In handing down the 2013/14 Federal Budget, Treasurer Wayne Swan blamed a stubbornly high Australian dollar and lower commodity prices for a dramatic fall of some $17 billion in forecasted tax receipts, leading to an estimated budget deficit for 2012/13 of $18 billion.
This is obviously a far cry from the ‘on time, as promised’ budget surplus of $1.5 billion that he announced in the last budget.
In stating that the Government was ‘charting a sensi ble pathway to surplus over the forward estimates’, Mr Swan said that he expected a reduced deficit of $10.9 billion in 2014/15, breakeven in 2015/16 and a return to a modest budget surplus in 2016/17.
The forecast for economic growth in 2013/14 is 2.75% (revised down from the previous forecast of 3%) and in 2014/15 the economy is expected to grow by 3%. The unemployment rate is expected to increase slightly from 5.5% to 5.75% by June 2014.
Being in no position to provide any pre-election hand-outs the Treasurer, instead, announced a cut to a range of benefits to middle income families, deferred previously announced tax cuts, a scrapping of the $5,000 baby bonus and an increase in the Medicare Levy of 0.5% in order to fund the National Disability Scheme.
On the tax front, it seems that the Treasurer is intent on driving increased tax revenues through a range of tax integrity measures rather than through any structural changes designed to promote business growth and make Australia more competitive.
To that end, the Government has announced a range of measures that are targeted at addressing tax base erosion and profit shifting by multinationals through loading a disproportionate amount of debt to Australia, including a tightening to Australia’s Thin Capitalisation rules, being rules that seek to limit the amount of debt deductions that can be claimed as a tax deduction against income in certain circumstances.
The only tax concession provided for business in the Budget is the increase in the thin capitalization thresh hold from $250,000 to $2 million of debt deductions. However we await clarification from Treasury that this increase is not limited to small business.
Other significant tax measures include the introduction of a 10% non-final withholding tax for non residents that dispose of Australian real property, with the exception of residential property less than $2.5 million in value. The definition of Taxable Australian Real Property (TARP) as it relates to mining assets will also be changed to include mining, quarrying or prospecting information, rights to such information and goodwill, which are currently not subject to tax if disposed of by a non-resident.
Not unexpectedly, Mr Swan also announced an integrity measure to prevent ‘dividend washing’ by sophisticated investors who buy and sell shares that carry dividend rights in order to access two lots of dividend franking credits in respect of essentially the same shares.
Following a recent Board of Taxation report the Budget contained measures to close a number of loopholes in the tax consolidation regime. Of the 26 recommendations made by the Board of Taxation in its review of the tax consolidation provisions, only 4 have been adopted by the Government. Interestingly, they are all integrity measures.
The Budget also contained the changes to the superannuation rules that were previously announced by the Government on 5 April 2013. Broadly speaking these relate to a rebating of the penalties that apply to excess contributions, an increase on the cap for deductible superannuation contributions for those aged above 50 and 60 respectively and the taxing of superannuation fund earnings where they exceed $100,000 per year per member.
Consistent with many previous Budgets, additional funding has been provided to the ATO, over 4 years to improve compliance by Australian taxpayers through expanding data matching with third party information and also to enable the ATO to establish a task force designed to target trusts that conceal income, mischaracterise transactions, artificially reduce trust income and underpay tax.
However, with the election looming in September of this year, it ultimately remains to be seen just how many of the Budget announcements will see the light of day.