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Personal tax cuts central but a gender lens would be welcome

Tax cuts central but a gender lens would be welcome

Grant Wardell-Johnson, KPMG Tax Partner, said: “The centre-piece of the Budget is the personal tax cuts – and it is welcome to see action for both lower and middle earners given sluggish wage growth. There is a reasonable mix of immediate relief for those groups and longer-term structural reform aimed at higher earners.

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Personal tax cuts

The tax cuts have taken the form of Low and Medium Income Tax Offsets (LMITOs), so that lower and middle earners will be better off than under current arrangements. There is a rationale for this, given that personal income tax is now supplying its highest proportion of GDP since 1999/2000, via increasing bracket creep over the last 20 years.”

Gender equity

Grant Wardell-Johnson said: “KPMG would have liked to have seen more of a gender lens in this Budget. There are some helpful, fairly minor measures, but a lack of structural reform to address the gender pay pap – which is still $26,000 per annum on average – and a lack of affordable quality childcare is a major impediment to increasing female participation in the workforce. Addressing these problems could add billions to the economy.

Available money should be targeted to those people, mostly women, who are trying to work more hours but are stopped from doing so by the interaction of our transfer system and the tax system. Currently, many women experience very high effective marginal tax rates when moving from 3 or 4 days a week to 4 or 5 days a week due to loss of family and child benefits. There is a similar problem for older workers. Addressing these issues would have a short term cost but a long term benefit.”

Business tax

Grant Wardell-Johnson said: “Regrettably there is no movement on our corporate tax rate, which remains an uncompetitive outlier, internationally, and a drag on external investment into Australia. Company tax reductions for businesses of all sizes are vital in order to incentivise additional business investment and create jobs for the future. There is no sound economic basis for providing lower rates for smaller companies only.

There is a notable theme in the Budget of extra finance for regulators. Just over $1bn will be spent expanding the ATO’s Tax Avoidance programs with a view to bringing in an extra $4.6bn. But previous experience has shown a 1-6 ‘spend to save’ ratio is possible so this Budget estimate does not seem unreasonable.”

SMEs

Brent Murphy, KPMG Enterprise Tax Partner, said: “At the smaller/medium-sized business end they have extended and broadened the asset write-off, which is welcome. There is also an important deferral of any Division 7A measures for another year to 1 July 2020, which will allow additional time for further consultation with stakeholders. Currently, loans entered into prior to December 1997 are exempt from complying with these rules. Treasury previously suggested that such loans be subject to Division 7A, requiring repayments over a 10 year period. This would represent a retrospective change going back more than 20 years. We hope this will be reviewed after more consultation.”

Superannuation

Damian Ryan, KPMG Superannuation Partner said:
“We are very pleased to see the temporary tax relief provided to super fund mergers being made permanent. This was a case where tax policy contradicted the regulators’ push for more industry consolidation where funds are not meeting members’ needs and so is a welcome development. Income tax should no longer be a barrier to industry consolidation. Stamp duty, and the absence of rollover relief in some states, still needs to be addressed at a state level.

For individuals, the government will allow 65 and 66 year olds to make voluntary contributions to their superannuation without having to meet the work test. People aged 65 and 66 will also be able to utilise the bring forward three-year non-concessional cap, allowing them to put $300,000 in one lump sum rather than $100,000 per year over three years. This will improve the ability of older Australians to save for their retirement. It will also align the work test with the eligibility to the Age Pension at 67.

There is also a measure which proposes some technical amendments to the Government’s previously announced “Protecting your Super Package” – this extends to 16 months the period after which an account that has not received any contribution is considered inactive. This provides greater flexibility for members, particularly women, who take extended breaks from the workforce.”

Economics

Brendan Rynne, KPMG Chief Economist said: “At a broad level the economic forecasts contained with the Budget seem reliant on Australia lifting its productivity fortunes.

With the Treasurer forecasting real GDP growth of around 2.75 percent and 3.0 percent in the short to medium term respectively - while assuming no change in the participation rate and population growth of around 1.7 percent per annum - then multifactor productivity growth of between 1.0 percent and 1.2 percent would be sufficient for those GDP growth forecasts to be achieved.

Yet recent history tells us MFP has been sliding downwards, with capital productivity virtually flat and labour productivity growth also falling – in fact it looks like labour productivity has been negative in Australia’s market sectors in the second half of last year.

Some of the measures in the Budget should aid that productivity increase. The Government’s enhanced and expanded policy towards accelerated depreciation for small to medium businesses should help, at least to some degree, assuming the nearly 3.5 million SME’s take the incentive on offer and purchase new assets. We also know that if those SME’s spend that allowance on new high tech capital then labour productivity is likely to be boosted further.

Increasing productivity, lifting the capital-labour ratio and employing more high tech assets should also lift real wages in the process.

It is true that MFP is not the only cause of GDP growth – there can be a lift if workers get more hours or if there is a change in the composition of the economy towards higher productivity sectors. A healthy pipeline of infrastructure investment is also slowly starting to deliver.

But the key question for the Budget is whether the proposed policies reach deep enough across the whole economy, and also whether business has the confidence to take the money and run with it.”

For further information

Ian Welch
Associate Director, KPMG
T: 0400 818 891
E: iwelch@kpmg.com.au

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