Read: Access full Federal Budget 2018-19 review here
A safe political budget forecasts a continued recovery in the Economy, starting with a short term sugar hit.
Faced with the political reality of recently not being able to pass its 10 year enterprise tax plan on corporate tax cuts, the Government has in this year’s Budget instead focused on integrity measures and individual tax relief for most Australians.
With Australia projected to complete 31 years of uninterrupted growth, the Budget expects unemployment to fall slightly and wage growth to return to ‘normal’ levels. This contrasts with a total forecast net debt position of $349 billion. An innovative business in this position would critically assess its operations and make the tough strategic decision to improve its long term future prosperity.
In this Budget there is no longer term structural reform and very few new initiatives that will drive investment and lead to stronger economic growth. Consistent with last year’s budget there is very little on Innovation, transitioning to new digital economies or support for internationalisation.
We are still much too reliant on income tax to sustain our position — there is no expansion of GST or other broader based taxes despite the retention of state-based taxes such as payroll, stamp duty and land tax that weigh on businesses.
A survey of Pitcher Partners’ clients on the eve of the Budget found a simplified taxation system was their top priority — far exceeding the priority given to tax cuts.
This is an election focused budget structured to win the hearts and minds of middle Australia through tax cuts and differentiation from Labor on dividend franking tax refunds, while not impacting the current economic status quo.
While the personal tax cuts are welcome and appear generous, the reality of the forward revenue estimates is that the government remains heavily reliant on personal income tax collections to increase future revenue.
We are disappointed in the face of international business stimulation that the Government only extended the $20,000 instant asset write-off for businesses with turnover of less than $10 million for one more year. For most advanced economies, the tactic has not only been to increase government spending, but to stimulate private investment by providing significant incentives for business to invest in productive capacity. Middle-market businesses, which are the backbone of the economy and account for around one third of jobs and one third of economic activity, have yet again been largely ignored.
More than just being ignored, the Government has actively made running an SME more difficult. Undoubtedly, the focus on targeting the black economy will also increase the compliance burden on honest hard working business owners. Structurally proposed changes around trusts and the use of corporate beneficiaries as a means to finance working capital and growth is set to be removed, increasing funding difficulties for business.
Among the changes announced Tuesday night are:
- A new cap on the R&D offset of $4 million, and a sharp reduction in the amount that can be claimed by companies with turnovers above $20 million
- Integrity measures that deny tax deductibility of holding costs on vacant land for investors and potentially property developers
As with every Budget, there are winners and losers, but for business, increased complexity increases the cost of doing business. A range of confusing changes, from limits on R&D tax offsets to integrity measures targeted at property developers, could leave businesses wanting answers rather than tax cuts. Many sectors will be left trying to unpick complex changes at a time when SMEs have stressed the need for a simplified taxation system.