FEDERAL BUDGET 2011: Nine hits make a lethal combination: Gottliebsen

I doubt whether Julia Gillard, Wayne Swan or even the cabinet understand what they did to middle income Australia in the 2011-12 budget.

If you combine the budget with other government measures it represents the most vicious attack on Australian middle income earners since the Whitlam-Cairns era in the 1970s.

And the savage blows come at a time when large numbers in this segment of the population are bleeding because they have over-invested in housing via big mortgages. As a result their interest rate burden has skyrocketed. At the same time, power costs have risen by 30% across Australia in the last three years, led by NSW with a 43% rise.

Power bills are expected to rise another 30% in the next three years and on top of that will come the carbon tax. Petrol costs have gone through the roof, as have water, council and other charges. On top of that the value of their real estate is falling. To keep their houses many middle income Australians are now going to be required to slash their holidays, eating out and other discretionary areas. Retailers beware.

I have isolated nine Swan-Gillard blows. On their own each measure might be claimed as fair but in combination they are lethal:

• The centrepiece of the Swan-Gillard attack on middle Australia is a plan to extract $920 million from their pockets in 2011-12 by declaring that if a single person earns more than $124,000 or a family more than $248,000, they will receive no private insurance health rebate and will be hit with a higher Medicare levy. The attack is staged in several steps, starting when a single person earns just $80,000 and a family $160,000.

• Those earning above $100,000 will pay a 1% flood levy. At lower income levels it is either 0.5% or nil.

• All the income relief for the carbon tax will be structured at incomes below $100,000.

• An enormous proportion of middle income Australians work as contractors. The Government plans to require that anyone in the building and construction industry who hires a contractor must report to the Government every cent they pay to that contractor. And every contractor must report every cent they pay to their contractors. This is part of the vigorous union-encouraged attack that the Government is planning on the self-employed. The Government reckons the contractors are not paying enough tax. It will take until 2012-13 for this attack to be mobilised and it will not yield revenue until 2013-14, when the Government expects to rip $183 million out of plumbers, electricians and other small contractors. In 2014-15 the take is expected to rise to $255 million, by which time it will be extended to IT and other areas.

• A large number of middle class Australians send their children to independent schools. The Government is planning to substantially lift the rewards of government school teachers that are deemed to have performed well. The independent schools system will have to find a way to match that and they will lift fees accordingly.

• The Gonski report, to be released later this year, will almost certainly lower the amount the Government spends on independent schools and therefore lift fees by the same amount.

• For those aged over 50 with more than $500,000 in superannuation funds, their annual contributions will be capped at very low level of $25,000 in 2012-13. They are effectively being told they cannot provide for their retirement by tax deductible superannuation.

• The family allowances will require lower income levels for people to be eligible.

• The changes to the car fringe benefits tax will remove $970 million from business over the next four years, most of which will be passed onto middle income employees in Australia.

The Government will reform the current statutory formula method for determining the taxable value of car fringe benefits, by replacing the current statutory rates that go down as the car travels with a single rate of 20% that applies regardless of the distance travelled. This reform will apply to new contracts entered into after 19.30 AEST on May 10, 2011 and will be phased in over four years. I invite readers to discover more blows to middle Australia hidden in the fine print.

NB: I must confess I dodged three of the nine blows plus the mortgage. I consider myself lucky.

This article first appeared on Business Spectator.