He says the SMSF levy is a cost-recovery mechanism for the Australian Taxation Office (ATO), but with these measures cutting the number of SMSF programs being administered SPAA believes there is a strong case for reducing the levy.

The levy for 2013-14 is $259, a 36% increase from $191 in 2012-13.

“These measures, such as related party transactions, SMSF bank verification, SMSF roll-overs being included as a ‘designated service’ under the Anti‑Money Laundering and Counter Terrorism Financing Act 2006, and taxing super benefits received illegally at the top tax rate, are no longer part of the SMSF architecture, so it seems to fair to assume the cost of administering the SMSF sector has fallen accordingly.

“In addition, the Government’s announcement on clearing the tax amendment backlog pointed to the levy being adjusted to address these changes, and SPAA would urge it to do so in the lead-up to the Budget and then make the appropriate announcement.

“The ATO has agreed to provide evidence for the most recent increase in the levy and why the cost-recovery process for SMSFs had increased, but the industry has yet to see the evidence.”

George stressed that the ATO should be involved as it best placed to know the costs involved, as well as acknowledging that it was appropriate that SMSF trustees pay a levy.

“SPAA has no issue with a levy. But we firmly believe that the levy should accurately reflect the ATO’s costs in administering the SMSF’s superannuation obligations and, as such, should be revenue neutral,” he says.

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• Over the same 12 month period to May, the fiscal balance stood at a deficit of $31.4 billion and the headline budget deficit was $41.4 billion.
• Annual growth of budget revenues stands at 13.9 per cent, the strongest result in 40 months. Annual growth of expenses is 4.6 per cent.
• Slippage in June? The Federal Government brought forward assistance payments into June. As a result the budget deficit for 2011/12 was expected to be $44.4 billion. A surplus of $1.5 billion is expected in 2012/13.
  GST receipts near target. Receipts from the Goods and Services Tax stood at $49.2 billion in the twelve months to May, just off the record high in the year to February and up 1.1 per cent on a year ago. The Government had forecast GST receipts of $47.8 billion in 2011/12.

What does it all mean?

• The Government has again elected to release the latest news on the budget position late on a Friday afternoon. But the data released on Friday was very encouraging. The budget position has continued to improve with the rolling annual deficit hitting a near three year low in May. To some extent the extent of the improvement has crept up on us, with the general belief that revenues were stagnating. In fact budget revenues are up near 14 per cent on a year ago, the fastest pace in almost 3½ years. At the same time expenses are up just 4.6 per cent on a year ago.
• Not only is the annualised budget position showing good signs of improvement, the latest results are better than the assumed profile. Revenues are around $600 million ahead of the “profile” position in May while expenses are lower by around $650 million.
• The Federal Government elected to advance assistance payments in June, thus the budget deficit for 2011/12 was expected to be $44.4 billion, ahead of the deficit of $34.1 billion for the twelve months to May.
  Not only is the budget position showing encouraging signs of improvement, but GST receipts are well ahead of Government estimates. In the twelve months to May, GST receipts stood at $49.2 billion whereas the Government projected receipts of $47.8 billion for the 2011/12 year.

What do the figures show?

• In the twelve months to May, budget revenue stood at $343.6 billion, up 13.9 per cent on a year ago – the strongest annual growth in 40 months. Over the same period, expenses stood at $369.8 billion, up 4.6 per cent on a year ago. Expenses have been averaging annual growth near 4 per cent over the past two years.
• The underlying budget deficit for the twelve months to May stood at $34.1 billion, the lowest result since the year to August 2009. Since peaking in the year to August 2010 at $62.5 billion, the annual deficit has improved by 45 per cent. For the same period the fiscal balance stood at a deficit of $31.4 billion and the headline budget deficit was $41.4 billion.
• In April 2012 the monthly surplus was $10.6 billion – the highest surplus in four years. The May deficit of $1,611 million was also better than the May 2011 deficit of $2,199 million.
• Receipts from the Goods and Services Tax stood at $49.2 billion in the twelve months to May, up 1.1 per cent on a year ago. The Government had projected GST receipts of $47.79 billion in 2011/12.

What is the importance of the economic data?

• The Department of Finance and Deregulation release the Government Financial Statement (Niemeyer Statement) almost every month. The statement allows investors to track the current budget position and provides insights into the effectiveness of fiscal policy.

What are the implications for interest rates and investors?

• It’s good news. Other governments are struggling with budget deficits, high debts and rising debt repayments. But Australia’s budget deficit is showing consistent signs of improvement on the back of solid revenue growth and the size of our deficit remains low on global comparisons.
• As the Reserve Bank Governor highlighted last week, Australia’s good budget position and relatively high cash rates compared with other advanced nations gives policymakers great flexibility to deliver more stimulus should it be required. Fortunately extra stimulus doesn’t look like it will be required if actions by European leaders end up living up to the current rhetoric.
• Certainly some accounting gymnastics will assist the achievement of a budget surplus in 2012/13. The tax cut for small business wasn’t progressed, higher concessional superannuation caps were deferred and a Schoolkids Bonus was paid in 2011/12, (lifting the 2011/12 deficit and thus reducing the hurdle to a surplus in 2012/13). But real budget discipline and better-than-expected receipts have ensured that the underlying position has also continued to improve. In other words, real improvement is occurring in the budget position as the data and charts clearly show.

31 July 2012

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Dante DeGori, General Manager Policy and Government Relations for the FPA and responsible for the FPA submission, has suggested key budgetary public policy initiatives required to meet the Government’s current reform agendas.

“The FPA believes there are specific initiatives that the government must undertake in order to improve access to financial advice for those Australians who are most in need of assistance in managing their financial affairs. These recommendations will encourage a savings culture for consumers; remove inconsistencies in the tax system; and improve Australian’s retirement preparedness, in turn reducing reliance on the social security system.”

The three key recommendations the FPA has made are:

1. A tax deduction to be available for the cost of upfront financial planning fees
2. The removal of the age restriction (currently 75 where the work-test is satisfied) for the purposes of making concessional or non-concessional contributions
3. Changes to the concessional contribution caps to ensure more Australians are able to self-fund their retirement.

“The FPA has also listened to our members who are helping consumers reach their financial goals every day. We believe adopting these recommendations would effectively deliver good social outcomes by making financial advice more accessible and improving the long-term financial security of Australians. The FPA thanks Government and Treasury for the opportunity to contribute to the pre-budget process. We would welcome the opportunity to discuss these issues further with the Government,” said Mr DeGori.

Submissions to the federal budget 2012-13 submissions closed on Friday 27 January 2012 and the final budget is expected to be released on budget night, Tuesday 8 May 2012.

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• The underlying budget deficit deteriorated in January and now stands just shy of record highs. In the 12- months to January, the budget deficit totalled $62.3 billion, an increase of almost $3.8 billion on the deficit for the 12 months to December. The record budget deficit was $63.3 billion for the 12 months to
• September 2010. CommSec estimates that the budget deficit equates to 4.6 per cent of GDP.
• The budget deficit of $40.7 billion for the seven months to January is also $2.1 billion above the “profile” or expected deficit for the period
• Over the next five months each monthly budget deficit needs to improve by over $4 billion compared with the equivalent months of 2010 ($20.8 billion in total) for the Government to meet its full year budget deficit target of $41.5 billion.
• In the past, the best improvement in the budget position over a six-month period in the past has been just $8.7 billion. Still, the biggest deterioration has been $37 billion. The target is not impossible, but still difficult given the slowdown of the economy and recent floods.
• Annual revenues dipped from seven-month highs in January but the good news was that annual expenses eased from record highs.

What do the figures show and what does it mean?

• The best way of tracking the budget position during the year is to follow the rolling 12-month totals. In that way seasonal influences and one-off effects can be accounted for. So the latest figures represent bad news for the Government. The deficit in the 12 months to January rose to $62.3 billion, just off record highs and a long way from the target of a $41.5 billion deficit in the 2010/11 year.
• Another way of looking at the deficit is to compare it with the profile – that is the estimate of where the deficit should be if the budget target is going to be met. In the 7 months to January the deficit stood at $40.681 billion, over $2 billion higher than the profile estimate of $38.504 billion.

• Whichever way you cut it, the Government has some work to do to hit the target. Clearly the floods in Queensland and Victoria have had an impact as has Cyclone Yasi in northern Queensland. And while the good news is that expenses are short of the profile estimate at present, the bad news is that revenue is falling short by an even bigger margin. It’s not just the floods but also the fact that the Reserve Bank adopted tight monetary policy settings late in 2010, serving to slow momentum in the economy.
• The government has plenty of work to do to hit its budget target. Basically for the next five months each monthly budget result needs to improve by almost $4.2 billion compared with the same month of a year ago. The annual budget deficit needs to improve by almost $21 billion in the space of five months to hit the Government target.
• The good news is that budget expenses in January were lower than a year ago. Annual budget expenses hit a record high of $353.4 billion in calendar 2010 but eased to $351.2 billion in the 12 months to January. The bad news is that budget revenues were lower than a year ago in January and annual budget revenues eased from seven-month highs.
• Annual budget revenues are up just 0.1 per cent on a year ago. By comparison annual expenses are 3.5 per cent higher than a year ago.
• GST revenues also slipped in January, a further sign that the economy has lost momentum. GST revenues totalled $47.4 billion over the 12 months to January, down from $47.6 billion in the years to November and December and below the record high of $47.9 billion in the year to October 2010. Annual GST revenues are still up a healthy 7.7 per cent higher than a year ago, no doubt a pleasing result for state and territory governments across the nation.

What are the implications for investors?

• So what does it all mean? The Federal Treasurer should advise whether the deficit target for 2010/11 is still likely to be met. That would clear the air and remove speculation. But no doubt the Treasurer will also give a commitment to hand down a very tight budget in May.
• The Federal Government is entirely committed to get the budget back into surplus. It will have to make hard decisions and reportedly this will take the form of a crackdown on welfare payments. Investors can also expect spending cuts in other areas and a possible freeze on public sector employment.
• The Government will also have to hope that the Reserve Bank does stay on the interest rate sidelines until the second half of 2011 so that the economy can motor out of the current soft patch. Consumers and businesses aren’t spending, and as a consequence margins are being constrained together with profitability and government tax collections.
• Given its minority status, the Government will have to show that it has the necessary strategy to improve the budget bottom-line or risk losing support of Independents. Certainly the Government has been thrown a curve ball from natural disasters, but it has to demonstrate that the budget numbers will start improving in the next few months.

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• The Federal Budget deficit stood at $54.8 billion in 2009/10 (4.2 per cent of GDP), an improvement of $2.3 billion on the estimate made just four months ago at the time of the May budget. GST receipts hit record highs in 2009/10, up 9.2 per cent on a year ago.

• The budget is clearly on track to surplus over the next 2-3 years through a combination of strong economic growth and discipline in restraining spending.

• Federal Treasury was again too conservative in its budget and economic forecasts. For the past six years, Treasury has under-estimated the budget position on average by $7 billion.

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