Worldwide fiscal stimulus - Australia - Ernst & Young - Global

Australia

Overview of measures to reinvigorate the economy

The global recession has impacted Australian growth, employment and the federal budget, withdrawing A$75 billion in revenue since November 2008 and causing Australia to follow other advanced economies into deficit.

Australia has fewer and more tightly regulated banks than many other countries. Government guarantee of deposits with Australian banks has maintained confidence. Banks have not failed, but various fund managers have failed or are encountering financial difficulties.

The A$10.2 billion dollar stimulus package was announced in October 2008. This principally comprised targeted cash payments to lower-income families and pensioners in December 2008.

The A$42 billion Nation Building and Jobs Plan (NBJP)announced in February 2009 is promoted by the government to support and maintain up to 90,000 jobs and lift GDP growth by around 0.5% in 2008-09 and 0.75 to 1% in 2009-10. Spending targets include:

• A$28.8 billion to schools, housing, energy efficiency, community infrastructure and roads and support to small businesses.
• A$12.7 billion to deliver an immediate stimulus to the economy to support growth and jobs. These cash bonus measures include the Bonus for Working Australians, Single — income Family Bonus, Farmer's Hardship Bonus, Back to School Bonus and Training and Learning Bonus. These were paid from early March 2009.

The Federal Budget of 12 May 2009 saw some further announcements, constrained by the collapse of tax revenues mentioned above.

Company tax measures (other)

Investment allowance: a short-term stimulus measure is a 30% investment allowance tax deduction (at a 30% tax rate, this translates into a 9% cash tax break) for eligible assets ordered between 13 December 2008 and 30 June 2009 and installed ready for use by 30 June 2010. Further, a 10% allowance applies for eligible assets ordered between 13 December 2008 and 31 December 2009 and installed ready for use by 31 December 2010. For small businesses the deduction is increased to 50% in both periods.

Small business deferrals: to provide cash flow relief to small businesses, deferrals on periodic tax instalments (20% cuts for tax instalments calculated under the GDP adjusted formula) have been provided.

Grants and incentives

A$28.8 billion has been identified to support schools, housing, energy efficiency, community infrastructure, roads and small businesses.

A Green Car Innovation Fund commenced from 1 July 2009. The A$1.3 billion fund will provide assistance over ten years to design, develop and manufacture low-emission, fuel-efficient cars and components in Australia.

A A$90 million green building fund has been introduced and A$3.5 billion was allocated in the Federal Budget over nine years in the Clean Energy Initiative to focus on carbon capture and storage.

The Federal Budget announced A$22.7 billion of funding for infrastructure projects, of which about A$14 billion was from an infrastructure fund established in the 2008 Federal Budget.

Industry-specific measures

A New Car Plan for a Greener Future includes the extension of the Automotive Transformation Scheme (ATS) from 2011 to 2020, providing A$3.4 billion to the automotive industry; funding for a smooth transition to the ATS from the current Automotive Component Investment Scheme; the Green Car Innovation Fund mentioned above; and A$116.3 million to promote structural adjustments through mergers and consolidation in the components sector and to facilitate labor market adjustments.

Interest deductibility

Australia has a thin capitalization system for funding of certain international investments. There is some private sector concern that the global financial crisis will necessitate the temporary relaxation of Australia’s thin capitalization rules.

The Australian Taxation Office has released draft technical interpretations which, if adopted, could result in denial of interest deductions in some situations. No new interest deductibility ATO guidelines have been finalized, but readers should continue to monitor developments closely.

Other measures

The 2009 Federal budget saw no measures, requested in pre-budget submissions such as the introduction of tax loss carrybacks, temporary relaxation of Australia’s thin capitalization rules to cushion the effects of asset impairment from the global financial crisis and improvement of interest withholding tax and other rules. Some of these remain under review.

Profit repatriation regulations

Australia allows most foreign source dividends received by companies to be non-taxable (non-assessable non-exempt).

Australia has a dividend imputation system benefiting domestic shareholders receiving dividends from income that has been taxed in Australia. Business has been seeking partial imputation credits for dividends from foreign source income (currently, these are taxable with no credit for the underlying foreign tax paid).

In the 2009 Federal Budget the government accepted most of the recommendations of a review of Australia’s tax rules for outbound investment (i.e., controlled foreign companies, controlled foreign trusts and foreign investment funds) by the Board of Taxation. This will see the repeal of the foreign investment fund measures and various improvements to the controlled foreign company measures, likely to occur from 1 July 2010.

Tax credits — new or amended

(called "offsets" in Australia)

The 2009 Budget announced adoption, from 1 July 2010, of a 40% tax credit for large companies’ R&D, with smaller companies to get cash refund of 45% for their R&D, with the proposed offset also available for foreign-owned R&D. These flowed from the Cutler Review of Innovation.

Tax measures affecting individuals

Personal tax cuts: significant personal tax cuts for the 2008-11 years of income, promised as part of the 2007 federal election campaign, have already been enacted. The Budget saw various changes to restrict ‘middle class welfare’ tax benefits for personal health insurance and superannuation contributions.

Tax policy reform

A comprehensive review of Australia’s tax and welfare transfer system, under the leadership of the Treasury Secretary Ken Henry, is being conducted in consultation with businesses and the public. Recommendations are to be delivered by the end of 2009, covering capital taxation, state taxation, personal taxation, business taxation and more

Tax rate changes

Corporate income tax (CIT)
Changes to the 30% CIT rate have been mentioned by government but no action likely until the Henry review reports..

Customs and duty
There is a proposal to phase down tariffs on imported cars from 10% to 5% by 1% a year between 2010 and 2014, instead of the currently scheduled cut straight to 5% in 2010.

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