KPMG #Budget2017 predictions put the black economy, responsible expenditure and good debt vs bad debt at the top

Grant Wardell-Johnson, Leader, Australian Tax Centre

What will be the dominant themes for this year’s Budget?

The Black Economy will feature on Budget night with the purpose of raising revenue and seeking equity for business. This should lead to a stronger tax system. But there is a need to balance privacy and ensure the rules actually work.

Responsible expenditure will also be high on the list with the mooted discussion around ‘good debt’ (infrastructure with a positive ROI) versus ‘bad’ or recurrent debt.

Changes to company taxes

We believe there is a need to extend company tax reductions to all companies – there is no sound economic basis for providing lower rates only for smaller businesses.

We need to reduce the company tax rate to ensure we are competitive in attracting Foreign Direct Investment.  The US appears to be embracing significant company tax rate reductions (President Trump is proposing 15 percent and Paul Ryan, Speaker of House of Representatives 20 percent).

Tax reform

Grand tax reform has unfortunately stalled, but the government is at least addressing smaller areas of reform. More consistency is important on the employee/contractor divide where there are currently differences for income tax, super, payroll tax and workers compensation.

Significantly, the government is addressing the cash economy. This is vital for the integrity of the taxation system as people who pay their tax have a right to believe others are paying their share.

Research & Development 

The government’s intention is a more targeted scheme; increased ‘additionality’, that is a concession applies where R&D expenditure would otherwise not occur.

But while protecting the public revenue, it also needs to ensure it our R&D system is competitive and does not lead to companies moving their R&D offshore. This is a difficult balance to strike.

What’s changed from last year?

Last year’s Budget was about an “Economic Plan”, not just a normal budget (the word plan was used 29 times in the budget speech.

I query whether the broader community felt there was a mismatch between the “narrative” of the budget and what it sought to do?

This year’s budget has a quite different narrative – “equity and responsibility”.

What will this Budget mean for Australian business if it runs as we predict?

This Budget seems likely to have some positive and some negative measures for Australian business, rather like the curate’s egg – good in parts.

There are a few negatives that will impact some businesses: further tightening of thin capitalisation rules, R&D tightening, and modifications to 457 visas.

On the positive side, the government continues to seek company tax reductions (though these may not be politically possible) and is taking on the cash economy

What are some of the Budget measures that will help small business?

Small business will be greatly assisted by a level playing field in the cash economy. Currently those doing the right thing are at a disadvantage compared with those who are not paying their share of tax. Small business will benefit from company tax reductions.

Will the government demonstrate a clear plan to return to surplus in the Budget?

There is much more to do on the structural deficit with this budget benefiting from an increase in commodity prices.

On expenditure, we need to see greater efficiencies in health over the longer term. We are currently only dealing with changes at the edges. We need co-operation between the Federal Government and the States to achieve a high quality, but sustainable health system in the future.

These are only our predictions. The truth will be plain when the doors open on the Budget lock-up tonight at 7.30, the budget papers are released and the Treasurer, Scott Morrison speaks to the nation.

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