Grant Wardell-Johnson, KPMG Tax Partner
“The centrepiece of the 2019 Federal Budget is the personal tax cuts – and it is welcome, given sluggish wage growth to see action for both lower and middle earners. There is a reasonable mix of immediate relief for those groups and longer-term structural reform aimed at higher earners.
The tax cuts have taken the form of Low and Medium Income Tax Offsets (LMITOs), so lower and middle earners will be better off than under current arrangements.
There is a rationale for this, given that personal income tax is now supplying its highest proportion of GDP since 1999/2000 via increasing bracket creep over the last 20 years.
But we would have like more of a gender lens in this Budget. Available money should be targeted to those people, mostly women, who are trying to work more hours but are stopped from doing so by the interaction of the transfer system and the tax system.
Currently, many women experience very high effective marginal tax rates when moving from 3 or 4 days a week to 4 or 5 days a week due to loss of family and child benefits. There is a similar problem for older workers. Addressing these issues would have a short term cost but a long term benefit. We need to focus resources on increasing female participation rates in the economy.”
Regrettably too there is no movement on our corporate tax rate, which remains an uncompetitive outlier internationally and a drag on external investment into Australia. Company tax reductions for businesses of all sizes are vital to incentivise additional business investment and create jobs for the future. There is no sound economic basis for providing lower rates for smaller companies only.
At the smaller/medium-sized business end the government has extended and broadened the asset write-off, which is welcome. This aims to negate Labor’s Australian Investment Guarantee, which gives a 20 percent write-off on all new investments.
There is a notable theme in the Budget of extra finance for regulators. Just over $1bn will be spent expanding the ATO’s Tax Avoidance programs with a view to bringing in an extra $4.6bn. But previous experience has shown a 1-6 ‘spend to save’ ratio is possible so this Budget estimate does not seem unreasonable.
Damian Ryan, KPMG Superannuation Partner said:
“We are very pleased to see the temporary tax relief provided to super fund mergers being made permanent. This was a case where tax policy contradicted the regulators’ push for more industry consolidation where funds are not meeting members needs and so is a welcome development. Income tax should no longer be a barrier to industry consolidation. Stamp duty, and the absence of rollover relief in some states, still needs to be addressed at a state level.
For individuals, the government will allow 65 and 66 year olds to make voluntary contributions to their superannuation without having to meet the work test. People aged 65 and 66 will also be able to utilise the bring forward three-year non-concessional cap, allowing them to put $300,000 in one lump sum rather than $100,000 per year over three years. This will improve the ability of older Australians to save for their retirement. It will also align the work test with the eligibility to the Age Pension at 67.”