Treasurer Jim Chalmers will deliver his first federal budget next week, the second budget for this year, and one that the new government says is part of a series to repair a structural deficit.
Much of the pre-budget commentary has been framed around the perilous state of the global economy and the need to balance the books in the face of growing expense pressures from the National Disability Insurance Scheme, aged care, health, defence, and debt interest payments.
Speculation around the stage three tax cuts has also dominated recent headlines, but it seems like the government has ruled out any changes for the time being.
So, what can we expect to see next Tuesday night?
The public expects fiscal policy in Australia to work hand-in-hand with monetary policy.
We don’t expect to see big revenue returns to people in the form of tax cuts but equally we don’t expect to see massive revenue raising measures in this budget.
Drawing on the UK experience, the public really has no appetite for tax cuts in an inflationary environment, and closer to home, the recent Queensland land tax experience means that the government will probably have no appetite for revenue raising where that comes at a huge compliance cost.
We know multinational tax changes are coming. We expect to see some of the detail about the changes to the thin capitalisation rules, the rules about royalty payments to tax havens, and potentially, the public disclosure of country-by-country reporting information, in a bid to raise more revenue.
The recent announcement denying franking credits paid by companies that undertook capital raisings is also an indication of the sort of tinkering that we might see announced in this budget. But we need more than tinkering. We consider there is appetite for reform that will make the Australian tax system more simple and more efficient.
The Treasurer has been very clear that he sees this budget as the first in a series. If that is the case, then now is the time to announce an inquiry into the reform of the tax system so that we get a root and branch approach to the analysis.
Mark Molesworth is a media and tax partner at accounting and advisory firm BDO.
Originally published as Federal budget needs more than tinkering with tax