09 March 2016
Office of the Chief Executive
Alex Malley, FCPA
Budget Policy Division
The Treasury
Langton Crescent
PARKES ACT 2600
By email: [email protected]
CPA Australia Ltd
ABN 64 008 392 452
Level 20, 28 Freshwater Place
Southbank VIC 3006 Australia
GPO Box 2820
Melbourne VIC 3001 Australia
T +61 3 9606 9689
W www.cpaaustralia.com.au
E alex.malley@
cpaaustralia.com.au
Dear Sir/ Madam
SUBJECT: 2016-17 Pre-budget submission
CPA Australia is one of the world’s largest accounting bodies with 22 offices globally and more than
155,000 members in 118 countries. Our history stretches back to 1886, and we have been actively
involved in Asia since the early 1950s.
The Australian Government’s ‘Re:think’ paper, released on 30 March 2015, reiterated the pressing
need for the modernisation of our tax system to support improvements in productivity and
encourage increased workforce participation. It also affirmed that tax reform offers one of the
biggest opportunities to improve productivity and foster jobs, and generate economic growth.
Re:think set out broad parameters to look at tax reform encompassing both state and federal taxes,
thereby acknowledging that holistic reform must seek to retire inefficient taxes, regardless of the
level of Government that imposes them.
CPA Australia, along with many other organisations, engaged fully with the Government through the
Re:think consultation process. We conducted our own extensive modelling on the impacts of GST
reform and tax simplification which was submitted to Government in our submission Tax Reform in
Australia – The facts.
We modelled different scenarios at 10 and 15 per cent, with each generating additional GST
revenue ranging from $12.1 billion to $42.9 billion in the first year of introduction.
Taking a holistic view, our report showed that additional GST revenue can be used to abolish a
number of inefficient state taxes and also provide for personal income tax cuts and compensation
for low income households, while also delivering a substantial economic growth dividend.
When official modelling is confined only to taxes in the federal government's direct control, the
findings are more limited in nature and value.
We note the challenges of the economic and fiscal context for the May 2016 budget, as articulated
by the Government, however the critical need for reform remains and we are disappointed to see
the white paper process abandoned.
The structural challenges set out in the Re:think paper still exist. Without changes to our tax mix,
our over-reliance on income taxes will intensify, yet the percentage of the population participating in
the workforce will diminish, and our company tax rate remains uncompetitively high. Revenues
derived from the GST, as currently configured, will continue to decline.
Tactical responses to a strategic problem will not deliver the reforms required for genuine budget
repair.
It is against this background that we make the following recommendations for reform to be
considered as part of the Australian Government’s 2016-2017 Federal Budget.
Our organisation’s submission focuses on what we consider to be the critical drivers of Australia’s
future economic success. This includes initiatives that will:
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encourage Australians to work, save and invest
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help new business start-ups and encouraging businesses to grow
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encourage investment, and
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improve business skills, providing better infrastructure, and encouraging education.
CPA Australia’s recommendations are enclosed in Attachment A.
Yours sincerely
Alex Malley FCPA
Chief Executive
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Attachment A
CPA Australia - Federal Budget Recommendations
A tax reform road map
It is apparent that the extent of tax reform required to enable Australia to improve our competitiveness and
raise living standards as well as repair the budget is a task that extends far beyond a single budget
appropriations period.
Establishing the fundamentals for Australia’s economy to remain competitive is critical. Setting out a vision –
one that may take some years to be fully implemented – is required as change takes time.
We encourage the Government to articulate its vision for holistic tax reform and propose a bold road map to
reform as part of the federal budget.
Encouraging Australians to work, save and invest
Our current system effectively penalises taxpayers on income derived from savings outside the
superannuation system.
Superannuation’s tax-preferred status has enabled it to become the primary savings vehicle for most
Australians. This is beneficial for retirement savings, but does little to recognise the necessity for individuals to
save income outside of super to afford major capital purchases during their working lives.
If income derived from savings was taxed at a rate that was lower than an individual’s marginal personal tax
rate, this would encourage greater savings and investment outside of the super regime.
Recommendation 14 of the Henry Report proposed that there should be a 40 per cent savings income
discount available to individuals for non-business related net interest income, net residential rental income
(including related interest expenses), capital gains (and losses); and interest expenses related to listed shares
held by individuals as non-business investments.
To provide further incentive for Australians to work, save and invest we support the introduction of a savings
income tax discount.
Taxation and start-up businesses
As a next step to further encourage start-ups, and to reduce regulatory burden and red tape for them as well
as SMEs more broadly, the Government should introduce a new simplified business entity for SMEs. At
present, a typical ordinary commercial family business structure involves the establishment of a corporate
trustee, a discretionary trust, and trust beneficiaries including a corporate beneficiary - to provide asset
protection as well as enable business access to the various SME-focussed tax concessions. This complexity
acts as a disincentive to people establishing a business.
The introduction of a new entity for start-ups that has the features of what the tripartite arrangement described
above seeks to provide – that is – providing limited liability, allows income streaming, allows income retention
in the entity that is taxed at the prevailing company tax rate – would potentially eliminate the need for three
entities, three tax file numbers, and three GST registrations. Instead, the business would have one entity, one
TFN and one GST registration.
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Small business simplified depreciation rules
The $20,000 instant asset write-off for eligible small businesses introduced on 12 May 2015 as a short term
measure was the highlight of the last federal budget. It has provided an important boost for SME capital
investment, business optimism and jobs, and it has had a positive flow-on effect for many Australian retailers.
CPA Australia’s recent small business survey revealed that over 30 per cent of small businesses have been
positively influenced to purchase assets since the May 2015 budget by the instant asset write off scheme.
Given the stimulatory impact of the initiative, we encourage the Government to make it a permanent feature of
the tax system.
Superannuation and retirement savings
There has been considerable ongoing public debate about the quantum, distribution and equity of the tax
concessions provided to superannuation. As discussed in our Re:think submission, the taxation of
superannuation cannot be considered in isolation. There must first be a long-term vision and objectives for our
retirement savings system.
In its response to The Financial System Inquiry the Government accepted the recommendation that objectives
for the superannuation system should be developed and enshrined in legislation. We encourage the
Government to make this a priority before any superannuation tax reform is considered. Superannuation tax
reform can only be considered once the objectives of the system have been agreed.
We also encourage the government to consider introducing lifetime contribution caps to give people the
flexibility to contribute more to their superannuation when they are most able and when their other financial
commitments allow. Lifetime contribution caps could also then be used to limit the amount of nonconcessional contributions that benefited from the concession on the tax on superannuation fund earnings.
Such an initiative would greatly benefit low and middle income earners and boost retirement savings.
Innovation
We encourage the Government continue to increase public access to much of the data it holds through its
open data web site www.data.gov.au, and where it is not already the case, that data is made available in
formats that enable simple analysis to be undertaken.
We recommend the Productivity Commission be directed to undertake an inquiry into the economic and social
merits of Australia adopting a tax initiative based on the recent ‘patent box’ tax incentive introduced in the
United Kingdom.
Small business skills, and the digital economy
As CPA Australia’s recent Asia-Pacific small business survey shows, small businesses that are using social
media, selling on-line and exporting are significantly more likely to be growing and creating jobs than those
that do not. Unfortunately, the survey results also showed that Australian small businesses significantly lag
behind their competitors from Asia in each of these drivers of growth.
The Government should therefore develop and fund programs to improve the business skills, knowledge and
capabilities of Australian managers, with a particular focus on improving small business knowledge of Asian
markets and technology.
To encourage greater small business involvement in the digital economy, the Government should fund
programs that assist small businesses develop a stronger e-commerce presence and make better use of
social media.
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Education
Education is projected to rank amongst Australia’s fastest growing industries of the future. It is also key to
building the nation’s human capital, equipping it for a more prosperous future. However, education’s future
growth and contribution are not givens. Latest statistics indicate a flat-lining of domestic student
commencements with our higher education institutions. And globally mobile and discerning students, spoilt for
choice in the international market for education services, may look elsewhere if they perceive the offerings of
others to be more attractive. The good news is that more can be done to both secure the growth of
international students and maintain the flow of domestic students.
In particular:
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greater investment in quality educational experience for all – domestic and international students –
can be achieved through Government higher education policy settings that minimise crosssubsidisation away from teaching and between disciplines
the introduction of a sliding points threshold for skilled migration, in place of the current blunt
approach, would facilitate the more certain and stable conditions that international students seek
when choosing where to study
making the opportunity to study offshore via the New Colombo Plan available to students across a
wider range of disciplines could enhance the education experience and future opportunities of our
domestic students
high quality and consistent pathways from senior secondary schools is important for growing the
pipeline and readiness of domestic students undertaking further studies, and
encouraging and supporting the participation of Indigenous Australians in our schools and higher
education institutions is key to closing the gap and facilitating Indigenous success.
Infrastructure
To attract more private capital to major infrastructure projects we encourage the Government to consider
providing a 40 or 50 per cent tax discount on income earned from investment in certain infrastructure projects.
Modernisation, and digital by default
Internet connectivity is still a major problem outside Australia’s capital cities. It is essential the Government
remain committed to completing the national broadband network rollout as soon as possible.
The Federal budget should also include an allocation of funding to recognise the potential for business
interruption and economic loss arising from the various Government modernisation initiatives such as MyGov,
ELS to SBR, and digital by default.
COP21 Initiatives
We commend the Government for the positive actions announced in relation to the December 2015 Paris
round of the United Nations Climate Change Conference (UNCCC), particularly those of joining Mission
Innovation and contribution to the Least Developed Countries Fund (LDCF).
We believe consideration should be given to accelerating the Mission Innovation commitment to double
investment in clean energy R&D from the current estimated base of $100 million by 2020. With many of the
other 19 signatory nations likely to take more aggressive approaches, there are in our view competitive ‘prime
mover’ issues within this highly positive initiative.
The LDCF is a key plank in building climate change adaptation and resilience, all the more significant in that
many of the recipients of funding are our near neighbours affected by rising sea levels. We are concerned
though as to the extent to which this commitment draws on the existing aid budget potentially undermining
other highly valid commitments and international responsibilities.
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Finally, we urge ongoing fiscal support for both the Mandatory Renewable Energy Target (RET) and the
Emissions Reductions Fund (ERF) to ensure the meeting of the commitments in Australia’s Intended
Nationally Determine Contribution (INDC) presented in Paris as part of the global agreement seeking to keep
global warming at below 2 degrees Celsius on pre-industrial levels.
Social and environmental reporting in the Indo-Pacific
In 2015 the Department of Foreign Affairs and Trade (DFAT) entered into a partnership with the Global
Reporting Initiative (GRI) under which funding of $1,000,000 was provided to assist businesses in their efforts
to improve reporting on social and environmental issues in Indonesia, Philippines, Sri Lanka and Papua New
Guinea. The duration is one year only running through to 30 June 2016. We urge consideration being given to
extending the funding for a further twelve months. The supply-chain issues dealt with in the targeted
developing economies are complex and occur against the background of ongoing international developments
in non-financial reporting and increasing demand for businesses to better understand their supply chain. In
short, such a project not only provides benefits in the targeted countries but also to Australian businesses
sourcing in those countries.
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