The Prime Minister calls the “families package” the centrepiece of the upcoming budget with child care facing “significant changes.” While the Government has stated that this will be a better deal it is likely to be a reformulation of how child care support applies. If the budget measures follow the Productivity Commission’s recent recommendations the Government will introduce a single means tested and activity based system.
The Minister for Social Services, Scott Morrison also recently released details of an in-home nanny program to support shift workers. The two year trial will support home care for children of shift workers, such as nurses and police, etc.
Paving the way for the Government to change how superannuation is taxed, Australia’s leading body for the superannuation industry, the SMSF Association, recently stated that, “The tax treatment of very high account balances should be the starting point for discussions around adjustments to superannuation tax concessions, rather than blanket changes that impact on all members.” Their analysis of very high superannuation account balances found that 24,000 SMSF members in the pension phase with balances in excess of $2m received around $5.2bn in tax-free income stream payments, or an average of around $216,000.
The Labor Party also recently supported changes to how super is taxed recommending that earnings of more than $75,000 during the retirement phase are taxed at a concessional rate of 15% instead of being tax-free. And, the recent Tax Discussion Paper also stated that the Government should equalise the way savings and investments are taxed including superannuation.
In effect, the Government has the support of the leading professional body and the Labor party to change the way superannuation is taxed, particularly if change is targeted at high income earners.
From a policy perspective, it’s hard to argue that high income earners should access tax concessions on superannuation beyond the need to have certainty about superannuation policy. If the way super is taxed is not altered in this budget, it’s highly likely it will be reformed in the near future – most likely as part of the Government’s response to the Tax Discussion Paper.
Like superannuation, the Government appears open to change that targets the asset rich. Currently, couples with a family home and assets up to $1.15m qualify for a part pension. The Australian Council of Social Services (ACOSS) has recommended a reduction in the assets test for home owners and an increase in the taper rate, effectively reducing the pension amount available once the threshold is passed.
The Prime Minister recently announced that the planned 1.5% company tax rate reduction will be scrapped for all but small business. Small business is expected to be a focus in the upcoming Budget with a small business package.
It’s also likely that research and development to foster “innovative” start-up initiatives will receive a boost. Treasurer Joe Hockey has said that, “there are a number of things we can do to help start-ups and we’ll be saying more about that in the upcoming Budget.”
GST on online purchases and services
To increase GST revenue, the Government has the option of trying to force through a GST rate increase with State and Territory approval or broaden the base. High on the list is applying GST to revenue earned from online and digital businesses.
On 9 April, Treasurer Joe Hockey said, “GST should be charged at the source, so a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services.”
That is, if you are an Australian resident and purchase a good or service then tax should apply in Australia as opposed to where the business is domiciled. This issue is likely to be broader than just the $1,000 threshold for goods purchased from overseas and Netflix but a review of how tax applies to intangibles. It’s a question of when these measures will apply – either in the Budget or as part of the broader tax review.
‘Googletax’ or Multinational tax crackdown
The Treasurer has said that, “It is vitally important, vitally important that a business, wherever it is located, pay tax in the jurisdiction where it earns the income.” In April, the UK introduced a 25% tax on diverted profits created by activity in the UK. The intent is to “target large multinational enterprises with business activities in the UK who enter into contrived arrangements to divert profits from the UK by avoiding a UK taxable presence and/or by other contrived arrangements between connected entities.” The new tax rules apply to entities with sales revenue in the UK greater than £10m.
If the Government acts on this issue in the Budget instead of waiting for the tax review, it’s likely we will see this UK style of tax apply.
Tax on bank deposits
The Assistant Treasurer has indicated that a bank deposits insurance tax will be introduced to create a fund to protect against a collapse of the banking industry. The concept was previously announced by Labor prior to the 2013 election.
We’ll keep you updated in our review released the morning after the Budget.