In March, Prime Minister Tony Abbott described the forthcoming 2015-16 Federal Budget as “pretty routine… almost dull compared to last year.” But don’t bring out the brown cardigan and tea bags just yet.
There are likely to be some big changes – and some of them may impact you. This teaser provides an overview of some of the changes floated by Government prior to the Budget as well as an indicator as to what we may see announced on May 12.
Why there’s no room for “run of the mill”
Over the past few years, the Federal Budget has been under sustained pressure on the expenditure side from increases in health, welfare and education. Some savings were made in last year’s Budget, for example by reducing Health expenditure that was slated to be paid to the States, however, some of these savings have been counteracted by new initiatives such as the National Disability Insurance Scheme.
On the revenue side, the dramatically falling price of Iron Ore has the potential to wipe up to $25 billion from Government receipts over the forward estimates. In addition, the declining terms of trade and decline in mining related capital investment will detract from Australia’s GDP growth and employment resulting in lower personal and company tax receipts and GST, as well as higher welfare payments.
These pressures are likely to force the Government’s hand and rather than a “steady as she goes” tinkering with the national finances there is likely to be a fresh round reform.
What are we likely to see?
As has been the case in relation to Governments of both political persuasions, the Abbott Government is continuing the trend of strategically leaking potential changes before Budget night. The following is a summary of what has been floated publically:
- “Google” tax
Based on the United Kingdom’s “Diverted Profits Tax”, a proposed “Google” tax operates by taxing company profits technology companies declare overseas but which come from local activity. In Australia, it would likely be levied at a rate above the corporate rate of 30 per cent to encourage the companies to declare profits locally.
Labor has also announced its own plan to crack down on multi-national tech companies by changing the thin-capitalisation rules to reduce the amount of debt against which companies can claim tax deductions in Australia. Broadly, the Labor proposal involves reducing a company’s debt-to-equity ratio threshold to the same level as the average a debt-to-equity ratio across the entire worldwide group business.
Look for an amalgam of these proposals on Budget night.
- Bank deposits tax
Treasurer Joe Hockey has refused to rule out a Banks deposits tax. The rate is likely to be set at five basis points per deposit (or 0.5 per cent for every deposit). The tax was originally announced by Labor, however it is understood to have been seriously considered in the coalition party room. The revenue raised from the tax was originally earmarked to pay for the costs associated with the $250,000 guarantee that the Australian Government provided to the big banks during the Global Financial Crises.
- Increased fuel tax
In April, Industry Minister Ian Macfarlane raised the possibility of motorists being hit with a tax which would increase the price of petrol by 2c per litre at the pump. Under its obligations under the International Energy Agency, Australia must maintain at least 90 days worth of fuel in reserve as a buffer against future oil shocks.
Currently, Australia’s reserves stand at 52 days. In order to rectify this situation, the government must either build bigger storage tanks or buy fuel in contracts on international markets. According to the Government, either option is “extraordinarily expensive”. The tax revenue will be used to fund this expenditure.
- A reduction in the corporate tax rate for small business
Both the Prime Minister and Treasurer have confirmed that there will be a tax cut for small business of 1.5% or more announced on Budget night. While, in principle, this should be welcomed by small business proprietors, there are a number of issues that will need to be dealt with – particularly in the period between Budget night and the end of the financial year. Of critical interest will be the way that imputation credits generated under the current tax rate carry over to dividends paid when the company rate is reduced.
Small business proprietors should check with their Crowe Horwath representative as to the application of these rules prior to the end of the financial year.
- New fees for foreign residential property purchases generating increased funding for childcare
In February 2015, the Prime Minister and Treasurer released a discussion paper that flagged a raft of changes to laws that govern the ability of temporary residents and foreign residents to purchase Australian residential property. The paper proposes introducing a compulsory $5,000 application fee on temporary and foreign residents purchasing residential property under $1 million. For temporary and foreign resident residential property purchases over $1 million there will be $10,000 for every extra million dollars in the purchase price.
It is understood that the revenue generated from the introduction of this new levy will be used to fund increased child care subsidies.
- “Netflix” tax
The so-called “Netflix” tax will apply GST to downloads of movies, music, books and other media from overseas providers such as Netflix. The Government also plans to push ahead with plans to apply the GST to goods purchased online from overseas which are valued at less than $1000.
Both of these changes to the GST base have been agreed to by the State premiers.
- New rural package for drought-affected farmers
Agriculture Minister Barnaby Joyce is set to announce a special economic stimulus package for drought-affected communities in both New South Wales and Queensland. The package is likely to cost between $20 million and $70 million with Government money being directed towards projects such as fencing, road works and paving and laying fibre-optic cable.
What to do now
It is clear that the government is looking for revenue and so it is important to be aware of the changes mentioned above in the lead up to Budget night. Once the Budget is handed down on 12 May, be sure to talk to your local Crowe Horwath advisor regarding how these and other changes apply to you. Contact us on 1300 856 065 or visit our website at www.crowehorwath.com.au to connect with your local advisor.