Budget 2015: Soft economy won’t get any worse for investors

For investors the key message from the budget is that the soft economy we must operate within — signalled by low rates, low inflation and low growth — will continue, but not worsen, in the next few years.

From a tax perspective the outstanding message — implicit rather than explicit — is that the tax system rewards you most of all for pouring money (investing if you want to call it that) in to your family home which remains exempt from every measure of any significance.

For retirees or those approaching retirement there was precious little guidance on further plans for the superannuation system: The only measure of significance was pre-announced involving the reduction of access to pensions (specifically the reduction from $1.15 million to $825,000 in allowable “investable assets” for couples). An estimated 327,000 people will lose benefits in this cut, though 50,000 lower income people will be better off.

To illustrate how sharp this contentious move on older and wealthier Australians is in reality — it is the single biggest saving made by the coalition in the budget papers at $2.4bn over the forward estimates.

Meanwhile, the single biggest spending initiative is the extra $3.5bn which goes into childcare programs. No wonder the market has been bidding up childcare stocks such as G8 Ltd in recent days.

For higher income earners there is no indication that measures introduced in recent times as levies will in fact be terminated anytime soon — the temporary budget repair levy (due to be terminated in June 2017) remains in place with no commentary on its expected longevity.

Among the other items of relevance to private investors:

● Incentives for business that might translate to direct investment opportunities are largely confined to small business and the definition of small business is one with a turnover of less than $2m (that is very small indeed perhaps twice the average price of Sydney house by the time these numbers are fully introduced).

However, a solid 1.5 per cent cut in company tax for small business to 28.5 per cent should pump fresh funds into the ‘microcap’ end of the market.

● For resource investors it’s worth knowing that the price drop in iron ore was the largest single contributor to revenue write downs over the last year. The iron ore “assumption price” used in the budget papers is what many might regard as a rock bottom $US48 a tonne. With iron ore prices already higher than this assumption — and with many viewing the recent slump as the bottom of the cycle for the commodity — iron ore might easily bring in more tax revenue than Treasury expects in the near future.

● For most income earners salary sacrifice is one of the few tax breaks. It will no doubt be welcome news to hear that executives in nonprofits who used to salary sacrifice meals and entertainment expenses are now restricted with the introduction of a cap of $5000.

● Investment analysts may be reassured that after the embarrassment caused when employment figures were openly questioned by top analysts, the Australian Bureau of Statistics is to be given a very substantial $234m over five years to upgrade its systems.

● Finally, those hoping that crowd-funding will provide cheaper access to public markets will be interested to hear that the Australian Securities & Investments Commission has received a $7m grant to investigate the internet-enabled funding structure.