Despite the fact the Government’s 30% tax concession for capital spending has not been made into law yet, it appears to have been reasonably successful at encouraging businesses to invest and pump a bit of money into the economy. Business groups including the Australian Chamber of Commerce and Industry would like to see the concession extended past the 30 June expiry date.
The other big measure business groups want is a reduction in payroll tax. While this is a state-based tax, the Federal Government could find a way to compensate the states for a reduction. Highly unlikely, but it is one budget initiative that would win Labor the SME vote almost instantly.
Prime Minister Kevin Rudd has shown that he is not afraid to introduce means-testing to social services, as evidenced by changes to the baby bonus last year, and it is likely he may do so again.
It has now almost certain that the health insurance rebate will be means-tested, with individuals earning over $120,000 to be targeted.
Expect parental assistance and family-based payments, such as the two family tax benefits and the childcare tax rebate, to be hit with the same treatment.
The scrapping of the $700 million Commercial Ready scheme was one of the most controversial measures of last year’s budget. The Government had promised to replace the scheme following a review of Australia’s innovation system by former CSIRO director Terry Cutler.
But the Government has still not managed to respond to Cutler’s report (released in September last year) and has gone very quiet about the prospects for new innovation programs in this budget.
This is one area that business will be looking for some leadership from Rudd and Industry Minister Kim Carr, who has aggressively campaigned for support for the dying car sector but done little in the area of research and development, support for early-stage ventures, or tax breaks for innovation.
Also in the firing line is a tax loophole that allows holiday home owners, who rent out their properties for only a few weeks a year, to claim a $30,000 deduction.
Tightening the regulations in this area would affect holiday home owners who rent out their property only in the few peak holiday weeks, then live there themselves the rest of the time. Tuesday’s budget may only allow them a $2000 deduction.
Hayes Knight senior partner Greg Hayes predicts the move will save $700 million over four years, and that it could be easily implemented with data that the tax office already possesses. But it could also force property owners to give up some second homes, and flood the market.
Both Prime Minister Rudd and Treasurer Swan hinted recently that the Government would include a “third stimulus package” in the budget.
It’s likely that the package will infrastructure-based, with Infrastructure Australia handing its national priority list of infrastructure projects to the Government just last week. The projects will likely include funds for roads, rails, tunnels, ports and other water-based infrastructure.
The Australian has reported that about $25 billion will be spent on new infrastructure in the budget, with the Building Australia Fund expected to pay for new projects, including a freight railway between Brisbane and Melbourne.
Federal Treasury has an absolutely appalling record with economic forecasting (most budget surpluses in the last decade have been revised substantially after the budget) but this year’s forecasts will be closely watched. How deep does Treasury think the recession will be? How high will unemployment go? How big will the budget deficit get in the next few years?
Swan and Finance Minister Lindsay Tanner have promised to provide five years worth of forecasts in this budget, as opposed to the usual four, so that should give us food for thought about Australia’s medium-term outlook.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
