The 2007-08 Federal Budget won’t cause too many problems.
There’s nothing as dramatic as last year’s sweeping super changes: there’s a big boost to education and training, tax cuts and lots of small things.
Here’s an eclectic collection of measures that might have some impact for investors and corporates, large and small.
Firstly the economy and as the Reserve Bank and the National Australia Bank have outlined, the economy is going well so it’s no surprise that the Federal Government confidently says Australia’s 16-year economic boom is set to continue.
According to Treasury forecasts in the budget papers economic growth is expected to rise from 2.5 per cent to 3.75 per cent in the 2008 financial year, with a partial recovery from the drought contributing 0.5 percentage points.
That’s about what the RBA suggests will happen although it is a little more circumspect about the recovery from the drought. Based on current weather conditions, you’d have to be a bit of a pessimist about that
The commodity boom, which has fuelled higher incomes, is also set to continue and Australia’s terms of trade – the prices we receive for our exports relative to what we pay for imports – is forecast to remain at near 50-year highs (The RBA and the NAB believe the terms of trade will fall this year).
With more people in or looking for jobs than ever before, the jobless rate is set to remain near 30-year lows, rising only slightly to 5 per cent as people on disability support pensions and parenting payments move into the workforce.
That will be a function the Government hopes, of the tax changes announced in the budget.
Inflation is expected to remain in the middle of the Reserve Bank’s comfort zone of 2.5 per cent (no surprise there).
In his address to Parliament Treasurer Costello said the budget was investing in education, skills, in road and rail, and sharper work incentives that would “drive further economic growth”.
The treasurer said that many other new measures – the extra spending on education and training, preventive health care, child-care subsidies, road and rail, and water security – will, in time, help expand the economy’s production capacity.
“The result is that the budget should boost the Government’s standing in the polls without putting any significant upward pressure on interest rates and while helping to expand the economy’s production capacity”
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Among the changes for business is the move to remove the $100 million cap on the same business test (SBT).
This will allow all companies to access the SBT to determine whether a loss can be deducted against future income.
This measure will apply to losses incurred on or after 1 July 2005. This commencement date avoids creating additional compliance burdens on affected taxpayers.
These will help big business and the resources industry in particular where many companies have hundreds of millions of dollars in accumulated tax losses.
Taken with the capital changes from the new ratios for the banking system there could be some sustain gains in income in the second half of the 2007-08 financial year.
The Government will also make three changes to improve the operation of the company loss recoupment rules and to remove uncertainty.
The first change will ensure that companies do not fail the continuity of ownership test (COT) because of having multiple classes of shares on issue, or because of having special arrangements in place to make distributions of dividends and capital returns.
This change has effect from 1 July 2002, coinciding with the measure relaxing the COT tracing rules and introduction of the consolidation regime.
The second change will clarify the meaning of ‘voting power’ in the context of the COT, with effect from 1 July 2007. Voting power will include the power to vote on a poll for the election of a director to a company.
The third change will ensure that the entry history rule in the consolidation regime is disregarded in applying the SBT.
This change has effect from 1 July 2002, coinciding with introduction of the consolidation regime.
The Government will legislate these changes as soon as practicable following consultation with stakeholders.
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The Government has announced a package of improvements to the income tax law affecting consolidated groups and multiple entry consolidated groups (MEC groups). The improvements will ensure the law operates effectively and will reduce compliance costs for consolidated groups and MEC groups.
Under the consolidation regime, which was introduced from 1 July 2002, wholly-owned groups are taxed as a single entity. Over time, taxpayers and the Australian Taxation Office have identified certain aspects of the consolidation regime that are producing inequitable outcomes or imposing excessive compliance costs.
The package clarifies the application of the income tax law for consolidated groups and MEC groups in two ways.
First, it modifies the consolidation tax cost setting rules, which set the costs of a joining entity’s assets for income tax purposes, to ensure that they operate effectively.
Second, it clarifies interactions between the consolidation provisions and other parts of the income tax law, including interactions with the capital gains tax regime and the uniform capital allowances system.
Further details of the measures are attached.
Some of the changes apply from the commencement of the consolidation regime because they clarify the operation of the law and ensure that it operates effectively. Other changes apply prospectively.
The Government will consult with stakeholders on the development of legislation to implement the package.
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The Federal Government will invest more than $22 billion in road and rail from 2009, in what it desc
