The budget included a tightening of the thin capitalisation regime governing the acceptable level of gearing for companies, as well as restrictions on the mining industry in the form of amended tax breaks for mineral exploration expenditure - a move that Leon Mok, executive director at Baker Tilly Pitcher Partners, says will "further exasperate the important resources industry".
Against a backdrop of tumbling tax receipts, Swan delivered a budget that could not be described as overly business-friendly.
"Company taxes, capital gains tax, resource rent taxes have all been hit," said Treasurer Wayne Swan in his budget speech. "We've seen almost A$170 billion ($166 billion) wiped off our tax receipts since the GFC. The tax-to-GDP ratio in 2013-14 is estimated to be 22.2%, 1.8 percentage points lower than the average of the five years before the global financial crisis. It's as simple as this - if we were taxing Australian families and Australian businesses like our predecessors did, we would have an extra $24 billion in taxes in 2013-14 and be comfortably in surplus."
Jennifer Westacott, BCA chief executive, said that while her organisation fully supports the theme of the budget around growth and jobs, she wanted to "remind government that these things are driven by a strong business sector", hinting that Swan should have done more to support Australian businesses.
"Businesses, large and small, need consistency, credibility and, as far as possible, predictability in the fiscal, regulatory and tax environment," she said. "It is only this approach that builds confidence among businesses to invest and hire."
Businesses had hoped the budget would include a reduction of the corporate tax rate. Swan and Prime Minister Julia Gillard previously announced that a rate cut was necessary and under consideration, but later backtracked on that stance.
"To put this into context," Swan told International Tax Review in an exclusive interview in November, "we did propose a [corporation] tax cut, but incredibly it was blocked by the Liberal Party."
Westacott also said it was unfortunate that the budget included a number of changes to business tax arrangements that were previously rejected by the Business Tax Working Group (BTWG).
"If you are going to make changes to the taxation system, it needs to be done carefully and cautiously, and as part of a more comprehensive process to make the whole tax system more competitive," said Westacott.
"The business tax changes announced represent another lost opportunity to do tax reform properly, which risks reducing our competitiveness and affecting business confidence," she added.
Impact on investment
The BCA is particularly critical of the thin capitalisation reforms, which will see the safe harbour limit reduced from 3:1 to 1.5:1 on a debt-to-equity basis for general entities and the worldwide gearing ratio reduced from 120% to 100%.
"The changes to thin capitalisation rules run the risk of impacting on foreign investment, and potentially deterring companies from locating and investing in Australia," said Westacott. "Piecemeal tax changes can add to perceptions of country risk when it comes to investing in Australia."
However, taxpayers do not think the budget announcements will hamper investment into the country particularly, though some feel more could have been done to implement some of the reform measures outlined in the Henry Review.
"BP believes there is a need for a national conversation on the whole tax system, not just business tax, and would agree with commentators who are suggesting the budget is a missed opportunity to commit to genuine long-term tax reform aligned to the principles of the Henry Tax Review," said John Condon, regional tax manager for BP in Australasia.
