Federal Budget 2022: A budget with a significant deficit is not sustainable

Treasurer Josh Frydenberg has delivered his fourth Federal Budget in a big-spending pre-election pitch to voters.

Mark Molesworth, Tax Partner at BDO in Australia said the Government has sent a message to voters that it was well aware of the rising cost of living by slashing the fuel excise by 22 cents per litre for six months, providing low-and-middle income earners with a $420 increase in the Low and Middle Income Tax Offset to $1500 in a cost of living tax offset, and providing a $250 one-off payment to pensioners and welfare recipients.

“As we predicted, because this is a pre-election budget, there is plenty of bread for the masses, especially in the context of the sharply rising cost of living."

On the increase in the cost of living tax offset (to $1500): “Once again it comes through your tax return so it won’t be available until after 1 July even though it has been badged as a response to current cost of living pressures,” said Mark.

The Budget continues the theme of job creation in the smart country context through the expansion of the previously announced “patent box” regime. In particular, the regime provides for a 17% tax rate and will now apply to commercialised patents for the agricultural sector innovations, including registered agricultural and veterinary chemicals; low emissions technology innovations – supporting the Government’s target to achieve net zero emissions by 2050; and Australian medical and biotechnology patents that can now apply to a number of US and European Patents.

Neil Billyard, National Head of Tax at BDO noted that “the expansion of this regime makes good policy sense as the R&D activities must be conducted in Australia, driving job creation, innovation and focusses on specific industries that are critical to Australia’s long-term future and sustainability targets.”

Small businesses are also in for a pleasant surprise, with the Treasurer announcing a generous tax break for those who invest in external training for their employees, and those who invest in digital technologies.

“Small businesses have been rewarded with a handsome tax break that will allow that to claim 120 per cent of costs incurred in providing external training to employees, and for costs involved in their digital adoption journey,” said Mark.

“We await further details around this measure, but it might help address the shortage of skills that small businesses are facing by upskilling their current employees. Small businesses are also likely to be able to benefit financially from updating their digital systems including their accounting software, cyber security systems, and payment devices.”

Big Brother

On the government’s plan to modernise the PAYG instalment systems and automatically share single touch payroll data with the States and Territories:

“The ATO’s Big Brother perception will grow, with businesses needing to give the Tax Office access to the underlying transaction data in their accounting systems for this proposal to work.

“The automatic reporting of payroll data to various state bodies will also make it very obvious when people aren’t meeting their payroll tax obligations.

“Tonight’s Budget shows that the Government is using the modern economy to improve the administration of the tax system but has stopped short at the operational aspects of tax law, leaving us with little or no real tax reform - again.”

What was left out

Businesses who were hoping to see an extension of tax incentives to encourage them to invest have generally been left disappointed.

“The Government has chosen not to extend the temporary full expensing measure, the loss carry back tax offset, and the instant asset write-off, meaning that these measures will come to an end by 30 June 2023,” said Mark.

“Unfortunately, comprehensive tax reform continues to be placed on the backburner. We wait to see whether there will be any substantive tax policy announcements ahead of an election in May.”