The Government has written an election manifesto dressed up as a budget as it looks ahead to the double dissolution on 2 July.
A year ago there was a lot of optimism that this budget might begin the process of genuine tax reform, but political expediency has reduced it to more tinkering at the edges.
This is very much a budget from a Government whose first, second and third priorities are to get re-elected.
It’s now more than a decade and a half since our tax system has seen any meaningful tax reform and it’s hard to feel too positive about the chances of anything significant occurring in the near future.
Although measures like further cutting taxes for small business, winding back superannuation concessions, and progressively moving the corporate tax rate to 25% were positive, they didn’t do enough to address the broader structural issues facing Australia’s tax system.
Providing further tax relief to small businesses – and raising the eligibility for that relief to turnover of up to $10 million is admirable, but a more holistic approach to tax could have achieved so much more.
Certainly no business is going to say no to a tax cut, but that doesn’t mean we haven’t missed an opportunity to truly address the way our tax system holds business back.
And while some of the Government’s changes to reduce superannuation concessions were positive, others will disadvantage those who have planned their retirement around the existing rules.
Limiting the amount of pension assets to $1.6 million is understandable. But lowering the concessional contributions cap to $25,000 and introducing a lifetime cap on non-concessional contributions to $500,000 will be huge blow to many who are close to retirement, especially given the lifetime cap is being backdated to 2007.
The increase in the small business entity turnover threshold is a welcome change for many businesses as it will allow greater access to concessions which had limited application to businesses with turnover of less than $2 million.
However, the change in threshold also introduces more complexity and questions as to which concessions will apply the new threshold. For example, the Government has indicated that $2 million threshold will be retained for the purposes of the small business capital gains tax concessions, and the new $5 million threshold for the small business tax discount will add further complexity. Multiple thresholds increase complexity and confusion no matter how well intentioned they are.
Mark Molesworth, Tax Partner, BDO Australia
