The sharemarket, investors and self-managed super funds and small business look the big winners, from the tax changes announced yesterday.
But these are only a first installment, so there could be some downside in other changes to come this year.
The federal government says yesterday’s changes are the first wave of reform – more details will be released later, possibly in next week’s federal budget, certainly in the election campaign.
These could include flat tax, abolishing all work related deductions and replaced by a standard rebate, getting rid of tax returns, and lifting the tax free threshold to $25,000.
There could also be changes in tax on savings (such as bank deposits) and personal tax.
All listed companies will benefit with the gradual reduction in corporate tax.
The likes of the AMP, Argo, AFI, Milton, AXA (if it survives), plus the big bank, such as NAB and the CBA, are going to be seen as beneficiaries.
Small explorers will be one big beneficiary because of the exploration rebate that will be introduced.
This will be extended to geothermal exploration, a boost for that tiny sector of the industry.
Small private businesses will get a faster benefit with a tax cut and relaxed asset write off rules.
(The $5,000 immediate write-off will be good news for IT providers and resellers, such as retailer like Harvey Norman.)
These will be announced shortly, according to the government.
The government has gone for a bit of pick and chose from the recommendations of the 1,000 page Henry Review of Tax, keeping other changes up its sleeve leading into the federal election later this year and next week’s Budget.
Despite speculation yesterday’s announcement would include changes to boost savings by cutting tax on interest, the government chose to limit the most dramatic moves to the super tax on mining company profits and the much leaked wide-ranging reform of superannuation to be paid for by taxing the profits of those big companies and their big projects.
The government says it is likely to take other suggestions from the review, including making tax time simpler for most workers and cutting tax on savings interest, but those changes "would represent a second full term" agenda.
The new 40% tax on mining company profits will be slightly softened by a raft of new rebates on exploration and government investment in improving infrastructure.
No wonder the government moved just over a week ago to shake up the investment advice industry; there are going to billions of dollars a year extra flowing into the sector from 2012 onwards.
Roughly $40 billion a year is available from the 9% levy, this will rise by $85 billion over the next decade to reach close to $60 billion a year.
There’s already more than $1.1 trillion in the super pot, with much of that invested in the market.
That makes banks, accounting and advice companies prime targets for investor interest, as well as the smaller investment groups and the listed investment companies.
Dividend imputation wasn’t changed either, a big boost for investors and the market.
In fact, on the whole these changes, if enacted, will be very positive for the sharemarket and the small business sector.
Federal Treasurer Wayne Swan said in a statement:
"The changes announced today are expected to increase Australian GDP by 0.7 per cent and real wages by 1.1 per cent in the long run. In current terms, this reform dividend is equivalent to an extra $450 per year in the pocket of a full-time worker on average weekly earnings.
"These reforms will make our tax system fairer, by providing more Australians with a fair return for our natural resource wealth and by providing better superannuation concessions for over two million lower income earners.
"The system will be simpler, especially for small businesses through simpler tax arrangements.
"These changes will be consistent with our fiscal rules and will not detract from our ability to return the Budget to surplus and repay debt. This means that the package is dependent on the successful implementation of the Resource Super Profits Tax.
"These reforms will not be welcomed by every business or every interest group, but they are the considered, responsible changes we need if we are to turn our success during the global recession into enduring gains for our economy, our people and our nation."
The Government has ruled :
- Family home will not be means-tested
- Family homes will not be subject to land tax
- Families will not face a work test when their youngest child turns 4
- Reduced tax concessions for the not-for-profit sector
- Reduced Defence Force remuneration
- Changed CGT tax arrangements
- Offer of a government annuity product
- Return to fuel excise indexation
- Introduction of volumetric taxation of alcohol
The latter rules out those silly stories on Friday and Saturday that wine casks could rise by $20 and a bottle of Grange Hermitage could fall by $100 a bottle.
