Rudd Government honeymoon continues

Richard Gilbert

It is clear that the honeymoon is not over, with the financial services industry largely applauding the Federal Rudd Government’s first Budget.

The Financial Planning Association (FPA), Australian Institute of Superannuation Trustees (AIST), Association of Superannuation Funds of Australia and Investment and Financial Services Association (IFSA) have all welcomed the Budget as ‘sound’, ‘safe’ and ‘stable’.

There will be winners and losers however, and financial planners should be wary of the changes to government co-contribution to superannuation and capital protected borrowing taxation.

Positives to emerge from the Budget, according to industry experts, are the changes to the withholding tax rate and the new First Home Saver Accounts.

Almost all in the financial services industry have welcomed moves to substantially lower the withholding tax rate from 30 per cent to 7.5 per cent.

This will be a big incentive for offshore investors looking to invest in Australian funds.

“The clear message to the world is that the new Labor Government is serious in working to enable Australia to continue to develop as a major financial services centre in the region,” IFSA chief executive officer Richard Gilbert said.

According to BT’s Budget analysis, First Home Saver Accounts (FHSAs) will be able to be offered by banks, building societies and credit unions, life companies (including friendly societies) and public offer super fund trustees.

AIST chief executive officer Fiona Reynolds said the plans for FHSAs, which were changed in line with AIST recommendations for a flat rate government contribution, mean the accounts will be fairer to lower income earners and assist administration arrangements.

She added that pushing the start date back to October 1 is also welcome, as it would give the superannuation industry more time to prepare.

Another measure that has been widely welcomed are changes to the Financial Literacy Foundation.

“We are also pleased that the Financial Literacy Foundation has survived any budget cuts and has been transferred across to ASIC [Australian Securities and Investments Commission],” FPA chief executive officer Jo-Anne Bloch said.

“ASIC’s consumer protection responsibilities are closely linked with financial literacy and we agree that the two very important functions should be under the one roof.”

However, one of the few critics of the Budget is Midwinter, whose Technical Basis team is calling it ‘The Opportunity Lost’ Budget.

“The biggest opportunity lost [is] the inclusion of salary sacrifice contributions in the definition of income for the purposes of the government co-contribution amongst other benefits, [it] will hit almost all financial advisers and their accumulation clients hardest,” Midwinter said.

The Government has also targeted negative gearing and in particular capital protected borrowing. The proportion of the interest rate on a capital protected loan that is tax deductible will be cut from 14 per cent to 9.35 per cent.