Mark Molesworth, Tax Partner at BDO in Australia said the financial support provided to many Australians through the JobKeeper scheme, the reopening of borders and subsequent recovery in the economy, has afforded a healthier than expected outlook.
“Whilst there are still risks for parts of the economy, in particular tourism and hospitality, and with some setbacks to the vaccine rollout, it’s certainly a rosier outlook than the Treasurer would have predicted when he delivered the last budget in October,” he said.
“This year’s budget will be a ‘Push Me Pull You’ scenario. The need for budget repair will push the Government in one direction, but the whiff of an upcoming election will pull them in the other.
“Australia currently has a 20th century tax system operating in a 21st century economy. We need to change the settings to provide a stable tax base even during a downturn like the one we have experienced with COVID19.
“However, there are likely to be tax sweeteners for voters, in particular personal tax rate cuts for middle income earners, with more than *10 million Aussies earning under $120,000 due to face a tax hike from next financial year.
“The Government will be looking to spend money on the policies that will help them win at the polls in 2022. We can therefore expect to see the following issues feature strongly:
- Gender Equality – female friendly proposals such as making superannuation payments on paid parental leave
- Implementing Aged Care Royal Commission recommendations such as allowing people to stay in their homes longer and receive care there if they choose, rather than moving into a residential facility
- Implementing recommendations form the Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability
- Climate Change Policy – Prime Minster Scott Morrison recently commented that Australia was not going to meet its climate change targets through punishing taxes. Further investigation is needed on the continuation of the luxury car tax, which has had a direct impact on the uptake of electric vehicles.
“It’s unlikely, but we’d welcome changes to the Goods and Services Tax (GST) to broaden its base, and changes to the financial support given to the State Governments in order to allow them to remove the duty on land and business transactions and by streamlining payroll taxes.
“On Budget night we also may see:
- Changes to Capital Gains Tax (CGT) rollovers to incentivise business restructures and changes to CGT discount to a lower amount
- Targeted sector incentives to assist those still affected by the pandemic – such as a rejig of the JobMaker scheme to improve take-up
- Higher income earners and companies are likely to be the ones tapped on the shoulder to pay for some of this
- Division 7A changes to bring currently grandfathered loans into the system and increase tax revenue as a result
- Company tax rates in the rest of the world are rising, making Australia more competitive. The government would be wise to look at other incentives to have businesses set up in Australia, including potentially using some of the Research and Development Tax Incentive (R&DTI) levers.
“When it comes to superannuation, the chances of stopping the superannuation guarantee increase to 10% on 1 July is very low as the deadline is now too close. Instead, they may focus on reviewing the timetable for future increases and perhaps look at trading off other changes, such as the base on which contributions are made.”
Watch Mark’s pre-Budget predictions video below, or view on YouTube.