Tax changes in the Budget - here's what we predict

by Bob Deutsch CTA *

With a little over 5 weeks until the Budget, it’s worth considering what tax changes will be included. 

I have assigned a number (between 0 and 10) to each item of possible change – with 10 being ‘very likely’ and 0 being ‘very unlikely’:

  • Changes to individual tax rates. The main possibility is a continuation of the temporary budget repair levy of 2% for high income earners. The Coalition has indicated it is reluctant to continue with this measure.
    Likelihood … 3
  • A reduction in individual marginal tax rates. This is something I personally believe is important, but it doesn’t appear likely as an issue the Coalition will embrace at this stage in the political cycle.
    Likelihood … 2 
  • A lift in the Medicare levy. This has been mooted in the press and an increase from 2% to perhaps 3% would seem to be politically palatable for the Coalition and likely to pass both houses of Parliament. It will also help to fund Australia's burgeoning health care costs.
    Likelihood … 7
  • A reduction in, or wholesale repeal of, the CGT discount. Reducing the CGT discount is a proposal that the Coalition is considering with some zeal. Reigning in the discount from the current 50% for individuals and trusts, and 33 1/3 % for superannuation funds, would boost Government coffers and would dent the Federal Opposition-endorsed argument to limit negative gearing on newly constructed housing.
    Likelihood … 8
  • A clamp-down on negative gearing. This is a Federal Opposition proposal which the Coalition has indicated it has no enthusiasm for.
    Likelihood … 1
  • A clamp down on the cash economy. The Government has already indicated that the cash economy is in its sights and the Board of Taxation will make a recommendation on how to deal with the issue. The likelihood of anything being in the Budget on this issue is high as, again, it’s a recognised pressing problem and a solution is likely to receive bilateral support in Parliament.
    Likelihood … 8
  • New laws to deal with stapled securities. These are likely to happen during the course of this year. Whether it can be dealt with in time for inclusion in the Budget is unclear. Accordingly, I rate the possibility of any detailed information in the Budget as being very low, although perhaps some broad statement of intent will be there.
    Likelihood … 2
  • Changes to superannuation. In relation to superannuation, my personal view is that the less that is done with super the better. The perennial tinkering with superannuation by not only this Federal Government but many of its predecessors has given rise to an uncertain environment and has made potential superannuation investors extremely wary of the whole sector. This uncertainty is only encouraging them to look elsewhere. The Australian public deserves a stable, secure, unchanging environment for superannuation. Unfortunately, that’s not going to happen. Some further tinkering in the Federal Budget is likely.
    Likelihood … 7

As you can see from the above, the four main areas where I think there is likely to be change is in relation to the Medicare Levy, the CGT discount, the cash economy and superannuation. The other areas I have identified look unlikely.

* Professor Robert (Bob) Deutsch CTA is The Tax Institute’s Senior Tax Counsel. This post was originally published as the preamble to the latest issue of the Institute’s member-only TaxVine newsletter.

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