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Experts Critical Of Australian Budget

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

20 May 2013


Australian Treasurer Wayne Swan's latest federal Budget has been met with scepticism from the business community, with concerns raised about the complexity of the tax system and the likelihood of a return to surplus.

Swan admitted during his Budget speech that Australia was facing its second largest revenue write-down since the Great Depression, with a reduction in projected tax receipts now totaling AUD60bn (USD59.1bn). This year's tax-to-gross domestic product (GDP) ratio is estimated at 22.2 percent, 1.8 percent lower than the average seen in the five years prior to the recession. The Government nonetheless expects to return to balance in 2015-16, and be in surplus by 2016-17. AUD43bn will be made in savings over the forward estimates to reach these targets.

Among the tax related measures announced are changes to the thin capitalization rules, reform of the exemption available to Australian companies for their foreign non-portfolio dividend income and an overhaul of the foreign resident capital gains tax system. The Offshore Banking Unit (OBU) scheme will be altered, to address integrity issues and better target the concession, and loopholes in the consolidation and dividends regimes will be closed. Finally, the Australian Taxation Office (ATO) will be provided with an additional AUD109.1m in funding over the next four years, to be spent on resources for compliance activity.

However, it is what was missing from the Budget that has attracted the most comment. Business Council of Australia (BCA) Chief Executive Jennifer Westacott believes that Swan did not address the failings of what she calls an uncompetitive tax system. Her comments were echoed by Peter Anderson, Chief Executive of the Australian Chamber of Commerce and Industry (ACCI), who expressed his disappointment that the Budget had "short-changed" the country's two million small businesses. No corporate or capital gains tax reliefs were offered, there were no reductions in tax compliance procedures, no incentives to hire new apprentices, and no offset to fund an impending superannuation levy hike. Peter Strong, Executive Director of the Council of Small Business of Australia (COSBOA), also expressed concerns that the complexity of the system was not tackled. He said: "The demands placed on small business people to collect tax on behalf of employees (in the form of PAYG) and customers (in the form of GST) are too great."

The experts also remain unconvinced of the Government's capacity to meet its fiscal targets. According to Westacott: "The federal budget gives us no reason to believe the government's projected return to surplus in 2015–16 is any more deliverable than last year's promise that we would be in surplus this year." Likewise, Anderson sees the "pathway to surplus [as] wafer-thin and questionable." He considers the outstanding budget deficit as an indicator that fiscal policy is in need of overhaul: "This should begin with a 'root-and-branch review' of government spending, a detailed plan to restore the budget to balance and reform to regulatory, tax and workplace policy so that the burden of adjustment does not fall so strongly on monetary policy."

Looking forward, the Institute of Chartered Accountants Australia's (ICAA) Chief Executive Officer Lee White stressed that the focus must be on a sustainable tax system. "The nation's tax regime is a delicate balancing act. There are no silver bullets. The Government needs to build certainty around Australia's tax environment by proposing polices that will have a meaningful impact in the long term," he explained.

The changes that were unveiled have also attracted negative criticism. For Westacott, they "represent another lost opportunity to do tax reform properly, which risks reducing our competitiveness and affecting business confidence." The new thin capitalization rules in particular "run the risk of impacting on foreign investment, and potentially deterring companies from locating and investing in Australia. Piecemeal tax changes can add to perceptions of country risk when it comes to investing in Australia."

There was nonetheless some praise reserved for the decision to provide the ATO with additional funding for its compliance crackdown activity. Ashley King, Tax Controversy Lead Partner at Deloitte, said that the initiatives "continue a history of successful Government investment in ATO compliance activity, which famously commenced in 1996 with the creation of the High Wealth Individuals Taskforce and more recently led to the controversial cross-agency Wickenby Project, which has snared numerous high profile Australians who ventured to the wrong side of the tax planning track. We are now seeing a further shift to data analytics in the ATO, consistent with many sectors of the Australian and global economies."

TAGS: compliance | Wealth | Offshore | tax | investment | small business | business | tax compliance | tax avoidance | fiscal policy | gross domestic product (GDP) | employees | budget | corporation tax | Australia | ministry of finance | tax authority | tax planning | tax rates | dividends | tax reform

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