Federal Budget 2018-19
While the 2018 Federal Budget has handed down a number of measures that are welcomed, particularly for battlers, baby boomers, and craft beer brewers, the pilgrimage to real tax reform continues to be overshadowed by what seems to be a detour towards the next election. In our Tax Reform Survey conducted recently, 79% of respondents stated that tax reform should not be beholden to the electoral cycle. So it is disappointing that this opportunity for holistic tax reform has been lost to short term political realities.
The announced personal income tax cuts, while providing some relief to lower income earners (although if you stop for refreshment you’d have to choose between a hamburger or a milkshake – you can’t have both #takemytendollars), unfortunately serve to inject more complexity into the system. Middle to high income earners don’t see any significant relief until 2024 – which is two electoral cycles away. At a time when our tax system should be made more simple, measures make the journey for real reform a longer road to travel.
Where this budget over-delivers is in its pursuit of tax ‘integrity’ in all shapes and sizes. The measures designed to target the black economy are overdue. Denying a tax deduction to businesses that fail to withhold tax from employees’ wages and payments to contractors is a measure that should be given an inside lane through parliament. It is easy to determine compliance and does not impose costs on businesses that do the right thing.
On the other hand, the proposal to deny deductions to holders of vacant land offends against a central tenet of the design of our tax system. It is also hard to apply at the margins and imposes compliance costs on taxpayers who are doing the right thing. If it has justifications, they are not evident from the budget papers. This measure should be given a long drive off a short pier.
The new R&D announcement will mean our global competitiveness in attracting innovative companies will continue to suffer, mainly because companies cannot be certain of their tax outcomes before they spend money. We want Australia to be seen as a popular destination for business. Instead, we run the risk of becoming a sleepy backwater, by-passed by the highway of technological advancement.
Despite this year’s budget representing yet another disappointing lost opportunity to reshape our tax system, and like a nagging toddler from the back seat, BDO will continue to advocate for holistic tax reform. With real reform still firmly entered in our GPS, we only hope the Government doesn’t lose the signal, otherwise we may run out of gas before we get there.