The Ship is slowing down but the captain is set on the same course.
Forecast Federal Budget Surplus cut by half
The 2019-20 mid-year economic fiscal outlook (MYEFO) released on Monday 16 December 2019 shows the government is maintaining a budget surplus for 2019-20 but it has been reduced from $7.1 billion to $5 billion. While this is not a dramatic drop, the forecasted four year cash balance surplus looks a lot worse with it being cut by half in MYEFO compared to the 2019-20 Federal Budget forecast with the four year forecast balance being reduced from $45.1 billion to $23.5 billion.
While the MEFO document indicates the Australian economic activity is expected to expand and the labour market remains strong and domestic demand is expected to be strong, it is not doing as well as expected just six months ago in the 2019-20 budget as evidenced by the halving of the expected budget surpluses over the next four years. This is attributed by MYEFO to the lower than expected forecast tax collected from GST and income tax from superannuation funds, individuals and companies. The causes of which include a weakening Global economy, drought and fires.
On the positive side, the Government expects to see mining investment to grow for the first time in seven years. If this transpires, it will be good for the mining intensive regions but we need more than another short-lived mining boom to ensure the Australian economy is fit for the 21st century. With the Global, economy looking as shaky as it is we should be looking at other ways to strengthen and broaden our economic base by finding ways that encourage innovative and forward thinking industries.
Another lost Tax Reform opportunity
Unfortunately, the Government did not take the opportunity to take heed of the many calls for tax reforms and regulation simplification coming from corporate leaders, industry bodies and the tax, accounting and legal professions.
BDO will be lodging a 2020-21 Pre-budge submission calling on the Federal Government to reinvigorate the Tax Reform agenda with a focus on how the tax system can be simplified, be more equitable and efficient (acknowledging there are conflicting aspects of these three goals). Tax reform is not just about tax rate reduction, it entails a rational identification of how all aspects of the tax system interact with each other and with the economy and to identify how to ensure the appropriate amount of tax is collected from the right entities without causing much distortion to the economy.
Tax changes in MYEFO
There is only one minor tax change announced in MYEFO that was not previously announced, which is the provision of a discretion to the Commissioner of Taxation to direct taxpayers to undertake an approved training course on record keeping instead of being subject to financial penalties. While the Commissioner already has a discretion to remit penalties, where he sees fit, this announcement allows him to make such a remission contingent upon the taxpayer undertaking record keeping training.
Following on from our comments above about tax reform and regulation simplification, this is an example of where the tax record keeping and registration requirements are so complex that taxpayers need training in relation to them. Rather than add another layer of red tape – another decision that the Commissioner needs to make - it may be preferable for the Government make the rules easier to comply with.