This was a budget of few surprises.
The main revenue raisers are through the black economy measures – which we welcome. The extra money for ATO compliance is expected to gain a 10-fold return, and the crackdown on illicit tobacco and extension of the reporting regime to other industries is right – and necessary for the integrity of the system. People will pay their tax if they believe others are paying their share.
On bracket creep the measures to counter this are positive – bracket creep is currently low given low wage inflation, but assuming the Government’s projections on wage inflation are correct, it will increase in the future. Bracket creep as a solution to solving a structural deficit is a poor and deceptive one.
We also welcome the government’s determination to stay the course on company tax cuts for businesses of all sizes – which is vital in order to incentivise additional business investment and create jobs for the long term future. There is no sound economic basis for providing lower rates for smaller companies only. Inaction at the larger company sector make us unattractive in attracting inwards Investment in an era of globally mobile capital. A 30 percent tax rate makes Australia an outlier, especially after the US rate cuts.”
“We welcome the extension of the $20,000 instant asset write-off scheme in the Budget, but it was perhaps surprising it was only for 12 months, which could act as a cliff-edge.
KPMG’s recent survey of small and medium-sized enterprises indicated the scheme has not provided the hoped-for shot in the arm for many small businesses. More than two thirds of respondents indicated they had not utilised the increased threshold.
I suspect that the concessions are either poorly understood in the market, or regarded – fairly or not – as too complex and that the costs of compliance do not justify the potential benefits. Having only a 12-month extension may not help generate that clarity.
The same could probably be said of other incentives to encourage innovation in the business sector – nearly half our respondents believed the R&D incentives were not applicable to their businesses, and only 20 percent of the rest deemed them sufficient.
Lastly, the deferral of the introduction of Division 7A integrity amendments until 2019 is welcome so that businesses have the opportunity to consider the proposed legislation and its implications before its commencement date.”
KPMG is concerned that the Budget announcements surrounding the removal of default insurance in super for people under the age of 25, plus inactive accounts and small balances will damage the overall system for relatively little benefit.
“Given the Budget move also includes inactive accounts and small balances, as well as the under-25s, this will have a significant effect on the industry. We would estimate that the impact for inactive members alone could result in a 30 percent increase in premiums across the whole industry, given the average fund has an active member ratio around 68 percent.
KPMG’s report for the Insurance in Super Working Group last September showed overall, the default group insurance in super system produces substantial benefits both for members and Australia as a whole.
Adam Gee added: “Our modelling showed that the current system facilitates greater insurance coverage for a larger part of the population, which helps to reduce Australia’s long-standing underinsurance issue. Many more people are covered, and to a much greater degree, than if they relied on government support. Death benefits also allow the surviving spouse to carry on working rather than having to leave the workforce and look after children – an important societal and economic benefit.
The impact of the removal of default cover for under 25s on the remaining insured members in superannuation funds must also be considered. As superannuation insurance is a provided via a ‘group’ pooling arrangement, the removal of younger lives can only increase the overall risk of the whole insurance pool. As such, this removal is likely to result in an increase in insurance premiums for the remaining members, which is a surely not the intended outcome”.
As funds continue to grapple with the implementation of the Insurance in Superannuation Voluntary Code of Practice and the impact that this will have on the default insurance provided through superannuation for many Australians, the Budget announcements are likely to add further complexity and will have broader ramifications than appear to have been considered.”
Damian Ryan, KPMG Superannuation Partner adds: “After the significant reforms to the taxation of superannuation in the past few years, particularly the changes that applied from 1 July 2017, it was pleasing that there were no changes to the income tax settings this year”.
Australia’s destination as a desirable location to invest in R&D will be extinguished if these austerity measures are legislated.
Many Australian companies will have their present level of R&D claims more than halved as a result of the Budget action tonight.The proposed reduction of R&D tax incentives for many innovative companies may significantly impact companies with a turnover of $20m or more.
This may affect manufacturing, agribusiness and other industries. A key problem is that although the changes are only applied to future claims, projects have already begun with the R&D credits baked in and implementing changes now will inevitably have a retrospective effect.
Such companies may be forced to consider relocating their R&D to countries with more attractive incentives, such as Singapore and New Zealand.
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