Linkedin
Facebook
Email
more
The upcoming 2023-24 Federal Budget could be a defining one for the Albanese Government if Treasurer Jim Chalmers uses it to seed his vision for “a new values-based capitalism for Australia”.
Dr Chalmers set out his economic policy reform narrative in an essay published in The Monthly magazine in February. In it he talked about redesigning “the way our markets allocate and arrange capital’’, including creating new models of investment, such as co-investment with the private sector, along the lines of the successful Clean Energy Finance Corporation.
Will Dr Chalmers use his first full Budget to outline the practical economic measures that will underpin this vision? Could new multi-million-dollar government funds be established, and new corporate Commonwealth entities be created to further facilitate this co-investment in the Government’s priority areas such as industry, housing and electricity? Could we also see a reduction in regulatory barriers to further stimulate Australia’s social impact investing market? 
Another market Dr Chalmers said he’d like to see expand.
Even modest new Budget measures will necessitate either spending cuts or tax changes to grow revenue. The Australian Government’s current taxation reform agenda has been to maximise the tax revenue it collects from large companies and high-net-worth individuals.
Current multinational tax integrity measures, due to commence from 1 July 2023, are expected to deliver $7.8 billion in revenue over the next decade, while the proposed new $3 million superannuation cap changes, slated to start from July 2025, are expected to deliver an extra $2 billion to the Federal Government’s budget bottom line annually.
Other potential revenue generating measures in the same vein, which could make an appearance in the upcoming 2023-24 Federal Budget, include a decrease in the Petroleum Resource Rent Tax (PRRT) uplift rates paid by resource companies. The argument being that Australian citizens should be benefiting from greater returns on our nation’s resources, particularly in the form of government-funded energy bill relief to combat record price increases.
This Budget might also see the Albanese Government revive two of its 2019 election proposals on family trusts and franking credits. During the 2019 election campaign, the ALP proposed to set a minimum 30 per cent tax rate on family trust distributions to adults. The number of trusts in Australia has increased by 25,000 in the three years to 2019-20 to about 930,000 (the latest data available). 
The case law and rules governing these entities has become increasingly complex. The Australian Taxation Office (ATO) has already embarked on a crackdown on anti-avoidance tax behaviour by family trusts, which will likely provide plenty of ammunition that could be used to support a simpler and fairer family trust distribution system.
The Federal Government has also shown its preference for tinkering with franking credits, as evidenced by its surprise off-market share buy-back reforms announced in the October 2022 mini-Budget.
The changes will align the tax treatment of on and off-market share buy-backs, effectively closing a tax loophole that allowed investors to receive extra franked dividends and pay less capital gains tax on the return of capital from an off-market deal. Could more deliberate revenue-generating policies aimed at franking credits be on the cards this Budget?
With inflation running at 6.8 per cent in the 12 months to February this year and the global economic outlook deteriorating, the Federal Government has been at pains to say the 2023-24 Budget will tread a responsible path to enhance Australia’s sovereign security and economic resilience while not adding to inflationary pressures.
This doesn’t bode well for new cash injections for businesses or households outside what the Government has already promised, such as targeted energy bill relief, and a focus on the disadvantaged.
While there appears to be broad support from a range of interest groups to scrap the Morrison Government’s hotly debated Stage 3 tax cuts, the last word Dr Chalmers had on these in April was that the Government’s position hadn’t changed and they would be in the Budget. However, could we see the start date delayed by a year to July 2025? This would save a years’ worth of lost tax revenue and deliver the cuts in a Federal Election year – a year when voters are more likely to welcome and remember the cuts.
The Federal Government has shown that it’s unlikely to continue taxation offsets or rebates due to end this financial year. Dr Chalmers has already confirmed the low and middle income tax offset won’t be extended. The future also looks bleak for a range of business stimulus measures that are also due to end on 30 June 2023 including:
- Temporary full expensing - a tax deduction available to eligible businesses on the full cost of certain depreciating assets.
- Loss carry back tax offset – a refundable tax offset available to eligible corporate entities to carry back losses to earlier years in which there were income tax liabilities.
- SME technology investment boost – an additional 20 per cent tax deduction available to eligible small businesses on expenditure that digitises operations or depreciates digital assets.
To subscribe to receive our Federal Budget report, or to RSVP for our Federal Budget Webinar, please visit the following links:
For more information
For any queries in the meantime, please contact Liam Telford (National Tax Technical Director)
