Federal Budget 2012 – Seniors

The Federal Treasurer Mr Wayne Swan handed down the Government's Budget for 2012-2013 in the evening of 8 May 2012 in the House of Representatives.

Mr Swan announced in his Budget speech that, "In total, this year and next, taxes are down a further $12 billion since the last update, taking the total write-down since the [global financial] crisis to around $150 billion.

"This has contributed to a deficit in 2011-12 of $44 billion, and means net debt will now peak at 9.6 per cent of GDP...

"Delivering surpluses when we have less tax revenue means we need to make substantial savings to pay for new initiatives.

"It is these responsible decisions which return the Budget to a $1.5 billion surplus in 2012-13, and growing every year after that."

Mr Swan's statement means that tax collections will have to grow an extra $45.5 billion during 2012-2013, compared to 2011-2012, for the Budget to come in with a surplus of $1.5 billion on 30 June 2013.

The Budget allocated 3.7 billion for aged care reform, which will have a major impact on many, starting next financial year and will progress into future years.

Similarly, $1 billion has been allocated over four years (averaging $250 million per year) for the National Disability Insurance Scheme. Meaningful funding for the scheme was not provided in this year's Budget.

A number of Budget measures impacting older Australians are outlined in the following sections.

MATURE AGE JOB SEEKERS

$25.8 million will be provided over four years to assist eligible mature age Australians to help them find and keep a job.

Beginning on 1 January 2013, the Mature Age Participation – Job Seeker Assistance Program will provide eligible job seekers aged 55 years and over with intensive job preparation assistance, including refresher or basic training in information technology, skills reviews and peer support.

The Program will also provide up to $500 per participant to purchase items or services they need to get work ready, such as a home internet connection or necessary computer software or hardware which can be critical for job searching.

Professional career counselling, help with financial planning and the opportunity to share their experiences with other mature age Australians also looking for work, will be key features of the new program.

The program will be delivered by a panel of expert providers in areas or industries where the Government feels it will best meet individual, employer and community needs.

HEALTH SERVICES

$74.5 billion is to be provided for essential health and ageing services, making it easier for patients to access care when and where they need it.

It will focus on areas of need: dental health, rural and regional facilities and aged care. At the same time the Government has made savings and found more efficient ways to fund programs.

Bowel cancer screening

$49.7 million will be used to expand the National Bowel Cancer Screening Program.

Under the expanded National Bowel Cancer Screening Program, screening will be offered to people turning 60 years of age from 2013 and 70 years of age from 2015, with biennial screening phased in from 2017-18,” Ms Plibersek said.

Evidence shows that biennial screening has the potential to reduce these cancers by 15 per cent to 25 per cent and prevent between 300 and 500 Australian deaths annually.

Oral Health

$515.3 million has been allocated for oral health for Australians who are least able to afford dental care. 400,000 people have been waiting for care on public dental waiting lists.

The funding will also provide a boost to the dental workforce and improved dental facilities in rural and remote areas.

Rural and regional areas

The health budget also focuses on rural and regional Australia with $475 million directed to new and upgraded health and hospital infrastructure across 76 projects in country areas.

Projects include hospital redevelopments, developing community health centres, multi-purpose services, dental facilities and providing training and accommodation facilities for health professionals, in locations across Australia as diverse as Broken Hill, Proserpine, Halls Creek, Mt Isa and Bunbury.

Electronic health records

$233.7 million has been allocated for the continued rollout of the national electronic health records system to reduce errors and duplication of services.

Budget cuts

Some items under the Extended Medicare Safety Net will be capped to discourage excessive fees and to prevent people from misusing Medicare to pay for cosmetic surgery.

The Private Health Insurance Rebate will be paid for insurance products that cover natural therapy services only where the Chief Medical Officer finds there is clear evidence they are clinically effective.

The Government will also tighten regulations around diagnostic radiology services to ensure that imaging is carried out by appropriately qualified practitioners.

Low-income earners exempt from Medicare Levy

The Government will raise the low-income thresholds for the Medicare Levy and Medicare Levy Surcharge as part of the 2012-13 Budget.

The increase in the threshold will be backdated to take effect from 1 July 2011.

The Medicare Levy low-income threshold will increase in line with the Consumer Price Index to $19,404 for singles (up from $18,839) and to $32,743 for couples (up from $31,789).

For families, the additional amount of threshold for each dependent child or student will also be increased to $3,007 (up from $2,919).

The increased threshold for families applies for the 2011-12 income year and future income years while the increased threshold for singles applies only in the 2011-12 income year, as this threshold will rise to $20,542 in 2012-13 as part of the Clean Energy Future Plan household assistance package.

The Medicare Levy low-income threshold for pensioners below Age Pension age will also be increased. For the 2011-12 financial year, the threshold will rise to $30,451 (up from $30,439).

This will ensure that pensioners below Age Pension age do not pay the Medicare Levy when they do not have an income tax liability.

From 1 July 2012 the low-income threshold for this group will be fixed at the level applicable to seniors entitled to the Senior Australians Tax Offset (SATO), as part of the merger of the pensioner tax offset into the SATO, which was announced as part of the Clean Energy Future Plan household assistance package.

This measure has a cost to revenue of $85 million over the forward estimates period.

AGED CARE

A $3.7 billion package has been allocated to build a better aged care system. This will enable older Australians to get the help they deserve so they can remain living in their own homes for as long as possible.

Tasmania

The 2012-13 Federal Budget will provide $1.28 million to help Tasmania’s North-West attract, train and retain health professionals to care for older Australians.

The funding will go to the University of Tasmania to build a professional development centre at the Mount St Vincent Nursing Home and Therapy Centre in Ulverstone.

NATIONAL DISABILITY INSURANCE SCHEME

Only $1 billion over four years will be allocated to the first stage of a National Disability Insurance Scheme (NDIS).

The first stage of an NDIS will begin in mid-2013 and will provide care and support to around 10,000 people with significant and permanent disabilities in up to four locations.

From mid-2014, the reach of an NDIS will be expanded to bring the total number of eligible people up to 20,000.

These individuals will have their needs assessed and be supported to develop individual plans to deliver ongoing personalised care and support over their life times.

The commitment includes:

• $342.5 million over three years from July 2013 for individually funded packages for people with significant and permanent disability.

• $154.8 million over three years from July 2013 to employ Local Area Coordinators to provide an individualised approach to delivering care and support to people with a disability.

• $58.6 million over three years from July 2013 to assess the needs of people with a disability in the launch locations.

• $122.6 million over four years to start preparing the disability sector for the new way of delivering disability services. Building the capacity of disability organisations to adjust to an NDIS is critical to success, particularly in the launch locations in the first stage of roll out.

• $240.3 million over four years to build and operate an NDIS information technology system.

• $53 million over four years to establish a new National Disability Launch Transition Agency to coordinate implementation and manage the delivery of care and support to people with a disability and their carers in launch locations from 2013–14.

The funding will cover the total administration and running costs for the first stage of an NDIS.

States and territories that host the initial locations will also be required to contribute to the cost of personal care and support for people with disability.

The NDIS will:

• provide eligible individuals with the care and support they need when they need it;

• give individuals decision making power, including being able to choose their service provider;

• provide high quality, evidence-based services which manage life-time costs of care;

• be simple to navigate and link to mainstream and community services;

• recognise the essential care and support of families and carers and support them in that role;

• facilitate each individual’s community participation, access to education and employment opportunities; and

• be managed on an insurance basis.

The NDIS a year ahead of the timetable set out by the Productivity Commission, but with significantly less funding than that proposed by the Commission.

INCOME SUPPORT - AUSTRALIANS OVERSEAS

The Australian Government is tightening the rules for people who travel overseas while receiving income support payments and family assistance.

These measures will provide savings of $178 million over four years for other budget priorities.

Under the change, the amount of time individuals can travel overseas while continuing to receive their income support payments will be reduced from 13 weeks to six weeks, effective from 1 January 2013.

This change doesn’t affect the Age Pension or Disability Support Pension recipients who have been assessed under new rules from 1 July 2012 as having a severe and permanent disability and no future work capacity.

The change will affect the Disability Support Pension, Widow B Pension, Wife Pension, Widow Allowance, Telephone Allowance, Pension Supplement, Utilities Allowance, Seniors Supplement, Clean Energy Supplement, Low Income Supplement, Pharmaceutical Allowance, Rent Assistance, Pensioner Education Supplement, concession cards, Parenting Payment, Carer Payment, Carer Allowance, Partner Allowance, Youth Allowance (Student), Austudy, Mobility Allowance, Telephone Allowance, Pension Supplement, Utilities Allowance, Seniors Supplement, Clean Energy Supplement, Low Income Supplement, Pharmaceutical Allowance, Rent Assistance, Pensioner Education Supplement, Family Tax Benefit Part A, Family Tax Benefit Part B, Single Income Family Supplement and Paid Parental Leave.

Family Tax Benefit Part A will continue to be paid for up to three years but will reduce to the base rate at six weeks, rather than at 13 weeks under current rules.

The remaining income support payments (Special Benefit, Newstart Allowance, Youth Allowance (other) and Sickness Allowance) cannot generally be received overseas.

The Government will also act to bring Australia in line with other OECD countries by requiring age pensioners to have spent 35 years of their working life in Australia to be eligible to receive their full pension if they choose to retire or travel overseas for extended periods. Currently the eligibility requirement is 25 years.

This change will apply from 1 January 2014 and will ensure that people who receive an Australian pension have lived in Australia for the majority of their working lives and contributed to the Australian economy and community.

It will continue to be the case that if an age pensioner moves or travels overseas for longer than 26 weeks that their pension is adjusted according to how many years of their working life (between age 16 and pension age) they spent in Australia.

Currently, if they were in Australia for less than 25 years of their working life, their pension is reduced. For example, if they lived here for 15 years in that period they receive 60 per cent of their full pension entitlement (15/25th).

Under the new rules, the number of years they lived in Australia during their working life will be divided by 35 years – in this example reducing their maximum payment from 60 per cent to 43 per cent (15/35th).

People who are already living overseas on 1 January 2014 will be grandfathered and able to maintain their current 25 year base for calculating their Age Pension. Only if they return to Australia for longer than six months will they be considered under the new rules.

Age pensioners paid under Social Security Agreements with Greece and New Zealand are not affected by these changes due to specific terms of these agreements.

In addition, members of a couple paid under a social security agreement outside Australia will now be paid on their own Australian working life residence rather than at the rate of their partner.

SUPERANNUATION

The superannuation guarantee is to be increased from 9 per cent to 12 per cent for 8.4 million Australians.

The reforms in this Budget are in addition to the Government's decision to introduce the Low Income Superannuation Contribution, which will make the system of superannuation concessions fairer for 3.6 million low income earners.

From 1 July 2012, workers with income up to $37,000 will receive a boost of up to $500 to their superannuation savings, to ensure they effectively pay no tax on their superannuation guarantee contributions.

Deferral of higher concessional contributions cap

The Government will defer the start date of the higher concessional contributions cap measure by two years, from 1 July 2012 to 1 July 2014.

Under the higher concessional contributions cap measure, individuals aged 50 and over with superannuation balances below $500,000 will be able to make up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap.

The two-year deferral means that for 2012-13 and 2013-14, all individuals will be able to make concessional contributions of up to $25,000 per year as permitted under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 through indexation, and the higher cap would then commence at $55,000.

Deferring the start date of the higher concessional contributions cap will save $1.46 billion over the forward estimates.

Reduction of higher tax concession

The higher tax concession that very high income earners receive on their concessional contributions will be reduced, to align it more closely with the concession received by average income earners.

From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30 per cent to 15 per cent (excluding the Medicare levy). There will still be an effective tax concession of 15 per cent for these high income earners.

This measure will save $946 million over the forward estimates.

The definition of ‘income' for the purpose of this measure will include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support.

If an individual's income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold.

For example, someone with income excluding their concessional contributions of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), would have the reduced tax concession only apply to $5000 of their contributions.

‘Concessional contributions' for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. For members of defined benefit funds (both funded and unfunded schemes), it will include all of their notional employer contributions.

The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to ‘excess contributions tax'. These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.

This reform will only reduce the tax concession which very high income earners receive on their contributions into superannuation.

TAX CHANGES

Tax-free threshold

From 1 July 2012, the Government will triple the tax free threshold from $6,000 to $18,200.

Over 7 million people on less than $80,000 a year will receive tax cuts including over 6 million people receiving a tax cut of more than $300.

This measure may also benefit around 1.4 million small business people who are sole traders or hold interest in a trust or partnership.

A consolidated dependency tax offset

The Government will better target the support provided to dependants through the tax system.

Many of these dependency offsets simply no longer reflect community attitudes. For example, it is a relic of a bygone era to assume that unmarried daughters will stay home and keep house rather than study or work, and yet the child housekeeper offset was designed with this in mind.

From 1 July 2012, eight existing dependency offsets will be consolidated into a single offset available to taxpayers maintaining a dependant who is unable to work due to disability or carer responsibilities. This offset will leave taxpayers with dependants who are genuinely unable to work no worse off and, in many cases, better off.

This reform progresses recommendation 6(a) of the Australia's Future Tax System review and will provide savings of $66.9 million over the forward estimates.

Tax breaks for 'golden handshakes'

The Government will take steps to improve the fairness and integrity of the tax treatment of golden handshakes. Golden handshakes are among a large class of payments known as employment termination payments (ETPs).

At present, ETPs are taxed at a maximum rate of 15 per cent for those over preservation age and 30 per cent for those under preservation age up to an indexed cap of $165,000. The very design of this tax concession means that many low-income earners cannot benefit from it, and it is most beneficial to high-income earners receiving large payouts.

This reform will keep the existing concession for payments related to hardship, namely redundancy payments, compensation for employment-related disputes, and payments for invalidity or death.

This reform progresses recommendation 6(c) of the Australia's Future Tax System review, and will provide savings of $196.4 million over the forward estimates.

Mature age worker tax offset

The Government will fund new workforce participation measures as part of its response to the Economic Potential of Senior Australians review.

From 1 July 2012, the Government will phase out the mature age worker tax offset (MAWTO) for taxpayers born on or after 1 July 1957. This will not affect any person who currently receives MAWTO. New Treasury analysis suggests that the MAWTO only brings an extra 5,000 full-time equivalent people into the workforce at a cost of $90,000 per worker.

To help older Australians who wish to continue work, but face barriers to getting a job, the Government will provide a Jobs Bonus of $1,000 to 10,000 employers who recruit and retain a worker aged 50 years or over for over three months.

It will help older job seekers who do not currently receive intensive Government support to find and keep a job.

In addition, the Government will provide $26 million for a "silver service" for older Australians seeking work which will reach the long-term unemployed and provide them with tailored assistance to find work.

For those still in work, the Government will work with industry with a $35 million boost for the National Workforce Development Fund to partner with businesses to re-skill and up-skill mature age members of their workforce.

This reform will provide savings of $255 million over the forward estimates.

Duty free allowances

From 1 September 2012, the Government will reduce the inbound duty free allowance for international travellers to 50 cigarettes or 50 grams of tobacco.

This reform will provide savings of $600 million over the forward estimates.

Net Medical Expenses Tax Offset

The Government will better target expenditure on the net medical expenses tax offset (NMETO) by means testing the threshold above which a taxpayer may claim the offset and the rate of reimbursement from 1 July 2012.

For those people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples/families in 2012-13), the claim threshold will be increased to $5,000 and the rate of reimbursement reduced to 10 per cent.

Taxpayers with income below the MLS threshold will continue to receive the same assistance as currently.

This reform will provide savings of $370 million over the forward estimates.

MEASURES NOT NOW PROCEEDING

Standard deduction for work-related expenses

The Government has decided not to proceed with the standard deduction for work-related expenses.

This measure was scheduled to commence on 1 July 2013, so the decision not to proceed with this measure will not impact on the current taxation arrangements of any person. Taxpayers with genuine work-related expenses will still be able to claim tax deductions.

This decision will deliver a saving of $2.1 billion over the forward estimates period.

50 per cent discount for interest income

This measure was announced in the 2010-11 Budget to encourage Australians to save more, however given the significant increase in savings since then, the Government has decided not to proceed with this measure.

This measure was scheduled to commence on 1 July 2013, so the decision not to proceed with this measure will not impact on the current taxation arrangements of any person.

This decision will deliver a saving of $924 million over the forward estimates period.

8 May 2012.