ACCI: Government uses business for short-term budget fix

Release Date: 22/10/2012

Statement by Peter Anderson, Chief Executive of the Australian Chamber of Commerce and Industry

Regrettably, the Mid-Year Economic and Fiscal Outlook takes a short term view that again, like the May budget, hits business in the face of budget pressures.

“It’s short-term and short-sighted. Short-term because revenue and expenditure assumptions are in flux, 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 today 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 $2.5bn is to be raised from tax compliance measures, on top of which fringe benefits tax arrangements have been targeted for $445mn 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 ACCI 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.