Federal Budget 2020: Housing initiatives, tax breaks, superannuation changes and more

Federal Budget 2020: Housing initiatives, tax breaks, superannuation changes and more

The federal government plans on chartering Australia out of its first recession in almost three decades by spending big on employment initiatives, infrastructure projects and tax breaks.

Many of the policies unveiled aim to encourage spending in key sectors -- such as the construction industry -- as a way to stimulate investment in business and employment.

This includes the government’s expanded First Home Loan Deposit Scheme (FHLDS), tax breaks and exemptions, and changes to superannuation, among many other initiatives detailed below. 

Annual growth down almost 4 per cent

The COVID-19 pandemic resulted in a 7 per cent contraction in the June quarter before containment of the virus led to a modest recovery, Treasurer Josh Frydenberg said.

But the recovery won’t be large enough to offset the fall this year. The government forecasts a 3.75 per cent fall by the close of the calendar year, and that unemployment will peak at 8 per cent in the December quarter. 

A number of initiatives were announced last night to help the country spend its way back to growth, but this will cause the year’s deficit to reach $213.7 billion and net debt to climb to $703 billion.

Projections to June 2024 forecast the deficit will fall to $66.9 billion, while net debt will peak at $966 billion.

The federal budget is designed to stimulate the economy by getting people back to work, Mr Frydenberg said.

“In the space of just one month, more than one million Australians lost their jobs or saw their working hours reduced to zero,” he said.

“...This budget is all about jobs. There is no economic recovery without a jobs recovery, there is no budget recovery without a jobs recovery.”

More than half of the people who lost their job or had their hours slashed to zero due to COVID-19 are back at work, Mr Frydenberg said.

First Home Loan Deposit Scheme expanded, but with strings attached

The federal government has added 10,000 places to the FHLDS, which guarantees home loans by up to 15 per cent of the property price for first home buyers with at least a 5 per cent deposit.

But in a move that has seen mixed responses, the reformed program has been limited to new-build properties. The first version of the scheme provided first home buyers to purchase either established or new homes.

The pricing caps of properties under the scheme have been increased, reflecting the higher housing prices buyers are facing in some capital cities.

First home buyers purchasing in Sydney and Melbourne can expect their price caps to be lifted by $250,000 to a maximum of $950,000 and $850,000 respectively.

Read more about the revised first home loan deposit scheme here

Tax cuts for more than 11 million people

An estimated 50,000 jobs will be created by offering tax cuts to 11 million taxpayers, the federal government announced. The tax cuts are set to be backdated to 1 July this year. 

Billions of dollars are tipped to be injected into the economy by reducing the majority of people’s tax bills. Single lower and middle income earners will a cut as high as $2745, while dual income families are expected to receive as much as $5490, when compared to the financial year ending in 2018.

The government also plans on extending its tax offset, offering low and middle income earners from $255 to $1080 in additional relief, dependent on their income.

Read more about the tax revisions, offsets and cuts here 

$3 trillion superannuation system to be revamped

Australians will no longer have new superannuation accounts automatically created for them from July 2021, in one of the key reforms to the $3 trillion system under the federal budget.

The change has been designed to cut down on unnecessary fees being charged to Australian workers.

Other major changes include an annual objective performance test for super funds. Members will be notified if their fund fails the test, and funds that show consistent underperformance will be barred from signing up new members.

Underperforming funds will be publicly listed on the government’s new superannuation comparison website, dubbed YourSuper, which will help Australians compare super fund fees and returns.

Read more about the superannuation reform package here.

Tax exemptions for granny flats -- and a possible grant

The federal government is encouraging people to hire construction workers to build granny flats by eliminating the capital gains tax, in some cases. This is in addition to developments over $150,000 being eligible for $25,000 grants under the government’s $680 million Homebuilder scheme.

Residents will be able to lease their granny flats to their elderly or disabled relatives, and when they sell their property, they will not have to pay capital gains taxes on the value the major renovation adds.

The revised policy position is intended to help about 3.9 million pensioners and 4 million Australians with a disability, while also funneling major renovation work to the construction industry.

Read more about the tax exemptions for granny flats here

Businesses rewarded for hiring young workers

Businesses are likely to be incentivised to employ young Australians with the government’s $4 billion JobMaker hiring credit.

From today until 6 October next year, eligible employers who hire Australians aged 16-35 receiving JobSeeker payments could be able to claim:
- $200 per week per employee aged between 16 to 29 years
- $100 per week per employee aged 30 to 35.

The new employees must work for a minimum of 20 hours per week for the employer to receive the hiring credit.

Government agencies, major banks and employers on JobKeeper payments are not eligible for the JobMaker hiring credit.

The government expects about 450,000 young job seekers to be hired through the program.

-- Journalist Alison Cheung contributed to this article

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Learn more about savings accounts

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.