2014 budget overlooks tax reform
The highly anticipated Coalition's 2014 budget, which was expected to deliver sweeping changes, has proved somewhat diluted with respect to taxation. Apart from the 2 per cent temporary budget repair levy, which will only hit some 400,000 high-income earners, and the re-indexation of fuel excise, the only other significant change has been to welfare benefits.
While Mr Abbott campaigned on ending "the age of entitlement," certainly extending the pension age, and tightening of the family tax benefits, Medicare levy surcharge, private health insurance and other dependent offsets will be felt by many.
The major disappointment is the lost opportunity to introduce any real tax reform. However, in the government's defence, they had indicated that they were not seeking tax reform in this budget but would rather release a comprehensive White Paper and seek a mandate on tax reform prior to the next federal election. The concern is whether the economy can wait until then to really repair its ailing tax system.
While the budget focus may have been on debt recovery, major tax reform is required to make our economy more internationally competitive. In this regard there was a commitment to cut the company tax rate to 28.5 per cent from 1 July 2015, but this rate is still much higher than in many other OECD countries. Likewise there is still no decision on foreign source income measures and the principal assets test and foreign residents. The uncertainty for business makes it difficult to plan ahead.
Senior Lecturer, Department of Business Law and Taxation
An interesting item that will be introduced from 1 July 2014 is a tax receipt for individuals that will provide information about "where and how their taxes were used". The one-page receipt issued with their notice of assessment will show in dollar terms "how much of a person's tax bill was spent on each budget area". This may have a positive effect on taxpayer compliance as the concept of exchange equity, what is received in exchange for tax dollars, is enhanced. Taxpayers are happier when they can see how the money benefits the economy.
If the Australian public does embrace these and other changes as a positive in reducing our current debt levels, hopefully major tax reform will follow, making the Australian economy more competitive going forward.