What Wayne Swan’s budget means for the bottom line

How many jobs does $4.8 billion buy?

That is the amount of money that was destined for businesses in the form of a 1% cut to company tax – until last night.

That is when the Federal Government reneged completely on the promised tax cut, and cancelled a key promise made in the process of negotiating the Minerals Rent Resources Tax.

The answer is that $4.8 billion buys about 69,000 jobs on an average salary of $70,000.

As businesses retire to digest the impact of Wayne Swan’s 2012 federal budget, they might thank their lucky stars that some of the measures feared – many of those recommended by the Business Tax Working Group – have not materialised. Yet.

Businesses were saved, for the moment, from several recommended measures that would have impacted the profits of mining, oil and gas companies, and others that would have affected debt to equity ratios and impacted on overseas investment.

RSM Bird Cameron’s tax partner Con Paoliello says the Treasurer was under pressure over reneging on the tax cut, a concession to compensate for the introduction of the Mineral Rent Resources Tax.

“The possible changes, with the mining industry impacted, were not realised,” he says. “Swan might have worried that if he hit them with other charges as well, they might have put up a big fight like they did before.”

But Paoliello is not feeling comfortable. “I wonder whether Swan is saving these measures up for a future time. It is highly possible.”

The cost of reneging

The 1% cut to company tax was due to come into force as of July 1 this year for small companies and July 1, 2013 for medium-sized and large companies.

For BHP Billiton, a 1% cut in business tax is worth $223 million, based on last year’s profits; for Rio Tinto, $141 million; for Westpac, $70 million.

Loss of potential jobs is one way to look at the impact of the Government’s back flip.

There are other impacts, says Paoliello.

“When you compare our corporate tax rates with those in the Asian region – Singapore [17%], Hong Kong [16.5%], Indonesia [20%] or Malaysia [25%] – we are higher,  and that discourages foreign investment in Australia.”

Foreign companies will rethink the option of putting their headquarters here, Paoliello says. “It is another nail in the coffin. These companies provide jobs and opportunities for smaller companies to supply them.”

Carry-back losses

Although the measure to allow carry-back losses is welcome – companies can apply losses made in the current financial year against profits made in the previous two years – it is limited to losses up to $1 million.

The provision is estimated to affect to about 110,000 businesses. Most will be small; some medium-sized. The provision has not been limited to companies with revenue under $2 million as recommended by the Business Tax Working Group.

More audits

The budget allows the Australian Taxation Office another $193.5 million to increase collection activity in relation to GST. The measure is estimated to increase receipts to $880.9 million.

Research and development

The best news in a grim budget for business is no news. The Business Tax Working Group recommended three changes to the research and development tax concessions, moves that would have seen eligibility reduced and refunds decimated.

The changes did not materialise; company incentives in the form of refundable and non-refundable tax concessions remain the same: companies under $20 million revenue get a refundable R&D rebate of 45%, and over $20 million, a non-refundable rebate of 40%. Claimants are not limited by amount of claim, or restricted by company size.

The take out

While fewer grabs at business profits are welcome, Swan’s restraint leaves him options to take more in the future. For leading companies, the Government’s attitude is clear – the bigger you get, the more harshly we tax you.