This year’s Federal Budget (Budget) is the Coalition Government’s second since coming to power in 2013.  In terms of headline numbers:

  • the 2015/16 underlying cash deficit is forecast to be in the order of $35.1 billion;
  • the underlying cash deficit is expected to fall to $6.9 billion in 2018/19; and
  • an underlying cash surplus is now expected in 2019-20.

There appears to be a greater acceptance that deficits will be a reality for the medium term, driven in part by the dramatic falls in the price of key resources, such as iron ore, and also low wages growth (last year’s Budget forecast a more speedy return to surplus than this year’s Budget). It is noteworthy that the response to the Budget by rating agencies has generally been positive.

In this special Gilbert + Tobin tax publication, we explore the key tax measures which have emerged in the Budget focussing on business taxpayers, those measures which have been announced for the first time on budget night and certain expenditure measures which will be of interest to many of our clients.  The key themes emerging from this budget are:

  • the targeting of some of the world’s largest and best known multinational enterprises (MNEs) with various measures, including proposed legislation which attacks schemes intended to avoid having an Australian taxable presence; and
  • providing incentives (and removing tax disincentives) for Australian small businesses (including reductions in the corporate tax rate for qualifying taxpayers to 28.5%).

With no apparent intention to attack superannuation, negative gearing or capital gains tax concessions, the strategy of this Budget is to encourage economic growth through small business incentivisation while raising the tax take from the largest multinationals and clamping down on a number of perceived abuses (such as excessive salary sacrificed meal entertainment in the context of not-for-profit employers).

The focus on multinationals represents a defining moment for Australia and its role in the evolution of international tax policy. It is unclear how these measures will affect the budget “bottom line” but what is clear, the Government needs to manage its international obligations under its comprehensive double tax treaty network, the messaging to Australia’s trading partners whose companies will be affected by these rules and the implications for Australian multinationals who do business in other countries which might seek to recover more tax from those Australian companies in response to these measures.