Once again business is used for short-term budget fix

Friday 26 October | Categories: MYEFO, State and Federal Budgets

Earlier this week, the Federal Government released its Mid-Year Economic and Fiscal Outlook (MYEFO) to update the Australian population on how they are running the economy, and what changes have been made since the Federal Budget in May.

Regrettably, the MYEFO takes a short term view that again, like the May budget, hits business in the face of cost pressures.

In other words, it’s short-term and short-sighted.

Short-term because revenue and expenditure assumptions are in flux, and are likely to require review in early 2013.

Short-sighted because again hitting industry weakens the economy, making it harder for the public sector to pick up the slack to avoid future government deficits.

The government is effectively increasing business tax to protect its commitment to maintain a surplus.

Raising the frequency with which company tax is paid amounts to an increase in the effective rate of taxation as evidenced by the considerable rise in revenues associated with the tax hike.

Treasury estimates that the move from quarterly to monthly corporate tax payments will deliver the government an additional $8.3bn in revenue over the forward estimates period.

None of the other savings measures announced in the MYEFO come close to this figure.

There is no policy rationale for raising the frequency of company tax.

The change is motivated by revenue considerations and threatens to undermine international competitiveness of Australian companies.

This follows hard on the government’s abandonment in May of its pledge to reduce the corporate tax rate to 29 per cent.

A further $2.5b is to be raised from tax compliance measures, on top of which fringe benefits tax arrangements have been targeted for $445m in savings.

A repeated pattern of relying on business taxation for the heavy lifting to boost revenues, instead of savings from a reduction in the size of government, is an economically fraught strategy that is unsustainable in the medium term.

Increasing the business tax burden with no clear policy rationale or productivity offset compounds the problem of Australia now being an expensive country in which to do business.

There is little on offer in the MYEFO that lifts productivity or bolsters the supply side of the economy.

Recent CCIQ surveys show that business confidence, particularly in the small and medium enterprises is at very low ebb, and there’s nothing in this mid-year economic statement to change that.

It is also very disappointing to see the deep reductions to apprenticeship incentives announced by the Federal Government as part of the Mid-year Economic and Fiscal Outlook.

The Federal Government will halve the incentives paid for new and existing Certificate III trainees working on a part-time or casual basis that are not part of the National Skills List occupations – that is, mostly non-trades areas such as retail and hospitality.

It will also remove incentives for diploma apprenticeships, as well as the adult apprentice subsidy.

Apprenticeship and traineeship numbers in Queensland are already struggling, and positive action such as incentives has been an important means of encouraging employers to take on apprentices and trainees in a softening labour market.

Given the difficult conditions that small and medium businesses in particular face, the conclusion that many employers have reached in light of the MYEFO is that the Federal Government is intent on pursuing an economic and policy agenda that has little or no regard for the requirements of the business community, or its economic contribution.

The fact that the cuts target non-resources industries that are most exposed to the pressures of the patchwork economy demonstrates the misguided nature of the Federal Government’s economic strategy.

It is also concerning that employers who are already suffering under the weight of the Fair Work Act and the high wages and employment costs that it entails are now being hit by cuts to incentives – a dangerous combination for our labour market that leaves employers without the financial or operational ability to offer training opportunities within employment.