Election 2016: The Taxation Debate

Australia’s taxation framework is a focal point for budget repair in the upcoming election.

Multinational Tax Avoidance

With politicians hammering on about tax avoidance, the Coalition has proposed a Tax Integrity Package to tackle the concern. Features of this package include a new stringent Diverted Profits Tax (DPT) to target businesses that shift profits offshore and the creation of an ATO Tax Avoidance Taskforce for enhanced compliance. Initiatives such as the DPT are expected to raise $200 million over four years for the Government. Similarly, the ALP have proposed a multinational tax package, which includes changes to how multinationals claim deductions, a central registry of corporate structure ownership for improved transparency, increased penalties for reporting non-compliance and increased ATO compliance powers. Unfortunately, whilst measures tackling multi-nationals will incentivise multinational companies to pay their fair share of tax, these proposed initiatives might inevitably see Australian consumers bear the burden of companies’ rising taxation costs, as companies seek to buffer their liabilities by raising the prices of goods and services.

Corporate Taxes

Both major parties also plan to lower taxes for business to support growth, higher wages and increased jobs. The Coalition plans to extend tax concessions available to small businesses – i.e. those with turnovers of less than $2 million per annum – to those with turnovers of less than $10 million per annum. In addition, these businesses will have a company tax rate of 27.5%. The general company tax rate will be progressively lowered to 25% over 10 years, an initiative that the Coalition claims will make corporate tax levels internationally competitive. Alternatively, the ALP aim to focus on investing in small businesses to boost the local economy. They propose cutting the tax rate for small businesses to 25%, and allowing them to claim deductions of up to $100,000 a year when hiring new staff. Conversely, they do not support reduced taxes for all companies, arguing that in the name of budget repair, tax revenue should not be lost from multi-million-dollar companies.

Income Taxes

Welcomed by middle-income earners, the Coalition also proposes to increase the threshold at which the 37% marginal tax rate for individuals commences, raising it from $80,000 to $87,000. Both the ALP and the Greens do not support cuts to high-income earners, with the Greens further proposing for a reduction in effective marginal tax rates for low-income workers and an increase for high-income earners.

Other Taxes

Other topical tax issues include the Liberals’ proposed tobacco excise, aimed to reduce smoking and raise government revenue by hiking up cigarette prices; as well as the ALP’s limit on negative gearing and halving of the capital gains discount, which intends to dampen the investor driven property boom that has left first home buyers unable to afford a house. Whilst the ALP claims there should be no changes to the GST, the Coalition suggests the GST should be extended to low value goods imported by consumers, whilst the Greens propose a 20% tax on soft drinks.

Evidently, the complex web of Australian taxation can leave voters perplexed. Nevertheless, with the ever-changing nature of tax, who knows whether today’s proposals will be tomorrow’s policies?