The Treasurer is going to dig, tunnel, fly and power out of a deficit but not much for small business tonight

Mark Molesworth , Partner, Tax |

09 May 2017

Mark Molesworth, Partner with tax experts BDO, said the Treasurer has  flagged his intention to dig, tunnel, fly, and power its way out of a deficit with the launch of its  A$75 billion infrastructure plan.

“Building infrastructure for the future of Australia - and borrowing where necessary to do so - is a good solution for the government, so long as the chosen projects increase productivity in the economy.”

“It will be the Millennials that will see whether the right projects were chosen. This trend to use debt for infrastructure should solidify Australia’s position with the credit agencies and foreign exchange markets.

Projects announced include: A new airport in Western Sydney; acquiring greater or outright ownership of the Snowy Mountains hydroelectric scheme and then expanding it; upgrading highways across the nation; and funding for a Melbourne-to-Brisbane inland railway.

Apart from this, tonight’s budget does not offer much for business Mr Molesworth continued …

“It’s a bland budget because the Government feels that they’re on track for budget repair. To assist that they’ve hit the banks but they realise they need to spend on infrastructure to ensure that Australia is more productive in the future.  Also, the Government has responded calls to do something about housing affordability; they’ve made some changes tonight that are within their power, outside cutting back negative gearing or reducing the CGT discount - which is consistent with responses in the BDO pre-budget quick poll.

“It’s a bit of a quick sprint to the finish line for housing affordability but still an endurance race for any real tax reform”

“Apart from the plant and equipment concession that will now be available to more small business (those up to $10m turnover) for an extra year there is not much for business in tonight’s budget.

Mr Molesworth identified the main budget themes …

Taxing and regulating the big banks more heavily; but it remains to be seen whether this simply increases costs to borrowers and depositors.

An attempt to address housing affordability issues by ‘nudging’ behaviour, often using the existing superannuation and investment system; using the tax system in this way is tricky because the system is a very blunt instrument and the second order effects on behaviour cannot always be predicted.

Funding the ATO to crack down on consistent non-compliers in the system; and in addition to outright criminals, in particular targeting those in the courier, cleaning and property development industries