Having taken the chance to review all the details and commentary regarding Tuesday’s Federal Budget we wanted to briefly highlight the items that will most affect our clients and let you know our initial thoughts.

As you will have heard mentioned already, the Federal Government have found themselves in a very tough position with declining tax revenues and a faltering economy making balancing the budget an impossibility in the short to medium term. Accordingly they have been forced to make some tough decisions which included having few if any measures aimed directly at gathering votes for the upcoming election. (Though if you believe Paul Murray from Sky News they have kept a little over $400m up their sleeve for vote buying closer to the big day!)
Overall, we support the announcement of a budget deficit, even if it was forced upon them rather than chosen, as the economy clearly needs some stimulus and the Reserve Bank’s efforts regarding monetary policy can’t do it all. Further, while not necessarily a matter directly impacting our clients’ business and investment affairs, we commend the government for funding their previously announced DisabilityCare and Gonski education reforms.

Having said that, from a business and tax perspective, the budget does seem to be another wasted opportunity to embark on a lon-term reform plan that is vital to ensure that the country is well positioned for the challenges of the decades ahead. Short-term revenue considerations have resulted in the Government yet again choosing the easy path of tax grabs from business to fund spending commitments. While Government efforts to protect the integrity of our tax system by closing loopholes are worthwhile, the Budget measures virtually ignore the long-term visions laid out in the Henry Tax Review.

The measure will add significantly to the stock of announce but un-enacted measures. An outstanding agenda of more than 100 tax measures in an election year will heighten uncertainty for business in an already volatile environment. After years of cloistered, on-the-run policy making, businesses are again left to make significant investment decisions in the dark.

So bear in mind, many of the measures are proposals only and may or may not be made law. Particularly given the potential for a change of Government in September 2013
One of the key tax announcements was the increased efforts against big business tax planning and profit shifting. While we would agree all businesses operating in Australia should be treated the same and none should be able to access loopholes to avoid paying their fair share, our concerns regarding this announcement are two fold –

  • Firstly, the faltering economy needs those businesses operating and investing in Australia now more than ever in particular from the point of view of job creation (as resource companies scale back work forces) and we would hate to see such announcements result in their downsizing activities or even departing all together,
  • Secondly, the estimate of the additional revenue the efforts will bring seems very difficult to make and we hope these have not been overstated.

Another involved cuts to Research and Development concessions which are also a concern at this time, as it is innovation from Australia’s businesses that will help improve the overall economic position.
Other tax related items that impact on our small business and investor clients are discussed below –
Summary Items

  • The Medicare Levy will increase by 0.5% to 2% pa from 1 July 2014.
  • The superannuation concessional contribution cap will increase from $25,000 pa to $35,000 pa from 1 July 2013 for people 60 and over, and from 1 July 2014 for people 50 and over.
  • From 1 July 2014, all pension assets earnings in Super Funds (including SMSFs) above $100,000 will be taxed at 15%.
  • The $5,000 Baby Bonus will be removed from 1 March 2014. Instead, families eligible for Family Tax Benefit (Part A) will receive $2,000 following the birth of their first child and $1,000 for each subsequent child.

Reduced tax concessions for high-earners
In the 2012 Federal Budget, the Government announced that from 1 July 2012 individuals with incomes above $300,000 pa will pay an additional 15% tax on their concessional super contributions. Draft legislation for this measure was recently released and was confirmed in the 2013 Budget.

Changes to self-education expense deductions
From 1 July 2014, tax deductions for self-education expenses will be capped at $2,000 pa for individuals. Note that at this stage, there is no cap on deductions claimed by businesses for employee training.

No changes to personal tax rates
The proposed changes to the marginal tax rates and income thresholds which were due to take effect from 1 July 2015, will no longer be going ahead.

Phase out of the Net Medical Expense Tax Offset
Effective 1 July 2013, this offset will be phased out. Transitional arrangements will apply for 2014 and 2015 for individuals who have claimed the offset in the 2013 year.

Early HECS-HELP repayments removed
Up-front and voluntary early repayment discounts under the HELP program will be removed in 2014. University and other eligible students will no longer receive a discount if they pay their fees up-front or repay their HELP debt early.