Federal Budget 2013-14: Where to now for growth?

  • Share

Wednesday 15 May 2013 -  For a budget claiming to be about jobs and growth, the overall balance between revenue raising measures and spending cuts feels heavily weighted toward tax measures, EY said.

The Budget sets a deficit of $18b, with a surplus not expected until 2016-17. This is a significant about-face from the years of surplus predicted only 12 months ago. Given the recent volatility of tax revenues, and the continued uncertainties facing the domestic and global economies, it is hard to be confident about this new prediction.

The Government’s new spending measures support its focus on long-term job creation, and its commitment to offset new spending with savings shows a degree of budget discipline. However, the offsets identified in this Budget tip the balance heavily towards revenue-raising over cuts to spending, running counter to the Government’s priority to foster economic growth.

EY Government Leader Jim Birch said: “As expected the Budget focuses on the previously announced disability insurance scheme and the Gonski reforms but to help fund these spending commitments, $43b in revenues and savings measures have been identified, which will hit families, businesses and innovation.”

EY Tax Policy Leader Alf Capito said the spending cuts, though modest in the context of the bigger picture, are brave in an election year and do roll back some generous entitlements.

“Set against this, the overall balance between revenue raising measures and spending cuts seems focused towards tax measures including the interest deduction limits for multinationals, proposed changes to the research and development (R&D) tax incentive; the treatment of exploration expenditure; and the ‘pay as you go’ (PAYG) changes for all large entities.

“The proposed repeal of deductibility of interest for borrowings by multinationals to invest overseas will have a significant impact on Australian based companies looking to grow overseas. This will be of critical importance to groups that have existing borrowings that finance their offshore operations or are looking to borrow to grow their business offshore. We expect substantial lobbying efforts will be needed to overturn this measure.

“As previously announced, the Government has introduced legislation to prevent companies and their groups with assessable incomes of over $20b from claiming the 40% R&D tax offset. This was a critical incentive, particularly for the resources sector which will also be impacted by the announcement that the immediate tax deduction for the cost of acquiring mining and petroleum rights will be restricted.

“Thin capitalisation safe harbours have also been reduced and as anticipated, the safe harbour debt ratio will reduce from 75% debt (3:1 debt to equity) to 60% (1.5:1) for general investors, and from 20:1 to 15:1 for finance entities. We welcome the continuation of the arm’s length debt test but consultation will need to include considering ways to improve its operation.

“Changes to the PAYG income tax installment system will increase compliance costs and adversely impact cashflow for all large entities, which will be required to lodge monthly,” Mr Capito said.

The start dates are from 1 January:

  • 2014  for corporates with turnover of more than $1b
  • 2015  corporates with $100m+ turnover
  • 2016 for corporates with $20m+ turnover and all other investors (eg super funds, sole traders) with $1b+ turnover
  • 2017 for all other investors with $20m+ turnover.

Mr Capito said the Australian Taxation Office will receive $109m over four years to investigate possible profit sharing opportunities for offshore marketing hubs and business restructures. The investigation is projected to return $576m. 

“The ATO is already actively reviewing these types of activities and taking aggressive positions, which could ultimately need to be determined by the courts. Taxpayers who have engaged in these types of activities should make sure they are prepared to defend their position,” Mr Capito said.


About EY
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

EY refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

This news release has been issued by EY Australia, a member firm of Ernst & Young Global Limited.

Liability limited by a scheme approved under Professional Standards Legislation.


Contact details:

Katherine Meier
EY Australia
Tel: 03 9655 2620 or 0417 859 323