With the dust settling on the Commonwealth budget, we now have the opportunity to scan the budget papers and reflect on a few key issues. These may help us form an opinion on the trajectory of the Australian economy and the credibility of the budget forecasts.
With little doubt, the bank levy will ultimately be borne by almost everyone in the Australian economy – whatever the protestations of the politicians or the bankers. Given it is a levy on certain bank liabilities (“liabilities” includes deposits),  we can assume that depositors will receive less interest on their deposits. The banks will attempt to maintain their dwindling interest margins and so will also charge higher interest rates to borrowers – not much, but enough to recoup their trading margins. If the 6 basis points can’t be recouped through interest adjustments (and we will see this in reported net interest margins), then slightly lower profits will flow to shareholders. Therefore depositors, borrowers and possibly even shareholders may contribute to the levy. The only people that think this won’t occur are government politicians – or more likely they know it will, but simply won’t admit it.
A far better levy would be one charged on the speculative trading of assets through equity, bond and foreign exchange markets. It is peculiar that while our governments charge duties on property transfers, they appear to have no interest in clipping the ticket on the endless speculation in the most liquid markets of all. It is noteworthy that some major trading hedge funds are domiciled in tax havens and so the only way to tax them is on transactions.
Secondly, and despite the strong opinions voiced by Mr Keating, the utilisation of superannuation savings accounts for first home buyers is not an attack on the principles of superannuation. It is merely a convenient structure that allows first home buyers to utilise their pre-tax salaries to save more for a deposit. It is akin to “salary packaging” that uses the perceived convenience of a super account. While it could become an administrative nightmare, it is at least an attempt to facilitate young families building up a savings account away from the banks and their negligible real interest rates.
The first home buyers account and the release of capital by older home owners for a $300k contribution to a pension account (the down-sizing incentive) indicate that the government finally understands that the home is a significant retirement asset. Therefore the major superannuation funds should “pull their heads in” and stop trying to tie up their members with long term mortgage debt or rental liabilities. Owning a home is as crucial in retirement as having a healthy pension balance: they are entirely compatible objectives. However be warned: the down-sizing initiative is probably a precursor to a policy adjustment that will see the family home included in the pension asset test. You heard it here first.
Finally, the increased medicare levy to secure both the NDIS and supposedly secure the future of the public health system will need to be reviewed more thoroughly by future governments. Indeed, as we scan some of the tables in the budget papers, we see a yawning blow-out in commonwealth debt funding for both social security and health in Australia. One reason why the gap is getting larger is that Australia is an ageing economy with more people moving into retirement. In time, it will become obvious that those claiming social security and health care are no longer contributing to its maintenance. Zero taxed pension schemes mean that pensioners, no matter how wealthy, do not pay the medicare levy. How long will this loophole remain open as the government searches for  real ways to balance the budget and fund healthcare for the aged?
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