Australia: Summary of Mid-Year Economic and Fiscal Outlook 2013-14

Last Updated: 21 December 2013
Article by Stephen O'Flynn

This year's MYEFO had the added expectation that comes with a New Government. As expected Federal Treasurer Joe Hockey placed a strong emphasis on the issues inherited from the previous Labor Government. The MYEFO paints a grim picture of the fiscal position of the Federal Government and the Australian economy. It forecasts a $47 billion deficit in 2013-14, $123 billion worth of cumulative deficits over the forward estimates, declining terms of trade and unemployment rising to 6 1/4%.

Prior to MYEFO the Government had already:

  • introduced legislation to repeal the Minerals and Resources Rent Tax and Carbon Tax.
  • declared that of the 92 announced but unlegislated tax changes, 34 would proceed, 7 would proceed with amendment and 51 would not proceed.

Key measures that are not being proceeded with include the:

  • cap on deduction for self education expenses
  • removal of statutory formula for Fringe Benefits Tax (FBT) purposes
  • tax on superannuation pensions earning over $100,000
  • R&D tax incentive - quarterly credits
  • Bad debts - ensuring consistent treatment in related party financing arrangements (symmetric treatment of bad debts).
  • Foreign accruals regime
  • "better targetting" of not-for-profit tax concessions

Key measures that are being introduced include the:

  • Changes to the thin capitalisation provisions
  • CGT treatment of earn-out arrangements
  • reverse charge GST mechanism for the sale of a going concern or of farm land
  • income tax treatment of instalment warrants
  • GST and cross-border transactions – "connected with Australia" rules
  • Loss recoupment rules – multiple classes of shares

It will be interesting to see if any of this legislation is actually able to be passed prior to the changes to the composition of the senate on 1 July 2014. They have already been able to lift the debt ceiling with the support of the Greens to $300m. However, they have struggled to get other legislation through. Treasurer Hockey said that there was $5 billion of savings before parliament that was previously part of Labor policy that Labor refused to pass.

The Abbott Government has come to power on the back of a mantra of better financial management, reliability and integrity. Backflips on the Gonski Education reforms and the handling of Holden's departure from Australia have already put pressure on the Government in its first 100 days to demonstrate these qualities.

There are still questions hanging over some of the Coalition's big ticket promises of paid parental leave and the National Disability Insurance Scheme. There was little guidance on the future of these reforms but no cut backs have been announced as yet.

You may also ask with the departure of Ford and Holden what is in the MYEFO for the manufacturing industry. There has been little clarity provided on initiatives to assist the manufacturing sector. However the Treasurer did advise that there were some provisions included to support workers. The Government believes that its main assistance to the manufacturing industry is the repeal of the carbon tax and the subsequent reduction in power costs to increase competitiveness of the manufacturing industry.

One election policy not costed is the 12,000 reduction in public sector headcount over 2 years. Hockey said as "the previous Government had cut over 14,000 public service jobs without an announcement, our proposal will be reviewed in light of the findings of the National Commission of audit."

Overall the MYEFO did not deliver any new significant macro developments. However, as a number of significant issues are still in limbo, 2014 will be a very interesting year in politics.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

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