Budget 2017: “Zombie” savings dropped but company tax cuts still on the table

Next week’s federal budget will include the second phase of the government’s planned reforms to company tax rates, however, some $13 billion worth of “zombie” saving measures will likely be dropped.

Fairfax reports Treasurer Scott Morrison has indicated the 2017 federal budget will not contain approximately $13 billion of saving measures that were first announced in the 2014 budget but which the Coalition has been unable to pass through the Parliament.

The government will not proceed with the proposed cuts to welfare and education in order to safeguard Australia’s AAA credit rating, according to Fairfax.

However, the government is expected to recover some of the savings through alternative means, including the $2.3 billion worth of welfare changes passed by the Senate in March, and its $2.8 billion higher education changes.

“It is important the budget is a credible document, a practical document, it’s a document that can be put forward with confidence to the Australian Parliament for support,” Morrison said in reference to the nation’s credit rating.

The policies expected to be shelved by the government include previous plans to deregulate university fees, abolish end-of-year payments for the Family Tax Benefits scheme and extend how long the unemployed would have to wait to receive welfare payments.

Speaking to the media on Monday, Prime Minister Malcolm Turnbull said the government is committed to being able to deliver Australia’s AAA credit rating, which means showing that it can get its policies through Parliament.

“It is important not just because of …what it means for the cost of the government’s borrowing but Australia’s AAA credit rating affects every other borrower in Australia,” Turnbull said.

“So it is a very important … financial credential to maintain.

“The skepticism that the ratings agencies have shown in the past — or their concern is probably a better word to use — their concern has been that the government will not be able to achieve its goals because of opposition in the Senate.

“So our commitment is to ensure that we are able to deliver that AAA rating. But we call on the other parties, particularly the Labor Party, to support us in bringing the budget back into balance. It is a responsibility that weighs heavily on the shoulders of every single member of the house and the Senate, regardless of their party.”

Company tax cuts still a priority

However, business operators can expect to see further company tax cuts included in this year’s budget, with Morrison confirming last week the government’s plans to push ahead with the remaining parts of its 10-year plan to give tax relief to all businesses.

In March, the government secured the first phase of the plan, having won Senate approval for company tax cuts for businesses with annual turnover of up to $50 million.

When the Parliament resumes for the budget on May 9, Morrison said the government will re-introduce the rest of its tax reform plan, which would cut the company tax rate for companies with more than $50 million in annual revenue. 

“Failure to maintain our tax competitiveness will cost jobs and see investment go offshore,” he said in a statement.

“A lower company tax rate for all companies will raise the attractiveness of Australian investments. More business investment, such as upgrades to machinery and business expansions, would make Australian workers more productive and generate increases in real wages.”

While small business groups have welcomed the change in corporate tax rates for SMEs and associated tax concessions, results from a KPMG pre-budget survey, published today, show some operators believe tax cuts need to go even further for the small end of town.

Of the 2000 KPMG Enterprise clients surveyed, 40% of those who responded said the government’s small business tax cuts won’t make a difference to their business, and 24% said further cuts are needed.

The business owners surveyed said Australia’s tax system overall needs to be simplified, with 40% saying they would like to see state-based taxes better aligned or replaced by broader-based federal taxes.

More than half of those surveyed indicated they would be willing to support an increase to the rate of the goods and services tax (GST) if that money was spent on income tax cuts to promote spending or on infrastructure.