The Federal Budget has been delivered and lots of analysis undertaken by all sides as to whether the money spent was too much (Australia will have $1 trillion of national debt), not enough or not targeted in the right place. But what does it all really mean?
JobKeeper – Whilst not part of the budget itself, the speed of the roll out of the program and its wide application has helped soften the impact of Covid-19. It has acted as a life support system for the economy and soon we will see whether it has worked or whether it merely delayed the inevitable. JobKeeper has been and continues to be very expensive and as such has contributed towards the record deficit and net debt owed by Australia.
Bringing forward the tax cuts is a calculated gamble – tax cuts mean less revenue for the Federal Government and therefore a bigger deficit, however, the view taken is the more money in the economy will lead to more confidence and therefore more jobs. More jobs means employment and taxes filling the funding hole.
Jobs and cash in people’s pockets is hoped to provide confidence, that magic ingredient, without which the economic plan laid out by the Federal Government simply won’t work.
- The loss carry back rules, whilst helpful and in line with a lot of OECD countries should become a permanent fixture rather than a temporary band-aid. Again whilst putting money and confidence back into the economy its increasing the deficit.
- Structural tax reform whilst required is clearly now a long way off, despite this the States need to do their bit. Deferring or waiving payroll tax for a period is not a solution but scrapping it is – how can State Governments support and defend a tax on jobs in the current environment?
All very interesting, but what does it all mean…
The above tell us that there is a lot of money that has been and will continue to be spent to see us through this period of uncertainty. The big question though is how are we going to pay for it all?
Given the Federal Government cannot run the political gauntlet of raising taxes, its only option is to ensure that the current law is being appropriately policed. In that regard, the ATO’s current recruitment drive for technical staff members (sourced from commercial accounting firms) should be taken for what it is – a clear indication of the ATO seeking to ramp up its review and audit activity in the coming periods.
With this in mind, all taxpayers should ensure that they are taking steps to manage their affairs in the appropriate manner based on the size and scale of activities undertaken and values involved. For high net worth and emerging high net worth taxpayers, this includes governance processes and associated matters in line with the ATO’s justified trust methodology.
One thing I am sure of – the ATO will come knocking to check on your compliance. They have already started with the Next 5000 Program. Be proactive and ensure you are correctly ticking every box now. Speak to your ESV Engagement Partner for more details on how we can assist you.