2016-17 Federal Budget: what can we expect?

The Government is relying on the 2016-17 Federal Budget to provide a launching pad for the election campaign; to re-frame public focus on the Government’s economic leadership.

By concentrating their policy announcements to 3 May, the Government is planning to capitalise on the exclusive focus the media gives the Federal Treasurer in ‘setting the scene’ for the Government’s agenda and will use the opportunity to dominate the tax and tax reform debate.

Whilst there will not be a tax reform ‘big bang’ policy through a change in the tax mix (from income taxes to GST), we are expecting a significant number of tax announcements on the night. We know there has been much work done behind the scenes in developing tax policy, particularly given public comments by the Chair of the Board of Taxation Michael Andrew back in March that the Board of Taxation had been working closely with the Treasury on a series of policy positions which were with Government.

“I’ve never signed so many documents in my life as in the last few weeks about confidentiality,” he said. “I think if nothing else comes out of the existing process…. there is a series of really well-researched, well-argued policy positions, which will either manifest itself in a statement relatively soon by the government but equally [might surface] in coming years.”

In recent speeches by the Treasurer and Prime Minister, they have indicated the 2016-17 Federal Budget will be framed around the following themes:

  • Changes to the tax system designed to generate jobs and growth; promote investment, innovation and enterprise
  • ‘Living within our means’
  • Fairness

The Government already announced back in December 2015 a series of tax and other incentives to encourage innovation as part of its National Innovation and Science Agenda (NISA).  Already in Bill form are incentives for investors in the form of a tax offset to eligible investors and a CGT exemption for shares in early stage innovation companies. Exposure draft legislation has been issued for a new similar business test (to more easily recoup losses) and consultation is occurring on a new option to self-assess the tax effective life of acquired intangible assets.

We know infrastructure funding is a focus, given recent announcements for major projects in both Victoria and Western Australia.

It is also possible there will be further announcements to incentivise investment, and some changes to improve the efficiency of the taxation system (such as simplification type announcements).

Federal Budget

In relation to corporate tax and, in particular, multinational tax, we are anticipating announcements about:

Given the hot-button political status of multinational tax, it could be expected there may even be further announcements in that regard.

We also expect (likely modest) decreases to the company tax rate could be announced, to be phased in over the medium term.

When the OECD announced the BEPS proposals in respect of interest deductions (Action 4) in October 2015, the initial response from Government was that our thin capitalisation settings were appropriate (having been recently tightened in 2014). Based on these comments, no further change was expected. As the multinational tax focus has continued to play out, it seems now that there could be some tightening of the thin capitalisation rules, with mooted changes in the safe harbour ratio from 60% (debt to assets ratio) to 50%.

Based on the experience in 2014, it is not expected that there will be any grandfathering in respect of existing debt. It will also be key to look out for whether the arm’s length debt test and the worldwide gearing tests are maintained in their current form.

The Coalition seems keen to reign in some of the excesses of superannuation, in the form of some limitation of contributions or an increase in the tax rate applicable to some contributions (for high income earners).  For more information about possible changes to superannuation settings see another of our recent Deloitte Blogs.

We are not expecting any changes to the CGT discount, nor substantial changes to negative gearing.

Perhaps as never before, tax is central to the political debate, the expected election campaign, much media focus and international reforms through the OECD. To paraphrase the Prime Minister, there has never been a more exciting time to be a tax practitioner!

As with every year, stay tuned on Budget night for all the detail.

 

For immediate insight into the impact of the Budget announcement, pre-register for our upcoming webinar on 4 May 2016 and to receive a Deloitte Federal Budget Report 2016.