Government’s tax reform vision

The Government’s tax reform agenda is to build a stronger economy and a fairer, simpler tax system for Australian families and businesses. Our tax reform agenda continues to be rolled out, spreading the benefits of strong economic growth to every corner of the country, across all households and businesses.

Investment for a productive economy

The Government’s vision for the tax system is one that attracts investment, increases productivity, lifts economic growth, and prepares Australia for the opportunities of the Asian century. This will translate into more jobs and higher living standards. The Government is reforming business tax arrangements. This will increase investment and promote sensible risk taking, and is an important part of this vision.

• From 2012-13, the Government is also significantly simplifying small business tax arrangements. Small businesses will be allowed to claim an immediate deduction for each asset they purchase less than $6,500, and to depreciate more expensive assets in a single pool. These will assist up to 2.7 million sole traders, partnerships, companies and trusts. In addition, the Government will also allow small businesses to immediately write off the first $5,000 of the cost of a motor vehicle. This will help companies finance the investments, training and restructuring that is needed to improve competiveness. These changes will also make the tax system simpler for small business, boosting the productivity of small business owners, as they spend less time on tax matters and more time on their business.
• From 2012-13, we will improve access to company tax losses by introducing a loss carry-back, and extending this to a two year carry-back from 2013-14. This tax reform will make it easier for businesses to invest and innovate in order to compete in the patchwork economy. This reform is expected to improve the cash flows of an estimated 110,000 businesses over its first four years, which includes one in six manufacturing companies.
• The Government is reducing disincentives for business to invest in long life infrastructure. The Government recognises the long horizon for infrastructure projects of national significance, and will introduce an uplift allowance so that the value of tax losses is preserved over time. It will also exempt these tax losses from the continuity of ownership test and the same business test.

The tax system also needs to adapt to the ever changing economic environment, be it the globalisation of the Australian economy, the mining boom, or the ageing demographic. The Government has recognised these long-term challenges and will roll out key reforms to the tax system to meet these challenges.

• Sharing the wealth of the mining boom is one such key reform. From 1 July 2012, the Government will introduce the Minerals Resource Rent Tax to capture a better return for our non-renewable resources. The Government will also extend the Petroleum Resource Rent Tax to onshore oil and gas projects and the North West Shelf from 1 July 2012. The revenue raised from these improved resource taxation arrangements will be used to fund further tax reforms to help businesses and households adapt to structural change, as well as boosting retirement incomes.
• The Government is also directly tackling the long-term issue of an ageing population. The Government will improve retirement income adequacy, particularly for low income earners, by gradually increasing the Superannuation Guarantee from 9 per cent in 2012-13 to 12 per cent in 2019-20, providing a benefit to around 8.4 million workers. The Government’s superannuation policies will boost retirement savings by $500 billion by 2037.
• From 2014-15, the Government will phase down the interest withholding tax paid by financial institutions on their offshore borrowings and provide a more neutral treatment across financial institutions. In a globalising world, this is expected to help local subsidiaries and branches of foreign financial institutions, thereby adding to competition in the domestic banking sector.

The Government has shown that it is responsive to the immediate needs of businesses by delivering worthy reforms, not quick fixes, and that it is also willing to tackle the longer-term challenges facing Australia.

Participation and reward for effort

The Government’s vision for the tax system is to also improve participation in the workforce and provide reward for effort. The tax and transfer system should encourage, not discourage, participation in the workforce.

• In its first three Budgets, the Government delivered three rounds of tax cuts worth $47 billion in total.
• From 2012-13 we will more than treble the tax free threshold from $6,000 to $18,200. This will boost participation by reducing the tax burden on the lowest paid workers and significantly simplify the system by freeing up to one million additional taxpayers from the need to lodge a tax return. The increases in the tax free threshold will also simplify the tax system for many individuals in a considerable way. Simplifying the tax system for individuals, as we are doing for small business, is a key goal of the Government’s tax reform vision. From 2015-16 the tax free threshold will increase further to $19,400, freeing up to an additional 100,000 people from lodging a return. The Government will increase the threshold to $21,000 when fiscal conditions permit.
• The Government will reduce outdated workforce participation disincentives for spouses, without dependent children, to take up paid employment by better targeting the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. It phases out an outdated measure from a time when male breadwinners were expected to maintain a housewife, and there were limited employment opportunities for women. The Government is also consolidating eight existing dependency tax offsets into a single offset for those maintaining a dependent who is genuinely unable to work.
• The Government will also encourage greater participation for single parents. By reforming the income test for single parents on Newstart Allowance through lowering the taper rate to 40 cents from 1 January 2013, single parents will keep up to an extra $4,100 of their income each year. This will better support part-time work for up to 50,000 single parents on Newstart Allowance. Furthermore, the Government will strengthen participation incentives for parents by removing grandfathering arrangements for Parenting Payments from 1 January 2013.