Australian Budget Fails To Provide Carbon Tax Detail

by Mary Swire, Tax-News.com, Hong Kong

12 May 2011

The 2011/12 Australian Budget was condemned by some as being incomplete because of the lack of any detail on the impact of a carbon tax. Financial experts and the opposition party said that Australia’s finances cannot be transparent without full information on the impact of the tax, however the Treasury’s response was that the budgetary impact of a carbon tax will be included in the mid-year economic fiscal outlook when the package has been fully negotiated.

This was Treasurer Wayne Swan’s fourth budget and he said that it was built on the government’s firmest convictions: “That just as our focus on jobs helped Australia beat the global recession, so too can a focus on jobs ensure we maximize our advantages in the Asian Century. And just as deficits are the right thing to fight a global recession, or to rebuild from natural disasters, so too are surpluses right for an economy set to grow strongly again."

“We have imposed the strictest spending limits, delivering AUD22bn in savings to make room for our key priorities, ensuring our country lives within its means. We are on track for surplus in 2012-13, on time, as promised – and this provides the solid foundations for the targeted investments we announce,” said the Treasurer.

Several new tax measures were introduced, including a number aimed at helping small businesses in particular. The narrow Entrepreneurs Tax Offset is to be replaced with tax reforms that will be available to all 2.7m small businesses.

Following on from last year’s announcement that from July 1, 2012, small businesses would be allowed to immediately write-off assets below AUD5,000, the first AUD5,000 of the cost of a vehicle can now be immediately written-off as well.

Tax instalment payments will be reduced by AUD700m in 2011-12, aimed at helping cash flow, and small businesses will be given a head start on the company tax cut that will be funded by the Minerals Resource Rent Tax.

Swan also put a focus on the government’s desire to get more people into employment, saying: “In a growing economy like ours, we cannot justify the fourth-highest proportion of jobless families in the developed world. A wealthy country like ours has no excuse to leave people out of work.”

Tax rates for 50,000 single parents will be cut by up to 20 cents in the dollar, and tax breaks that encourage people without children to stay at home will be removed by phasing out the Dependent Spouse Tax Offset, beginning with partners under 40.

To help those on lower incomes, from July this year, there will be a further AUD300 a year of the Low Income Tax Offset added to pay packets, rather than given at the end of the year. Family Tax Benefit for older teenagers will be increased by up to AUD4,208 a year, on top of the AUD460m already being provided to extend the Education Tax Refund to cover school uniforms.

Payment advances of up to AUD1,000 for Family Tax Benefit will be allowed for recipients at any time to meet unexpected family expenses, and give parents greater choice in when they receive child care support.

The Treasurer’s main aim is to return the country to surplus, which he said it will reach despite company taxes not recovering as fast as the economy. He said:

“Losses built up during the global crisis are larger and lingering longer, contributing to reduced company taxes of AUD8bn in this Budget over two years. This overhang from the GFC, along with a higher dollar and record mining investment and associated tax deductions, are all slowing revenue growth."

“Since the last update, tax receipts are down AUD16bn in the first two years, taking the whole write-down since the crisis to AUD130bn over five years."

“The lower tax receipts in this Budget account for all the increase in the deficit for 2010-11 and about two-thirds of the increase over 2010-11 and 2011-12. It means the deficit for 2011-12 becomes AUD22.6bn, and net debt will now peak at 7.2% of GDP that year, a tiny fraction of comparable countries."

“Our spending restraint means real growth in spending averages 1% a year over the budget estimates, the lowest average rate in a five-year period since the 1980s. This is putting us on track for a AUD3.5bn surplus in 2012-13."

“We don't take our savings decisions lightly, and we take no joy from making them. But we take comfort in knowing they are right and necessary to ensure we don't compound the pressures of the boom.”

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