Neil Billyard, Partner & National Head of Tax at BDO in Australia says the nation is overdue for a full ‘root and branch’ review of its tax system to ensure that it deals with the modern decentralised and digitised economy.
“Any such review could only be done in the next term of Government, and it is unlikely that any Government would commit to such a project in an election year,” he says.
“Hopefully, I am wrong and we will see something in the Budget but I expect we will continue to wait on this front.”
The huge impact the Russia-Ukraine conflict is having on oil prices has sparked calls for a reduction or a suspension in the fuel excise as petrol prices in Australia soar beyond $2 a litre.
Fuel excise nets the Federal Government 44.2 cents for every litre of petrol sold in Australia.
However, BDO tax technical national leader Lance Cunningham says while it will be tempted to provide a popular cut ahead of the election, it would not be a good policy decision.
“Most of the fuel excise collected goes directly to funding the maintenance of our road network, which is crucial following the damage to so many roads due to the recent east coast floods,” Cunningham says.
“If the Government decides a fuel excise cut is required to alleviate the current economic difficulties many businesses and consumers are facing as a result of fuel increases, any cut should be temporary with legislated stepping up of excise back to the current level over a fixed time frame. “
Mark Molesworth, Tax Partner at BDO in Australia says the Federal Budget will likely contain sure-fire sweeteners for voters such as an extension of the low and middle income tax offset (LMITO) and continuation of small business tax concessions.
“From a tax perspective, this is likely to be a purely performative Budget, with nothing enacted before parliament rises for the election,” he said.
“In that respect, we should expect all carrot and no stick for the masses. For example, this could be done through extensions of the LMITO (badged, yet again, as a ‘tax cut’) and a commitment to maintaining the small business tax concessions, introduced as a result of COVID, for another year.”
With gross government debt expected to exceed $1 trillion by the end of the decade, Molesworth believes we can expect to see some increased taxation measures that will be largely targeted at large multinationals or temporary residents who won’t sway election votes.
“In the realm of multinational taxation, we would hope to see a clear timeline from the government for the introduction of the legislation to enact the OECD’s Pillar 1 (taxation at customer location) and Pillar 2 (minimum 15 per cent global tax rate) measures,” he said.
“There will also be the usual announcement of at-the-margins integrity measures and additional funding to the ATO to show that ‘we are tough on tax avoidance’.
“But we don’t expect substantive tax policy announcements, which might be used to show a voter somewhere might be worse off, from either side. Both major parties appear to be running ultra-small target election campaigns, having learned what they think are the lessons of past polls.”
Molesworth also noted that the mid-year economic and financial outlook had $16 billion of decisions that had been taken but not yet announced.
“While we might hope that some of these might be long-overdue tax reform measures, we will not be holding our breath,” he said. “Top of our tax reform wish list would be:
- Changes to Capital Gains Tax (CGT) to ensure that the tax treatment of a gain does not skew economic decisions and to make CGT consistent with international competitors. Alternatives to consider include the reintroduction of CGT indexation or amend the CGT discount with a reduced discount percentage for short term gains and a staggered increase in the CGT discount percentage the longer the asset is held.
- The introduction of permanent investment allowances to encourage businesses to invest in income-producing business assets and arrest the effects of long-COVID on the economy.
- Changes to the company tax rate to remove the complex and counter-intuitive two rate system and ensure that Australia remains an attractive destination for international capital.”
“All-in-all we expect this Budget to be like many of its predecessors – it will bring forward narrowly focussed, piecemeal tax announcements and put big-picture, economy enhancing tax reform measures off to another day,” Molesworth said.
BDO will run a webinar to examine the key announcements from Federal Budget 2022 where tax and advisory experts will analyse the critical measures and issues handed down in Federal Parliament on March 29.
The webinar will be held on Thursday, March 31 from 10.30am to 11.30am or you can receive a link to the recording after it concludes.