Our experts analyse the key budget announcements and outline the essential takeaways for business in the areas of:
* Construction & Infrastructure
* Corporate & Commercial
* Planning, Environment & Sustainability
* Property & Real Estate
* Superannuation, Funds Management & Financial Services
* Technology, Media & Communications
* Transport & Logistics
* Workplace Relations & Safety
Construction & Infrastructure
The Federal Government has committed to a $24.5 billion injection in new major infrastructure projects and initiatives Australia-wide over the next 10 years. This commitment is part of - not additional to - the $75 billion commitment to infrastructure over the next 10 years announced by the Federal Government in the 2017 budget.
The overarching objectives of the funding injection into infrastructure is to reduce road congestion, improve safety and create jobs by providing improved transport accessibility to jobs and services for the growing Australian population.
The 10 year plan includes the following areas:
- transport infrastructure - a $75 billion 10 year infrastructure plan including: - national projects - $9.3 billion Melbourne to Brisbane Inland Rail
- NSW - Up to $5.3 billion Western Sydney Airport, $1.5 billion of funding and a $2 billion concessional loan for the WestConnex project in Sydney, and $2.9 billion Western Sydney Infrastructure Plan
- VIC - $500 million M80 Ring Road and $500 million Monash Freeway Upgrade
- QLD - $6.7 billion Bruce Highway
- WA - $1.3 billion METRONET, including $490 million for the Forrestfield Airport Link
- SA - $1.6 billion Adelaide North-South Corridor
- TAS - $400 million Midland Highway
- ACT - $67 million for Capital Metro under the Asset Recycling Initiative
- NT - $192 million for the Northern Australia Roads Program
- new national infrastructure initiatives – including:
- Roads of Strategic Importance: $3.5 billion, including $1.5 billion for Northern Australia Package, $400 million for Tasmanian Roads Package, $100 million for NSW and ACT Barton Highway Corridor Package and $1.5 billion for future national priorities
- $1 billion Urban Congestion Fund
- $250 million for Major Project Business Case Fund
- community infrastructure – including:
- $206.5 million over four years from 2018-19 for round three of the Building Better Regions Fund, to support investment in community infrastructure and capacity building projects in regional areas
- $154.3 million over five years from 2017-18 to support the Government’s goal of building a more active Australia
- healthcare – including:
- health funding is expected to increase from $78.8 billion in 2018-19 to $85 billion in 2021-22
- a new public hospital agreement which will deliver more than $30 billion in additional funding between 2020–21 and 2024–25 – a 30% increase over the previous five year
- Australia’s public hospital funding to more than double from $13.3 billion in 2012-13 to $28.7 billion in 2024-25 including $189 million for hospital infrastructure in Western Australia
- housing – including:
- establishment of the National Housing Finance and Investment Corporation by 1 July 2018 which will comprise the Affordable Housing Bond Aggregator and the $1 billion National Housing Infrastructure Facility
- the new National Housing and Homelessness Agreement which will commence from 1 July 2018 and provide $7 billion in housing funding and an additional $620 million for homelessness services over the next five years
- $550 million for remote indigenous housing in the Northern Territory.
Further announcements with implications for the construction and infrastructure sector include:
- the Government’s Defence Industrial Capability Plan including a $200 billion investment in Defence over the next 10 years
- extending the $20,000 instant asset write off for small business until 30 June 2019, which would benefit smaller subcontractor entities by allowing them additional opportunities to reinvest in their business or upgrade assets
- targeting the ‘black market’ to ensure honest businesses get a fair go. Announcements that will have particular implications on the construction and infrastructure sector include:
- introduction of an economy-wide cash payment limit of $10,000 aimed at reducing illegal activity and which may have particular impact in the home building space
- increased focus on supply chains and integrity of Commonwealth procurement processes (please see our Procurement section below) - proposed action to prevent businesses claiming deductions for payments to employees and contractors where withholding obligations have been disregarded
- new ‘vacant land’ tax measures which will be implemented from 1 July 2019 to deny tax deductions for certain expenses associated with vacant land. Aimed at addressing concerns that tax deductions relating to vacant land are being improperly claimed for expenses, the new measures will preclude property owners and developers from claiming expenses such as council rates and maintenance costs for vacant land in their tax returns. This may have significant impacts where a developer is delayed in achieving final completion due to a contractor’s fault, with the inability to claim certain expenses possibly falling within liquidated damages regimes.
$3.6 million has been allocated over four years to an Anti-Slavery Unit within the Department of Home Affairs. It is predicted that the Anti-Slavery Unit will implement a modern slavery reporting requirement to assist in the prevention of modern slavery from occurring in the supply chains and operations of businesses in Australia. Perhaps a surprising announcement to some, this allocation aligns with the recent Modern Slavery Bill 2018 (Cth), expected to be enacted later this year, which is an Act with respect to slavery, slavery-like practices and human trafficking and aims to bring Australia into line with its international counterparts such as the UK.
Another important announcement in the procurement space is a new requirement that, from 1 July 2019, businesses tendering for Australian Government procurement contracts over $4 million must obtain from the ATO certification that they have complied with their tax obligations. $9.2 million has also been allocated to the ATO to develop and consult on a Procurement Connected Policy over four years from 2018 – 2019. These two announcements demonstrate a clear push from the Commonwealth Government to increase the integrity of Commonwealth procurement processes, also evidenced by the Government Procurement (Judicial Review) Bill 2017 (Cth) which was introduced into Parliament last year and is expected to be enacted in mid to late 2018.
Corporate & Commercial
The federal budget has been described by commentators as containing few surprises.
Some of the key takeaways for business include:
- tax relief for individuals – this is intended to be delivered in three stages over seven years - with immediate relief to low and middle income earners, measures to protect against “bracket creep” and steps taken to make personal taxes “simpler” and “flatter”
- tax relief for businesses - the Government is legislating tax cuts for all businesses, prioritising small to medium businesses
- superannuation – new rules will be implemented to limit fees charged and to restrict the provision of services that are not required
- incentives will be available for businesses - the Government will overhaul research and development tax incentives. The Government will target incentives to promote research, development and new technology. Importantly, the Government has extended the current $20,000 instant asset write-off. Further export support has been announced focused on agriculture and defence
- investment in infrastructure will continue - the Government has outlined a commitment to delivering transport infrastructure, innovation and science research infrastructure and supercomputing capacities, all of which are intended to support industries and jobs
- significant funding will be made for hospitals and schools and guaranteed funding will be committed for disability services. Funding will also be channelled to a "21st century Medical Industry Growth Plan" intended to support Australia as a global health industry leader in medical technology, biotechnology and pharmaceuticals
- border security (including at airports) and biosecurity will be funded. Government borrowings are intended to continue to fund critical infrastructure and defence spending
- businesses will need to deal with a new "consumer data right" which has been mentioned. This right is intended to "revolutionise the provision of data services in Australia by giving Australians the ability to take control of their personal data and share it safely with trusted and accredited service providers." This follows the lead of changes to data laws in the European Union
- multiple tax integrity measures are to be introduced including: - the extension of anti-avoidance rules for circular trust distributions to family trusts - tightening access to concessional tax rates for minors receiving income from testamentary trusts - removing small business CGT concessions for the assignment of partnership rights - amending the thin capitalisation rules to ensure that inbound investors cannot access tests that are only intended for outbound investors.
More detailed information is available here: www.budget.gov.au
There were some interesting announcements in this budget for the Immigration area. We summarise the key points.
Funding and savings:
- cost of providing migration and citizenship services is estimated to be reduced from $807 million to $744 million
- revenue from visa application charges is estimated to increase to $2,541.7 million. This is an increase of $394.4 million and there is no detail as to how this increase will occur
- there will be additional investment to improve scrutiny of visa processing and passenger screening, and clearance of visitors and goods at our borders
- $130 million to upgrade the Department of Home Affairs ICT infrastructure for visa processing, identity management and threat analysis.
Visa program changes:
- a new visa for General Practitioners will be introduced to target areas of doctor shortages
- a pathway to permanent residence for Retirement Visa holders and Investor Retirement visa holders will be introduced. The Investor Retirement Visa is to be closed to new applicants.
Planning, Environment & Sustainability
PFAS Remediation Research Program
The Government will provide $34.1 million over five years from 2017 18 for research and associated activities related to per and poly fluorinated alkyl substances (PFAS). This funding includes:
- establishment of a PFAS Remediation Research Program
- additional resourcing for the Department of the Environment and Energy.
The PFAS Remediation Research Program will facilitate the development of innovative technologies to investigate and remediate PFAS contaminated substances, including soil and other solid contaminated debris, groundwater, waterways and marine systems. The cost of the Program is partially offset by the Department of Defence (Defence), with administration costs jointly funded by Defence and the Australian Research Council.
The Government will provide $23.1 million over four years from 2018‑19, and $5.7 million annually from 2022‑23, to establish the Australian Heritage Grants Program (AHGP). The AHGP will provide grant funding to protect and promote places in Australia with Commonwealth, National or World Heritage values.
The cost of this measure will be met from savings from the rationalisation of the existing heritage grants programs and from within the existing resources of the Department of the Environment and Energy.
Great Barrier Reef
Building on the 2016-17 MYEFO measure Invest in Our Great Barrier Reef, the Government will provide $535.8 million over five years from 2017-18 to accelerate the delivery of Reef 2050 Plan activities.
This includes funding to:
- build the Great Barrier Reef’s (Reef) resilience to coral bleaching and extreme weather events through expanding the culling of the coral eating crown of thorns starfish and by improving the quality of water entering the Reef
- progress a research and development program for science innovations for coral reef restoration and adaption to rising ocean temperatures
- boost Reef health monitoring and reporting activities through the implementation of the Reef 2050 Integrated Monitoring and Reporting Program
- expand the Joint Field Management Program with the Queensland Government
- engage the community including traditional owners in Reef protection and sea country management, including through a Reef communications campaign.
Boost for western Sydney
The Government will provide $125.0 million over five years from 2017‑18 to support infrastructure projects and liveability initiatives under the Western Sydney City Deal, including:
- up to $50.0 million towards the development of a business case for Western Sydney Rail, including an investigation of integrated transport and delivery options for a full North South Rail Link from Schofields to Macarthur, to be funded on a 50:50 basis with the NSW Government
- $60.0 million to improve community infrastructure in Western Sydney
- $15.0 million to accelerate planning and zoning reforms to support housing supply in Western Sydney.
The Federal Government has committed to a $75 billion 10-year rolling infrastructure plan directed at addressing congestion in our cities and making rural roads safer.
This has implications for regional Australia as well as cities with an emphasis on bringing agriculture products to market.
The package includes the Tulla Airport Rail, Western Sydney Airport rail, Brisbane Metro, Perth Metronet, and the M1 upgrade on the Gold Coast.
At a more local level the package includes the Shoalhaven Bridge, Avalon Airport, new works on the Geelong line and an electrification upgrade for the Frankston to Baxter rail line, the Bridgewater Bridge, the Coffs Harbour Bypass, the Bunbury Outer Ring Road, boosting the Bruce Highway from Pine River to Caloundra and Section D from Cooroy to Curra, the Buntine Highway in the NT, and the Adelaide North South Corridor.
These projects will have significant urban planning and environmental implications with the usual need for the reservation of transport corridors, compulsory acquisition and environmental studies and hearings in relation to the effects of these projects.
Property & Real Estate
Cutback on tax incentives relating to vacant land
From 1 July 2019, the Government will remove the ability for individuals and corporations to claim deductions for expenses associated with holding vacant land. The Government has introduced the measure allowing it to add $50 million to the budget’s line and to curb the practice of ‘land banking’ (i.e the practice of holding land with the expectation that it will increase in value at a later date).
The Government did announce exemptions for vacant land owned to carry out a business, including a business relating to primary production. No exemptions have been announced for land that is being held by developers whilst development approvals are being obtained. In this regard, the Urban Development Institute of Australia (UDIA) has expressed concerns that developers could be unfairly punished for holding vacant sites which have long development approval times.
Superannuation, Funds Management & Financial Services
Key superannuation and funds management announcements include:
- people with income of more than $263,157 who have multiple employers will, from 1 July 2018, be able to designate that their wages from certain employers are not subject to the superannuation guarantee – this will enable them to avoid inadvertently breaching the $25,000 contribution cap
- as recommended by the 2014 Financial System Inquiry, a “retirement income covenant” will be introduced (via the Superannuation Industry (Supervision) Act 1993), under which superannuation fund trustees will be required to develop a strategy to help members achieve their retirement income objectives and offer “comprehensive income products”. There is currently no such requirement
- self-managed superannuation funds and small APRA-regulated funds will be able to have six members from 1 July 2019, up from the current maximum limit of four
- the 50% discount for capital gains on assets held in a managed investment trust ( MIT) or attribution management investment trust (AMIT) for more than 12 months will be removed at the trust level. Beneficiaries will need to determine their own entitlements to CGT discounts when receiving capital gains distributions from a MIT or AMIT.
‘Opt-in’ insurance only for young members and members with low or inactive accounts
Insurance within superannuation will move from default (or automatic) cover to ‘opt-in’ cover for:
- members with balances of less than $6,000
- members under 25
- members whose accounts have not received a contribution in 13 months and are inactive.
The Government proposes that the changes will take effect on 1 July 2019. Affected members will have 14 months to decide whether to opt-in to the existing cover or allow it to ‘switch off’.
The measure is designed to protect retirement savings from undue erosion and ultimately increase Australians’ superannuation balances.
However, Trustees may need to consider ways to mitigate against the potential unintended flow-on effects of these measures – including on premiums and cover available to other member cohorts under group policies where the proportion of lower risk insured members may decrease.
‘Work test’ exemption for recent retirees
People aged 65-74 with superannuation balances less than $300,000 will be exempt from the work test for voluntary contributions in the first year that they do not meet the work test requirements.
This is designed to give recent retirees additional flexibility to ‘get their financial affairs in order’ in the transition to retirement.
The work test currently restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who self-report as working a minimum 40 hours in any 30 day period in the financial year.
The Government proposes the measure will take effect from 1 July 2019.
Ban on exit fees and cap on ‘passive’ fees
A ban will be introduced on exit fees on all superannuation accounts, together with a 3% annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000.
There is already a legislative requirement that buy-sell spreads, switching fees and exit fees be charged on a cost recovery basis only. Presumably the intention is that for exit fees, this restriction will be replaced with a blanket prohibition.
There doesn’t appear to be a ‘centrepiece’ to this budget – as in previous years. If there is a theme then it’s that the ATO is to be resourced to increase its audit investigations. This is across a large number of areas where revenue ‘leakage’ has already been identified – particularly the black economy, employee obligations and phoenixing activities.
Specifically the reform of the R&D tax incentive continues to send mixed messages (on the one hand encouraging participation in the program whilst on the other complaining about it being exploited). We welcome the increased vigilance – as opposed to making wholesale changes to what is essentially an efficient system.
In a paper recently delivered (23 April 2018) by Holding Redlich (tax) litigation partner Damien Bourke these changes to the R&D tax regime were flagged.
The $318m to target the ‘cash’ economy is boosted by a further $133m to increase tax debt collections and an additional $130m for increased compliance and audits.
Holding Redlich has strengthened its capability to respond and advise clients on revenue disputes (ATO Risk Reviews and Audits) as well as any tax litigation which ensues, with the appointment - last November - of former EY Tax Controversy partner Damien Bourke.
Technology, Media & Communications
Data & Privacy
Funding for innovative data use creates exciting opportunities
The Minister assisting the Prime Minister on Digital Transformation, Michal Keenan, announced on 1 May that the Government would create a framework for a Consumer Data Right, establish a new National Data Commissioner and implement greater sharing of public data via a new legislative framework. This announcement was in response to the Productivity Commission’s inquiry into data availability and use, released in May 2017. Therefore it has come as no surprise that funding to take these steps was provided in the budget.
The budget provided for:
- Approximately $45 million over four years to develop a Consumer Data Right (CDR) framework within the Competition and Consumer Act 2010 (Cth). This will provide consumers with the right to access, and require transfer of, specific data around transactions, usage and products, in a digital format. The Government will initially roll out the CDR in the banking sector, with the energy and telecommunications sectors following shortly after that. Eventually, the CDR would be rolled out economy-wide. This funding will be allocated as follows:
- the Australian Competition and Consumer Commission (ACCC), which will have an oversight role to ensure the system operates as intended and supports both competition and good consumer outcomes, will receive additional funding of approximately $20 million over four years. This is to assist the ACCC to determine the costs and benefits of designating sectors that will be subject to the CDR and to develop and implement CDR rules and the content of data standards
- the Office of the Australian Information Commissioner (OAIC), which will have responsibility for individual consumer complaints and will assess the privacy impact of designating sectors subject to the CDR, will receive $13 million in additional funding over four years
- the Commonwealth Scientific and Industrial Research Organisation (CSIRO), which will have a role as the Government’s data standards setter, will receive $11.5 million over the same period
- $20.5 million over four years for the development of a legislative public data sharing and release framework, which will be implemented by the new National Data Commissioner. The National Data Commissioner will be responsible for developing guidance on data sharing arrangements, monitoring and addressing risks and ethical considerations on data use and managing the process for high value data sets. The Australian Bureau of Statistics will provide technical guidance to Government agencies in relation to the release of data sets, particularly in relation to de-identification.
The Government’s full vision for the new CDR is still not entirely clear. For example, the budget papers refer to the CDR in the context of infrastructure investment, noting that the right will enable the better use of existing infrastructure through the better collection and use of data, suggesting that Government itself will have an interest in the data made available to consumers, provided appropriate protections are in place. Notwithstanding that there is still a level of detail that needs to be provided by the Government, these proposals are very exciting – there is a significant potential to productively use the vast quantities of data that not only the public sector, but the private sector, holds to improve the lives of Australians. The funding provided in the budget is a step in the right direction!
$140 million top-up for Australian film industry
It is hoped major international film studios will be lured to shoot more films on Australian soil following the Government’s announcement of changes to the Location Offset Incentive.
The rate of the Location Offset will be effectively increased from 16.5 per cent to 30 per cent for eligible large budget productions commencing principal photography in Australia from 1 July 2018, with the top up available at $35 million per year over a period of four years from 2019/20.
The Government predicts the new funding will generate more than 3,000 jobs within the Australian film industry and support around 6,000 Australian businesses each year.
Details on the mechanics of the scheme are yet to be released, but it is expected that it will include the capacity to approve and release funding quickly so Australian studios can promptly respond to attract large-scale productions.
It is hoped the change will provide greater certainty for the Australian film and television sector that has repeatedly requested a permanent lift to the location offset to make filming in Australia internationally competitive. Territories like New Zealand, Canada and the United Kingdom have all been successful in utilising big budget productions to inject significant foreign investment into their economies.
While this is welcome news for Australian studios and crew, it is estimated this funding boost will, in practice, only be able to attract two major productions (of the scale of Aquaman) each year.
The funding boost is a positive step for the Australian film industry, but concerns remain surrounding funding of local Australian productions amidst the radically changing landscape of Australian film, television and streaming services.
Transport and Logistics
Infrastructure spending, particularly on rail, are the transport highlights of the 2018 Budget.
Spending on rail, whether specifically freight or passenger, will produce significant efficiency and productivity benefits across the freight network, benefiting transport companies, importers and exporters, and consumers.
One highlight ($400 million) is the duplication of the Port Botany freight line, which has been on the transport wish-list (at least in NSW) for many years. Duplication of this freight line in Sydney’s port and airport precinct should take significant amounts of freight off the already congested road network around the port and airport.
This works in with the National Freight and Supply Chain Strategy, to which the budget has committed $5 million over four years. This Strategy is the essential element in the attempt to pull together the diverse strands into a focused and deliberate whole.
The budget also commits several billion dollars (from the $75 billion infrastructure fund announced in last year’s budget) to roads around Australia, including $5 billion for East-West Link and North-East Link in Melbourne. While not necessarily freight- specific improvements in the road (and rail) networks, this will certainly improve efficiencies in supply chains.
Perhaps the most controversial measure is the imposition of a new levy on imports, in the form of a tax of A$10.02 per TEU (20’ container) and $1 per tonne on non-containerised goods. The levy is intended to provide around $115 million in the first year to fund higher quarantine standards relating to exotic pests and the like.
Workplace Relations & Safety
The government has announced a raft of measures in the federal budget set to help Australia’s older employees with careers in the modern workforce.
- targeted training to help mature age job seekers aged 45 years and over to enhance employability, develop digital skills and identify opportunities in local labour markets
- training funding of up to $2,000 for workers aged 45 to 70 years to take up reskilling or upskilling opportunities, with the Government contribution to be matched by either the worker or their current employer
- support for mature age workers who are considering early retirement or who are retrenched to look at alternatives to remain in employment
- additional funding for Inclusive Entrepreneurship Facilitators for an increased focus on mature age people to promote entrepreneurship and new business opportunities and to provide business mentoring
- restructured Employment Fund to allow additional wage subsidy places for mature age employees.
Also, workers earning over $263,157, who have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee from 1 July 2018.