With the 2017-18 Federal Budget set to be handed down on Tuesday 9 May 2017 the Government has now moved into “Budget mode”. This essentially involves drip-feeding a couple of Budget-related measures to build the suspense for Budget night and keep media speculation at bay.
The final days before the Budget also provide an opportunity to get some of the less popular measures out of the way so as to maintain a positive theme for Budget night. To this end, one week out from the Budget, the Government has announced that it will reduce the income thresholds for HECS repayment from 1 July 2018.
Small personal tax cut?
The $36.5bn deficit predicted in the Mid-Year Economic and Fiscal Outlook means that the Government is unlikely to have much room to play with for Budget sweeteners this year. Nevertheless, the Treasurer will need to come up with something positive for the average worker. So don’t be surprised to see a small, but welcome, tweak to the personal tax rates and thresholds. This was the case last year when the 32.5% personal tax threshold was increased from $80,000 to $87,000. That 2016 measure cost the Government $4bn, so don’t expect anything more than a token “sandwich and milkshake” tax cut in a non-election year.
The other personal income tax item to watch is the 2% Budget deficit levy on incomes over $180,000. After 3 years of operation, this measure is due to cease on 30 June. While the Treasurer has previously stated that the Budget repair levy would not be extended, it is a tempting target to pay for a small tax cut for average workers.
Standard deduction for work expenses
As far back as the Henry tax review and the 2010 Budget, the Government has tanterlised taxpayers with the prospect of a standard tax deduction for work-related expenses, say $500. A standard deduction has long been recognised as an important element towards a system of pre-filled tax returns to make life easier at tax time. This proposal has also received recent attention as part of a Parliamentary inquiry into tax deductibility. While the committee is yet to report back to Government, perhaps 2017 will be the year when we see a firm announcement in this area?
Further changes to the company tax rate are unlikely this year given the recent passage of legislation cutting the corporate tax rate for companies with a turnover less than $50m, starting with 27.5% in 2016-17 for businesses with turnover of less than $10m. However, expect the Government to re-commit to its 10-year Enterprise Tax Plan to eventually reduce the company tax rate to 25% for all companies. On this front, the Government has also been reinvigorated by the Trump Administration’s plan to lower the US corporate tax rate to 15%.
The super industry already has enough on its plate with major reforms set to start on 1 July so any additional Budget measures will need to be positive concessions. As is the case with any reforms, refinements are often necessary to address unanticipated consequences. Indeed, the ATO and Treasury have been quick to respond to emerging issues with recent announcements concerning pension commutation requests to stay within the $1.6m pension cap and integrity measures for SMSF borrowings.
So don’t be surprised to see some further super details on Budget night, such as clarification on how the Age Pension means tests will apply to the proposed new category of innovative retirement income products, including deferred annuities.
PRRT changes deferred
In terms of what won’t be in this year’s Budget, the Treasurer has confirmed that he will not be making Budget changes to the Petroleum Resource Rent Tax (PRRT) scheme. Rather, the Government intends to conduct further consultation on the PRRT recommendations of the Callaghan review released on 28 April.
Over the years, all governments have proven themselves to be masters at keeping us guessing and then wooing us with surprises on Budget night. To cover all the bases, Thomson Reuters Senior Tax Analyst Terry Hayes and his team will again be part of the Lock-up at Parliament House to have the comprehensive and detailed 2017 Weekly Tax Bulletin Federal Budget Report ready for subscribers when the Treasurer delivers his speech. Find out more from Thomson Reuters about subscribing to Weekly Tax Bulletin to receive all the latest ongoing tax, GST and superannuation developments.