The recent budget in Australia is a triumph of short term opportunism over long term structural reform. It is punitive on business at a time when Australian business confidence is fragile to say the least.
One of the big expectations going into the budget was a reduction in the corporate tax rate from 30% to 29%, funded by proceeds from the newly imposed carbon tax. This is no longer the case. At the same time, employers are required to fund an increase in superannuation contributions, from 9% to 12%, in 1% increments over the next three years. The net effect is an additional 1% cost to the bottom line of Australian business, over and above the yet unclear impact of the carbon tax itself. There is little in the way of incentives for new investment or job creation.
This budget does little to remedy the view that this Federal Labor government is business unfriendly.
So where do the proceeds of the carbon tax and the new mining tax end up? They go directly in the pockets of low to medium income households, as cash payments. These payments are structured as an education subsidy, at $820 for every high school student and $410 for every primary school student, subject to means testing. Prima facie this is a difficult thing to argue against, as it will likely stimulate sectors of the economy that have been doing it tough, such as discretionary retail and domestic tourism. However, this stimulus is only short term in nature and will wash through with little long term benefit.
Tax reform remains an important but elusive goal in the battle to improve business productivity in Australia. There is a strong feeling that this budget is an opportunity missed, and with the government’s fiscal position likely to deteriorate over coming years, that goal may now be that much harder.