Federal Budget 2012 - What it means to you

Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

Families and low-income earners were among the biggest winners from last night's Federal Budget but high-income earners and big business copped a hit in the Government's bid to deliver a surplus of $1.5 billion for 2012-13.

As the Government hinted before the Budget, it moved to increase the tax on concessional contributions for individuals with income greater than $300,000 per annum. In a surprise move – and a double hit to some high-income earners - the Government decided to defer the $50,000 concessional contributions cap for those aged 50 and over with super account balances under $500,000.

The Budget included mixed news for middle and low income earners. The mature-age worker tax offset was tightened and plans for the standard deduction and a 50 per cent discount on interest income were scrapped. But this group may benefit from a range of family payments and Centrelink allowances.

The Budget at a glance:


  • Defence - $5.4 billion, over four years
  • Scrapping promised company tax cut - $4.8 billion, over four years
  • Foreign aid - $2.9 billion over four years
  • Tighter superannuation concessions - $2.4 billion over four years
  • More than 3000 public service jobs to go
  • Scrapping the company tax rate cut – which will remain at 30% (instead of the proposed 29%).


  • National Disability Insurance Scheme - $1 billion
  • Schoolkids Bonus - $2.1 billion
  • Boosting family tax benefits - $1.8 billion
  • $3.7 billion for the aged to remain at home longer
  • $1.5 billion over five years for remote jobs and community program
  • $38.8 billion over four years to higher education with extra support for students from poor backgrounds.

This Budget has not tinkered with the marginal tax rates nor the tax thresholds and so the new tax rates that will apply from 1 July 2012 will proceed as announced in the last Budget.

Resident Marginal tax rate (%)
$0 - $18,200 0
$18,201 - $37,000 19
$37,001 - $80,000 32.5
$80,001 – $180,000 37
$180,001 plus 45

What's in it for retirees?

Not much, at least directly, but existing benefits – including the tax free status on pension income for those aged 60 and above – remain unchanged.

It didn't get a mention in the Budget but the Government will phase out the pension drawdown relief that has been provided over the last few years. Minimum payment amounts for account-based, allocated and market linked pensions have been reduced by 25% for the 2011-12 financial year and will continue in the 2012-13 financial year.

High income earners

High income earners will pay more tax on 'concessional contributions' under changes announced in yesterday's Federal Budget.

From 1 July 2012 the rate of contribution tax will double from 15 per cent to 30 per cent for people with incomes of $300,000 or more.

This will apply to concessional contributions only, including Superannuation Guarantee, Award Contributions as well as those contributions salary sacrificed into super.

In addition, concessional contributions will be capped at $25,000 for everyone – including members aged 50 and older – from 1 July 2012. The Government last night announced that it will delay the introduction of this more generous concessional contributions cap for older Australians by two years so that it is now intended to be available from 1 July 2014.

Those who are salary sacrificing and in particular have commenced a “transition to retirement” pension may want to review their strategy with their financial adviser.

The government has moved to limit the tax effectiveness of employment termination payments (sometimes referred to as golden handshakes) paid from 1 July 2012. These payments may be taxed at the highest marginal tax rate rather than the current concessional tax rates, and again it would be important to speak to a financial adviser.

Low – middle income earners

The government announced that it would not proceed with the proposed standard deduction for work related expenses and managing tax affairs, which was to commence on 1 July 2013. It will also alter the mature age worker tax offset so that from 1 July 2012 it will only be available to taxpayers born on or before 1 July 1957.

After announcing the measure in the 2010 budget, and then in 2011 deferring implementation, the Government has finally abandoned the proposed 50% tax discount for interest income up to $1,000. The decision follows feedback concerning potential complexity and effectiveness of the proposal.

On the plus side for low and middle income earners the Government flagged measures to “help people make ends meet”.

These measures include increases to family payments, a new “Schoolkids bonus” available to available to families receiving family tax benefit Part A, young people in school receiving Youth Allowance and a new “Supplementary allowance” to help people on income support manage unexpected cost of living expenses. The allowance will be $210 a year for a single person and $350 a year for a couple.

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