Buddy, can you spare $12 billion?DOWNLOAD
29 April 2013: Today’s address by the Prime Minister to the Per Capita Reform Forum at the National Portrait Gallery saw her reveal the size of this year’s revenue shortfall at $12 billion.
Where did the dollars go?
The PM didn’t say where the money went missing, but preliminary Deloitte Access Economics analysis identifies the 2012-13 shortfalls in the chart below.
The three big shortfalls versus Treasury forecasts are all in ‘profit-related’ taxes – company tax, resource rent taxes (a group which includes the new mining tax) and ‘other individuals’ (which covers tax on unincorporated small businesses, as well as tax on interest, dividends and rent).
That is no surprise: According to the Bureau of Statistics ‘company profits before tax’ fell by 17% through the course of 2012 as the high $A and falling prices for the likes of coal and iron ore ate into business profitability.
What does a $12 billion Budget shortfall mean?
There’s another thing the PM didn’t do, she didn’t indicate just how large the Budget shortfall is in practical terms. Although we don’t need to do it tomorrow, or next year, Australia’s Government needs to get back to paying its way.
But filling a Budget hole of $12 billion a year will require some difficult national choices.
For example, it would require one of the following.
If the shortfall was made good entirely from spending:
Or if the shortfall was made good entirely from taxes and ‘tax expenditures’:
Yet that isn’t the conversation that our politicians are having with us
Each of the above options would be really ugly.
Yet it is vital that Australians begin this conversation with ourselves, because our politicians aren’t. Labor is busily talking about new spending on schools and disability insurance, while the Coalition is talking about rolling back the carbon and mining taxes.
So both sides are still talking about extra costs to be loaded on a Budget that is yet to make up a $12 billion shortfall.
So, what can we expect from the Budget…?
Gone are the days where the purpose of revenue raising proposals was to fund a cut in the corporate tax rate. Obviously, the cut is off the table.
We’d expect that corporates will be targeted to (in part) plug the gap. Previously proposed revenue-raising measures (that were rejected by the business community last year) may be given new life in this year’s Budget.
We expect there could be a reduction of the thin capitalisation safe harbour from 75% to 60%. This would have a potentially significant impact on business by denying interest deductions available to both Australian and foreign companies.
We also anticipate measures targeted at the resources industry, including:
Yet even these would provide only a fraction of the dollar shortfall in question here. Besides, there was no consensus among taxpayers on any of these measures during last year’s consultation process; undoubtedly, many large corporates would be disappointed with these measures, which could adversely affect the international competitiveness of Australian-based multinationals and the resources industry.
At the same time, there is an ongoing dialogue on the base erosion and profit shifting rules targeted at foreign multinationals, which may manifest in a new tax regime applicable to e-commerce and technology companies in Australia.
We can do better than that – join our Budget events and conversation
Australia deserves a better conversation.
Yes, there are hard choices ahead, but they need to be informed choices.
Deloitte will keep you connected to the critical conversation via the following:
Pre-Budget events. On May 7 (in Sydney) and May 8 (in Melbourne), Deloitte will have Henry Ergas, Chris Richardson and Vik Khanna having a real Budget conversation – one which will canvas the Budget backdrop that Australians may not otherwise hear until after the Federal election.
Media who would like to attend a special Pre-Budget event briefing on Tuesday May 7 should contact Vessa Playfair (+61 2 9322 7576) or Johnny Sollitt Davis (+61 2 9322 7256) – places are strictly limited.
Pre-budget webcast - For those who miss out on attending, the event will also be recorded and released as an exclusive pre-budget webcast on Friday 10 May. Sign up now for your copy via our Deloitte website at www.deloitte.com/au/federalbudget.
Twitter - We’ll also keep you connected in real time via our Twitter feed @federalbudget and via our free iPhone app, tax@hand. Stay connected to exclusive analysis of tax changes as they happen. Visit the iTunes app store at tax@hand app.
Budget Alert - And finally, our full Budget Alert the morning after the 14 May Budget will contain economic analysis as well as the thoughts of Australia’s leading team of Tax analysts (Vik Khanna, Mark Goldsmith and Peter Madden) and Small Business experts.
In the meantime, keep the following list handy ...
Deloitte federal budget Twitter feed: @federalbudget
Deloitte federal budget website: www.deloitte.com/au/federalbudget
Deloitte tax@hand app: iTunes - tax@hand.
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