The continued focus on the issue of carbon by the opposition has overshadowed the announcements regarding small businesses, infrastructure, capital gains tax and tax compliance contained in the budget.
The opposition argued that, by failing to mention details of the carbon tax, the integrity of the budget must be called into question. It contends that, by ignoring the carbon issue, a comprehensive fiscal assessment cannot be formulated.
Budget measures
The budget contained few surprises for taxpayers as most of the the major initiatives were already known. The government maintained its aim of returning to surplus within two years, though the deficit estimate of A$49.4 billion ($53.67 billion) was slightly above market expectations. Treasurer Wayne Swan said this was a consequence of the impact of the country’s recent natural disasters.
Small businesses received a boost. The government outlined proposals to allow owners to claim up to A$5000 as an immediate deduction for motor vehicles with effect from the 2012-13 income year. Also, the entrepreneurs’ tax offset will be abolished in the next income year. This was part of the government’s attempts to allay fears stemming from a rising Australian dollar.
Swan also sought to encourage greater private sector investment in the government’s Infrastructure Australia project, which has so far struggled to take off. Those who invest in infrastructure projects which are on the government’s national priority list will be able to increase tax losses at the government bond rate until the project starts making a profit.
Project losses will also be exempt from the continuity of ownership test to make investment more attractive.
There were attempts to boost revenue by increasing compliance. A number of the loopholes on capital gains tax were closed. The budget further outlined information exchange agreements with a number of low tax jurisdictions including Monaco and the Bahamas.
The reduced involvement of the Australian Crime Commission in Project Wickenby, a taskforce established in 2006 to counter tax evasion, may signify a change in approach towards obtaining unpaid tax as opposed to bringing criminal charges.
A straightforward budget
Overall the budget was fairly straightforward from a tax point of view.
"The government has been deliberately cautious not to introduce any major new reforms in view of the debate over the introduction of the proposed carbon tax," said Clint Harding, senior associate at Arnold Bloch Leibler.
Nonetheless, commentators still expressed scepticism about the government’s plans to eradicate the deficit so quickly. The government has forecast 4% growth for the forthcoming fiscal year and any slight downturn in the economy could jeopardise the plan altogether.
“We do have some concerns about some of the economic assumptions underlying the budget” said Tony Stolarek, a tax partner at Ernst & Young.
This is especially worrying since a number of the recommendations put forward by last year’s Henry Review of Australia’s future tax system have been put on hold for the time being at least until the Tax Forum in October.
"The implementation of a greater number of the recommendations contained in the Henry Review would have been welcomed," said Harding. "However, some comfort can be taken from the fact that at least some of the recommendations have been adopted."
"Our main concern is that the budget simply has not taken enough pressure off the economy, through greater spending cuts or otherwise, to address the inflationary pressures being experienced," said Harding.
Harding attributes these inflationary pressures to the resources boom, falling unemployment and the subsequent pressure on wages.
Advisers hope further tax reform is on the horizon and stress the importance of fiscal policy not obstructing this.
"The government will hold a forum to discuss future tax reform in October 2011. As further tax reform is considered, it is hoped that fiscal policy constraints will not unduly inhibit the introduction of tax reforms which are required for long-term future economic growth," said Rosheen Garnon, national managing partner, tax at KPMG Australia.
Environmental taxation
In terms of environmental tax, the commencement date of the A$1 billion tax break programme for improving the energy efficiency of buildings has been delayed until July 2012 in response to industry concerns.
Most conspicuous by their absence were the provisions regarding the carbon tax, which is likely to be the main talking point from Budget 2012-13.
“Unfortunately the budget does not specifically address the issues and likely impacts of the proposed carbon tax or the minerals resource rent tax," said James Newnham, partner in the tax group at DLA Piper Australia.
The carbon tax is supposed to be revenue neutral, but the economic impacts of the tax have gone completely unmentioned. The budget speech could have been the ideal platform from which Gillard’s government could justify the controversial carbon plans and outline some of the specific details of the policy.
“These processes have not been part of the budget deliberations and are not mentioned in the budget forecasts for future years. This has been criticised on the basis that the carbon tax will be significant in future years,” said Stolarek.
Frustration and concern will only increase following the failure of the Treasurer to inform taxpayers of the scope and specifics of the plan.
The debate over the carbon tax has gathered pace the longer government has refused to take decisive action, leading to a number of protests last month. This will most likely continue until further clarification is given.
For once it is the omission of carbon, not the emission of carbon, that has caused a stir.
