The Treasurer Joe Hockey has flagged that a structural overhaul of the economy is required to prevent a "decade of deficits."
The Mid Year Economic and Fiscal Outlook released in December stated that the Budget wouldn't get back into surplus "even if there are no tax cuts for the next 10 years."
At the very least, we should expect the May Budget to be more like a renovation than a refresh with all options on the table. Welfare is a likely target, so are any concessions or benefits out of alignment with the overall tax system.
In addition to the big picture tax changes flagged during the election to repeal the mining tax and carbon tax (both Bills are currently before the Senate), we can expect a focus on:
- How money moves between individuals, companies and trusts and the tax paid;
- Non-residents; and
- A renewed attempt by the ATO to try and recover the almost $18b of tax that is currently owed.
It's also likely that there will be a fairly heavy focus on revenue raising in 2014 alongside the structural changes.
Mr Hockey has made it very clear last October that it's "time to live within our means" and that Australia needs to learn from the US budget crisis last year. It remains to be seen just how this will take shape in 2014.
While there will be a heavy focus on revenue raising over the next few years, the Abbot Government has adopted the American concept of a 'repeal day', planning to axe more than 8,000 redundant Federal laws to reduce red tape. The repeal day is scheduled for the House of Representatives on 26 March, following the introduction of an omnibus red tape reduction bill and a series of specific deregulation bills on 19 March.
The repeal day follows the scrapping of 71 unlegislated and unresolved tax and super announcements late last year.
Among the items scrapped were the Gillard/Rudd Government's announcements to cap self-education expenses at $2,000, removal of the statutory method for car fringe benefits, and changing tax on earnings on super assets. For small business, many of the concessions encouraging the purchase motor vehicles or investment in business assets have either already gone, or are likely to go.
Other measures not proceeding include:
- Research and development tax incentive – quarterly credits;
- Capital gains tax relief for taxpayers affected by natural disasters;
- Symmetric treatment of bad debts.
Some measures however will proceed.
- Capital gains tax treatments that affect "earn out" arrangements
- Capital gains tax treatment of some compensation payments and insurance policies
- GST reverse charge for ongoing concerns
If the mining tax is abolished, a number of small business tax concessions will also go. For example, the immediate deduction for depreciating assets costing less than $6,500 will be reduced back to the old rate of $1,000. The start date for this is intended to be 1 January 2014.
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Last updated February 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.