We can't afford middle-class welfare

I WALKED into the Herald Sun's Budget "lock-up" and took a deep breath. And another as I placed my mobile in a sealed envelope.

Family

I WALKED into the Herald Sun's Budget "lock-up" and took a deep breath. And I sucked in another big gulp of air as I placed my mobile into a sealed envelope.

As per the rules, for the next seven hours I would indeed be locked up - cut off from the outside world while I looked over the Budget papers.

Or more accurately, I would be completely out of contact with my heavily pregnant wife.

Earlier in the morning at our final appointment, our doctor reminded me that she "could give birth at any minute". Great stuff. No pressure at all.

As I entered the lock-up, Terry McCrann broke the news to me that the baby bonus was being scrapped.

"But it doesn't matter really - who do you know who's having a baby soon anyway?" he said. Truth be told, the fact that the Government axed the baby bonus filled me with hope they'd take the same axe to middle-class welfare.

That didn't happen.

The family tax benefits may have been tinkered with, but they didn't go far enough for those earning over six figures.

Roughly 60 per cent of families receive some form of payment from the Government

At best, middle-class welfare means that people tend to rely on handouts, and don't prepare as well financially as they should.

At worst it also breeds an entitlement culture where people earning $150,000 believe they're hard done by and "need" the money. (And the Coalition's gold-plated paid parental leave scheme takes it to a whole other level).

One thing is abundantly clear from looking at the books: we can't afford it.

Look past the overly optimistic assumptions that the world will continue to boom. Forget about the projected surplus. As the last 12 months have shown, the forecasted figures aren't worth the paper they are written on.

The truth is that the mining boom is over, we have an ageing population (an additional 220,000 people will pull down the pension within the next four years), and we're now spending $7 billion a year servicing our debts.

OK, rant over.

Let's talk about the ways that you can reduce your tax bill in light of the current Budget.

There's a never-ending game of cat and mouse played between the Government and accountants who try to exploit tax loopholes for their clients.

Superannuation is still hands-down the best way to lower your taxes - even taking into account the changes in this Budget. Anyone who doesn't investigate a transition-to-retirement strategy as they near retirement (which I thought may have been watered down yesterday) needs their head read.

However, the lowering of the superannuation caps has meant it's increasingly hard to get a significant amount of money into your nest-egg for everyone else.

For that there are a couple of common strategies that accountants advise their clients in this predicament.

The first is buying loss-making, negatively-geared investment properties. Our 1.25 million loss-making landlords cost taxpayers $5 billion a year - a significant saving when the budget is in deficit of $18 billion. And all it achieves is to make it harder for young people to compete to buy their first family home.

Sadly, the Government didn't have the ticker to abolish it this year.

The other tax strategy that accountants advocate is to structure your affairs through various trust structures, which allow you to distribute income favourably and legitimately protect your assets.

This is one area the Government appears to be moving on, at least at the sharper end of things.

In this Budget they're providing the ATO with $67.9 million "to investigate and audit the use of complex trust structures by high-wealth individuals to avoid and evade tax". They are forecasting it will generate $311 million in revenue - not a bad investment!

Now, if only they could apply that to the rest of the Budget.