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BDO has highlighted the need for the federal budget to bring additional tax deductions rather than simply accelerated deductions.
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Budget tipped to deliver tax breaks for business investment
30 April 2024
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BDO tax partner Mark Molesworth has stressed the need for the government to introduce additional tax deductions to encourage business investment with the Treasurer hinting there may be tax incentives for business in the budget.
The Treasurer said earlier this month Labor would explore how the “tax system could incentivise private investment” to benefit businesses and investors.
“What we're looking for here is where we have genuine advantages and compelling imperatives. We're looking for where we can make our businesses more competitive,” Chalmers said in a recent ABC interview.
Molesworth said the budget should incorporate additional tax deductions instead of simply bringing forward deductions from future years to the current year.
“Accelerated deductions, like an asset-write-off scheme, are not going to incentivise a business to invest in something it otherwise wouldn’t,” said Molesworth.
The tax partners said the government should instead consider additional tax deductions that would encourage businesses to invest in purchasing new equipment and potentially increase productivity.
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“For example, former Treasurer Wayne Swan introduced a measure during the GFC where businesses received an additional 30 per cent deduction for the new equipment they bought,” he explained.
“It's a bit like the research and development tax incentive with additional deductions or benefits in addition to the deductions that you would have got anyway, because businesses are pretty good at dealing with timing differences.”
Molesworth said it is important that any support provided is broad-based and avoids defining specific industries.
“We would hope that the support doesn't attempt to pick winners, that it is available to any taxpayer, and not just particular types of taxpayers where it might lead to a high likelihood of disputes between taxpayers and the Tax Commissioner,” said Molesworth.
While tweaks to the tax system might be politically palatable, BDO has urged the government to come to the table on tax reform if they are serious about the country’s economic security.
“It is a failure of our politicians to pick up the big picture challenges when it comes to the tax system,” said Molesworth.
“We would welcome a conversation around tax reform but both sides of politics see it as a toxic conversation, which is unfortunate.
He noted that Australia’s tax system is overly reliant on personal income tax receipts – something repeatedly identified as economically depressing by the OECD and IMF.
“Tax reform requires more than just the tinkering of tax thresholds and rates. We hope politicians of all political persuasions will be willing to commit to real reform of our tax mix if they are serious about securing our economic future,” he said.
With the government keeping its cards close to its chest this year, BDO believes the federal budget will give us a glimpse of its election plans in the coming months.
“It’s been an uneventful budget cycle but if we start seeing a heap of sweeteners in this budget, you would expect an early election,” said Molesworth.
“If we don’t, then I believe the government is keeping its powder dry for next year and will run to term up to May 2025.”
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