Federal Budget 2016-17
3 May 2016
Treasurer Morrison's first Budget includes welcome initiatives that should support growth in the economy and nudge the nation's finances back towards sustainability. But, it falls short of what is needed – the brittle economy and looming election constrained how much the Treasurer could do.
For business, the focus on jobs and growth is admirable – growing the economy should boost employment and help repair the budget. A key test will be whether the economic forecasts are accurate. A succession of Budget strategies have foundered because of optimistic growth assumptions. Tonight's growth forecasts have been downgraded and look plausible, so this Budget is less vulnerable to disappointment.
- The deficit for 2016-17 is $37.1 billion (2.2% of GDP), $3.4 billion worse than in MYEFO. The deficits in the out-years also are slightly larger than before, but gradually decline.
- The timetable for the expected return to surplus remains 2020-21. Government revenue as a share of GDP is projected to be a lowly 23.9% of GDP in 2016-17. The Government's spending share is projected to be elevated at 25.8%.
- With deficits expected until the next decade, public debt will continue to rise. In fact, the peak debt ratio now is expected to be higher.
- The small company tax rate will be cut to 27.5 per cent from 1 July, 2016 and the threshold for accessing and the annual turnover threshold for businesses able to access it will increase from $2 million to $10 million. The tax rate will then be progressively reduced to 25 per cent by 2026.
- The unincorporated tax discount will be increased from 5 per cent to 8 per cent from 1 July, 2016 and then progressively increased to 16 per cent by 1 July, 2026. The discount will be limited to small businesses with turnover of less than $5 million and remain capped at $1,000 per individual firm per year.
- Concessions already available to small businesses with turnover of less than $2 million will be extended to businesses with turnover of less than $10 million from 1 July, 2016, including: - Simplified depreciation rules, including the ability to claim an immediate deduction for each asset costing less than $20,000 until 30 June, 2017. - The option to account for GST on a cash basis and pay GST instalments. - A simplified method of paying CGT benefits.
- The company tax for all companies is planned to decrease to 25 per cent by 2026-27, with staggered cuts according to annual turnover over the next decade.
- The Government will remove key barriers to the use of asset-backed financing arrangements to improve access to more diverse sources of capital in Australia. Asset-backed financing can be used to fund infrastructure investments as it is well-suited to large and longer term projects.
- The Government will provide $3.1 million for the Department of Finance to complete the final phase of the competitive tender process designed to test the capacity of a private provider to operate the Australian Securities and Investments Commission Registry. A final decision on whether to commercialise the registry will be made after the Government examines the final tender outcomes.
PERSONAL TAX & SUPERANNUATION
- The 32.5 per cent personal tax income threshold will be increased from $80,000 to $87,000 to minimise bracket creep until 2019-2020.
- The use of superannuation as a tax minimisation or estate planning vehicle will be minimised by: - $1.6 million cap on the amount of superannuation that can be withdrawn tax-free in retirement, to be introduced from July 1, 2017. - Decreasing the threshold at which a 30 per cent tax applies to concessional contributions from $300,000 to $250,000. - Reducing the annual cap on concessional contributions to $25,000. - Introducing a lifetime cap of $500,000 on non-concessional contributions that takes into account all contributions made on or after 1 July 2007. The lifetime cap will replace the existing annual cap on non-concessional contributions and come into effect immediately. - Taxing the earnings on transition to retirement pensions. - Removing anti-detriment transitional provisions which, in practical terms, provide a refund of contributions tax paid over a lifetime.
- Superannuation will be made more flexible by various measures: - From July 1 2017, people with superannuation balances of less than $500,000 will be able to carry forward unused concessional caps for five years. This will let people with broken career patterns, for example, catch up with their super savings. - From 1 July 2017, people aged 65 to 74 will no longer have to satisfy a work test to make super contributions.
- Superannuation will be made more equitable by introducing a low income tax superannuation tax offset of up to $500 for people earning less than $37,000 to avoid situations in which low income earners pay more tax on superannuation contributions than on their wages. It will replace the low income superannuation contribution when it expires on 30 June 2017.
- A new tax aimed at multinationals that attempt to divert profits from Australia to minimise their taxation will be introduced from 1 July, 2017. It will levy a 40 per cent tax on diverted profits and apply to global companies with global revenue of $1 billion or more. Companies with Australian revenue of less than $25 million will be exempt, unless they are artificially booking revenue offshore.
- A new Tax Avoidance Taskforce will be established to ensure that multinational companies, private companies and wealthy individuals pay the right amount of tax. The taskforce is forecast to raise more than $3.7 billion in tax liabilities between now and July 2020.
- Australia's transfer pricing laws will be amended from July 1, 2016 to give effect to the OECD's transfer pricing recommendations. Transfer pricing rules govern the way companies set prices for the trade of goods and services among their different businesses in different countries. The latest OECD update enhances guidance on intellectual property and hard-to-value intangibles.
- The Government will consult on new rules requiring tax and financial advisors to report potentially aggressive tax planning schemes.
- The maximum penalty for failing to lodge tax returns and other similar tax documents on time will increase from $4,500 to $450,000. Penalties for making false and misleading statements to the ATO will be doubled.
- The Government will provide a relatively small additional $2.9 billion investment in infrastructure, half of which will be devoted to projects in Victoria.
- The Government will establish the National Disability Insurance Scheme Savings Fund Special Account to assist in meeting the future costs of the NDIS. In 2016-17, $2.1 billion will be credited to the fund.
- A $96.1 million Try, Test and Learn Fund to help the Government identify groups at risk of long-term welfare dependency and design policies to address barriers to work will be established. The policies will be developed with input from external experts and the community sector.
- The efficiency dividend for the Australian Public Service will be increased by 1.5 per cent in 2017-18, 1 per cent in 2018-19 and 0.5 per cent in 2019-20.
FAMILY & COMMUNITIES
- The Government will provide $751.7 million over four years to establish a Youth Jobs PaTH program for young job seekers under 25 years, including: - Pre-employment training of up to six weeks from July 1, 2017. - Internship placements of four to 12 weeks from July 1, 2017. The internships will be voluntary and provide incentives of $1,000 upfront to a business to host an intern and a $200 fortnightly payment to job seekers on top of their income support. - From 1 January 2017, a wage subsidy of $6,500 to $10,000 will be available to businesses who take on an eligible young job seeker.
- The Government has made a $160 million provision for the plebiscite on same-sex marriage.
© Copyright 2016 Australian Institute of Company Directors
For further information on the Federal Budget 2016-17 please refer to our booklet - Federal Budget 2016-17