The National Commission of Audit report (released 1 May 2014) contains 86 recommendations aimed at saving the budget up to $70 billion annually. The key recommendations affecting financial planning strategies are outlined below.
Note: these are proposals only and may not be in the Budget or passed into law.
Superannuation
Superannuation preservation age
•• Preservation age to increase to 5 years below age pension age
•• Extend current phased increase in preservation age by 4 years so preservation age will be age 62 by 2027
•• Preservation age to increase in line with increase in Age Pension age increase, from 2027 on wards (i.e. preservation age will be 65 when age pension age is 70)
Social Security
Age pension
•• Eligibility age to be linked to 77% of life expectancy at age 65, from 2033
•• New recipients from 2027/28
– Current income and assets tests to be replaced with single means test – assets test to be abolished and income test extended to include deemed income from a wider range of assets
– Principal home to be means tested for new recipients from 2027/28 – the equivalent indexed value above $500,000 (2014) for singles and $750,000 (2014) for couples will count
– Income test taper rate to increase from 50 cents to 75 cents
•• Maximum base rate to be indexed to the higher ofConsumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI) until it reaches a benchmark of 28%of Average Weekly Earnings (to occur over 15-year period)
Disability Support Pension (DSP)
•• New disability assessment and participation criteria (introduced in Jan 2012) to be gradually applied to targeted groups of grandfathered DSP recipients,e.g.those under age 35 and those with some work capacity
•• DSP to transition to 28% of AWE (in same timeframe as age pension)
•• The Government to consider replacing current income and assets tests with a single comprehensive means test (the indexed value of the principal residence above $500,000 (2014) for singles and $750,000 (2014) for couples will count, and theincome test taper rate will increase from 50 cents to 75 cents in the dollar)
Commonwealth Seniors Health Card (CSHC)
•• Deemed income from superannuation to be included in the definition of adjusted taxable income for eligibility for CSHC Carer payments
•• Annual Carer Supplement to be limited to one payment per carer
•• Income test (set at $150,000 pa) for Carer Allowance to be introduced
•• Eligibility criteria for Carer Payment to be reviewed – restrict to those whose carer responsibility limits their capacity to work
•• Carer payment to be benchmarked to 28% of AWE (in line with age pension benchmark changes)
Pharmaceutical Benefits Scheme (PSB)
•• New arrangements for funding the PBSto be introduced
•• An independent authority (PBS Entity) to be established to manage subsidsyof pharmaceuticals
•• The Minister to be permitted to de-list items or have new items listed in exceptional circumstances
•• For general patients, co-payments to increase for all PBS medicines (including for concessional medicines that are currently free) by $5 (from $36.90 to $41.90)for those with costs below the safety net and by $5 (from $6.00 to $11.00) for those with costs above the safety net
•• General patient safety net to increase from $1,421.20 to $1,613.77•• For concession card holders, no increase to the current co-payment of $6 for those below the safety net threshold of $360 (but cocontribution of $2 for those above the threshold)
Aged Care
Aged care
•• Full value of principal residence to be counted in the aged care means test
•• Part of aged care costs can be funded using equity in principal residence
•• Providers to be charged a fee to access the accommodation bond guarantee, or they can insure privately to cover default risk Families
Family Tax Benefits
•• New single means test for Family Tax Benefit Part A (FTB Part A)
•• Maximum rate of FTB Part A to be paid up to family ATI of $48,837 and then phasing out at 20 cents in the dollar
•• Family Tax Benefit Part B to be abolished
•• New Family Tax Benefit Part A supplement to be paid to sole parent families who have a child under age 8 (same as current maximum rate of FTB Part B $4,241 for a family with a child under age 5 or $3,070 for those whose youngest child is age 5-8)
•• Per child rates to be based on the current FTB Part A rates for a first child and paid at 90% for second and subsequent children
•• Large Family Supplement and Multiple Birth Allowance to be removed
Paid Parental Leave
•• Wage replacement cap to be lowered to Average Weekly Earnings (currently $57,460), and indexed each year to AWE
Child care
•• Child care rebate and child care benefit to be replaced with a single, means-tested paymentthat includes a ‘work, training, study’ test
•• New payment to include in-home care and other types of care that are not currently subsidised
•• Current support levels to be maintained at around 80% for low income families, with a base of assistance of 50% available to all families
Other
Unemployment benefits
•• Young single people aged 22-30 without dependants or special exemptions to relocate to higher employment areas or lose access to benefits after a period of 12 months on benefit
•• Income test taper rate to be increased to 75 cents in the dollar for Newstart and other related allowances Minimum wage
•• A minimum wage benchmark to be set at 44% of AWE – current national minimum wage to be indexed to CPI less 1% for a period of 10 years
•• Minimum wage in each State and Territory to be the lower of the minimum wage benchmark or 44% of the State/Territory AWE by 2023
Higher education
•• HELP debt to be repaid once earning the minimum wage ($32,354), starting with a repayment rate of 2.5%
•• Help repayment income threshold to be indexed to CPI (rather than AWE)
•• Commonwealth contribution to higher education costs to decrease from 59% to 45%, and student share to be increased from 41% to 55% National Disability Insurance Scheme
•• Phase-in to be slowed (requires re-negotiation of bilateral agreements with the States)
Health care
•• Higher income earners to take out private health insurance for basic health services in place of Medicare, with private health insurance rebate removed
•• Co-payments to be introduced for Medicare funded services – general patients to pay $15 per visit for up to 15 visits and $7.50 per service thereafter;concession card holders to pay $5.00 per visit and$2.50 per service thereafter
•• It will not be possible to insure against the co-payment and bulk-billing medical practitioners cannot waive the co-payment
•• States to be encouraged to introduce a co-payment for public hospital emergency departments for less urgent conditions
•• General Extended Medicare Safety Net to be increased to $4,000 (Concessional Extended Medicare Safety Net threshold to be maintained at existing levels)
•• Safety net arrangements for Medicare and the Pharmaceutical Benefits Scheme (PBS) to be retained
•• Medicare Benefits Schedule to be reviewed to identify and remove ineffective items; replace expensive items with less expensive alternatives where available; and investigate options for cost recovery for applications to list items on the Schedule
•• Private health insurance market to be reformed to provide greater incentives for efficient and cost effective health management via:
– Deregulation of price setting arrangements
– Allowing health funds to expand their coverage to primary care settings
– Relaxing community-rating to allow health funds to vary premiums to account for a limited number of lifestyle factors, including smoking
– Reforming the arrangements by which insurers equalise risks.
Schools funding
•• Responsibility for policy and funding for government/non-government schools to be transferred to the States
•• Annual funding to be provided in three separate, non-transferrable pools for government Catholic and independent schools
•• States to publish student outcomes and how funding is allocated.