and between $37,000 and $80,000 the tax take rises from 30 to 32.5 per cent.
Welcome to middle income Australia. You just keep paying.
Many people in middle income Australia have been concentrating on getting their mortgages under control, but they are often well below where they want to be in superannuation savings with balances under $500,000. Part of the reason for this has been the poor sharemarkets.
They were going to be allowed to put an additional $25,000 (total $50,000) into superannuation in 2012-13 and be taxed at 15 per cent. It’s been deferred for two years, so in 2012-13 they can only contribute $25,000. That deferral raises $580 million in 2012-13 and $730 million in 2013-14.
When it comes to the 2013-14 and 2014-15 budgets, the Treasurer may find that the mineral resources tax has raised nothing like the $4 billion that they are forecasting, assuming the sharemarket outlook for commodity prices is correct.
So the government of the day will be scrambling for money and abandonment of the additional $25,000 will be almost certain.
Wayne Swan believes his surplus budget will lower interest rates. But much of the rise in expenditures has merely been deferred – it’s not really a cut – and it’s anticipated that income will keep steaming ahead by about 10 per cent a year.
Yet two of the biggest contributors to income – the carbon tax and the claimed mineral resources tax revenue – are both measures that the Opposition has pledged to drop.
So this is not a sustainable surplus and should not affect interest rates. Those in the middle class with mortgages will get little or no relief from the budget.