federal election

Prime Minister Scott Morrison has billed the 18 May federal election as a contest between “envy and enterprise”. Labor leader Bill Shorten says it will be a referendum on wages.

The Coalition’s 2019–20 Budget, handed down by treasurer Josh Frydenberg on 2 April, doubled as an election platform on its record of economic management. Labor leader Bill Shorten countered in his reply speech with a Fair Go Action Plan, its centrepiece being a promise to eliminate out-of-pocket expenses for cancer diagnostics and imaging through Medicare.

Increased tax collections and cost savings have resulted in a projected Budget deficit of $4.2b for the year to June and a $7.1b surplus for 2019–20; the first in more than a decade. This will leave the party that takes government with a strong financial starting point, which will be needed given Treasury forecasts that economic growth will slow, at around 2.75 per cent in 2019–20 and 2020–21.

Tax rates

Tax is expected to be a big-ticket item. In a recent Tax insights report, Deloitte notes the Coalition government’s focus has been on the black economy, including illegal tobacco and phoenixing, additional integrity measures (especially with multinational tax) and its 10-year Enterprise Tax Plan.

The Coalition announced in the Budget a doubling in the offset for low and middle-income earners to $1080 available on lodgement of 2018–19 tax returns, a reduction for income earners on $48,000–$126,000. Labor has promised to match this. The Coalition also proposed changes to middle-income tax thresholds and rates starting from 1 July 2022 and 2024, but Labor said it would not support the Coalition plan to lower the 32.5 per cent tax rate to 30 per cent from 1 July 2024.

The Coalition announced that the threshold for the instant asset write-off will be increased to $30,000 and access expanded from those with an annual turnover of $10m up to those with an aggregated annual turnover of up to $50m. Businesses will benefit for depreciable assets purchased and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

For its part, Labor says it will reform negative gearing, capital gains tax and the dividend imputation credit system. It also plans to close perceived loopholes such as those associated with taxation of discretionary trusts.

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While Labor blocked the Coalition’s plan to give big businesses tax cuts, it has an alternative: a permanent Australian Investment Guarantee to reward companies making new investments in Australia. Applying from 1 July 2021, this guarantee would allow businesses to immediately deduct 20 per cent of any new eligible asset worth more than $20,000, with the balance depreciated in line with normal depreciation schedules from the first year. Eligible assets would include tangible machinery, plant and equipment (not buildings) and intangible investments such as patents and copyright.

Tax rules

Under the Coalition government, the Australian Taxation Office (ATO) established the Tax Avoidance Taskforce in 2016 to target tax avoidance by multinationals, large Australian public and private groups and individuals operating in Australia. This was made possible by a $679m investment over four years. Since then, the ATO has raised more than $12b in liabilities, netting $7b in cash.

That said, the Coalition government has yet to establish a promised public register that would reveal the identities of the beneficial owners of shell companies. Labor has committed to introducing one if it wins the election, with shadow assistant treasurer Andrew Leigh saying it would also be extended to trusts.

In the Budget, the Coalition flagged $1b over four years from 2019–20 (including $6.5m in capital funding) to the ATO to extend the taskforce, which is forecast to raise $3.6b in extra revenue from multinationals and high-wealth individuals.

Labor plans to tighten perceived debt-deduction loopholes used by multinational companies. It will also make companies doing business in tax havens disclose that to shareholders, and require all companies tendering for Australian government contracts worth more than $200,000 to state their country of domicile for tax purposes.

Shorten said in a statement in October last year, “We will introduce public country-by-country reporting, work with superannuation funds to make sure they develop guidelines for tax haven investments and stop citizenship shopping by requiring Australians with foreign residency to report to the ATO.”

Labor will also increase penalties for individuals and entities promoting tax avoidance, and introduce a publicly accessible register of the beneficial ownership of Australian listed companies and trusts.

Industrial relations

Labor believes the current minimum wage of $18.93 an hour is inadequate and would like to see a “living wage”. It says that this will require a change in legislation and should be overseen by the Fair Work Commission. The party has also promised to restore weekend and public holiday penalty rates, and crack down on sham contracting and labour hire. In addition, it will reintroduce pattern bargaining in low-paid sectors such as cleaning and childcare, and abolish the recently reconstituted Australian Building and Construction Commission, as well as the Registered Organisations Commission.

Research & development

A Senate economics legislation committee has advised the Coalition to delay a planned $2.4b cut of the R&D tax incentive (RDTI) announced in the 2018 federal budget because of possible “unintended consequences”. The changes include a $4m cap on annual cash refunds for companies with annual turnovers of less than $20m. For companies with a higher turnover, the amount of tax offset received would be determined by the intensity of their R&D expenditure as a proportion of total expenses.

Labor says it wants to “preserve” the R&D tax incentive and says it will devote three per cent of GDP to R&D by the end of the next decade. According to shadow innovation, industry, science and research minister Kim Carr, this target is a “statement of direction and intent”.

The Budget documents made no mention of the proposed changes to the RDTI, suggesting that the proposed government savings remain in its figures.

Small business

Both parties appear to be targeting small business as a key battleground in the lead-up to the election.

Coalition legislation to boost the instant asset write-off threshold from $20,000 to $25,000 — and to extend this initiative for another year to 30 June 2020 — passed both houses of parliament in April.

It is expected to put more pressure on big business to offer reasonable payment terms to small and medium-size enterprises (SMEs). Plus, it will revamp its own payment terms by cutting payment times from 30 to 20 days for invoices under $1m by July next year.

The Coalition has committed to have 35 per cent of all government contracts up to $20m delivered by small businesses. Currently, its procurement policy for small businesses is 10 per cent. It has already:

  • Proposed to move incorporated SMEs with turnovers of less than $50m a year to a 25 per cent tax rate by 2021–22 (currently 27.5 per cent).
  • Increased the small business entity turnover threshold from $2m to $10m a year, thus extending access to a range of tax concessions.
  • Established the Small Business and Family Enterprise Ombudsman in 2015.
  • Set up the $2b Australian Business Securitisation Fund, making it easier for SMEs to access finance.
  • Streamlined GST reporting so businesses can more easily lodge activity statements online.

Labor has promised it will match the company tax cuts offered by the Coalition and continue the instant asset write-off. In addition, Labor has pledged to appoint a small business minister to cabinet and to create a small business commissioner within the ATO specifically to deal with SMEs and taxpayer disputes.

SMEs are also expected to benefit from Labor’s “Local Projects, Local Jobs” plan, which requires government departments to work with local businesses to ensure they benefit from government contracts. Successful bidders will be required to nominate an on-the-ground contact to engage with local SMEs and raise awareness of upcoming tenders and subcontracting opportunities.

Pay transparency

Labor plans to require all listed companies with more than 250 employees to report the ratio of their CEO’s pay to the pay of the median employee. This change would apply from the 2021 financial year to allow the Australian Securities and Investments Commission (ASIC) time to issue appropriate guidance and to give companies enough time to prepare. It also advocates gender pay gap disclosure reforms.

The new policy follows an Australian Council of Superannuation Investors (ACSI) report, which found that the average total pay of ASX 100 CEOs rose by nine per cent in 2017 — four times the average wage growth. Similar transparency measures have been introduced in the US and UK.

Hayne Royal Commission

Both the Liberal and Labor parties have promised to implement all but one of the 76 Royal Commission recommendations if they win the federal election. Both rejected the proposal to make borrowers, rather than lenders, pay upfront fees to mortgage brokers following warnings this could reduce competition, or even wipe out the mortgage industry.

In the Budget, the Coalition allocated $400m to ASIC and $150m to APRA over the next four years. The Federal Court was allocated $35m in anticipation of an increased Royal Commission-related case load.

Labor says broader regulatory changes should be targeted at the bigger banks and financial institutions, which it views as a bigger priority than mortgage brokers. It has also proposed measures that go beyond the Commission’s findings, including a new compensation scheme and a $640m Banking Fairness Fund to help consumers in disputes with financial institutions. These institutions will be targeted with a $160m annual levy to be used to pay for the fund.

The opposition says $320m from the fund will go towards doubling the number of financial counsellors across Australia (to 1000 over the next four years) to provide advocacy, support and advice to an additional 125,000 Australians each year.

It also promises to lift the Australian Financial Complaints Authority (AFCA) compensation cap to $2m. Consumers are currently eligible for $500,000 and small businesses can get up to $1m. It will also double the value of claims that AFCA can consider from $1m to $2m. Bank customers and small businesses will be able to make claims for misconduct dating back to 1 January 2008.

Whistleblowers

In February, the Coalition’s whistleblowing legislation (Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2018) was approved by parliament. It aims to better protect whistleblowers and create a new protection regime for reporting tax misconduct. The new laws protect a broader class of people, expand the types of disclosures that qualify for protection and ensure disclosures can be made to parliamentarians or the media where certain preconditions are met.

Labor supports the introduction of a US bounty-style reward system for whistleblowers in cases in which the information supplied leads to more tax being paid. Whistleblowers would collect a capped share of the tax penalty, taxable as ordinary income.

Skills

Both parties promise increased funding for vocational education and training skills. The Coalition’s $525m Budget package promises 80,000 new apprenticeships in industries with skills shortages and the doubling of incentive payments to employers to $8000 per placement. Labor has pledged a $1b boost to vocational training, which it says would create 150,000 new apprenticeships and cover upfront fees for 100,000 vocational students.

Anti-phoenixing

Labor plans to allow the Commissioner of Taxation to name and shame directors found to be engaging in illegal phoenixing behaviour — the deliberate stripping and transferring of assets from one company to another company to avoid paying liabilities. The Commissioner will also be able to apply to ASIC for formal disqualification orders for directors engaging in illegal phoenixing.

Labor’s anti-phoenixing proposals included new director identification number (DIN) regime to require company directors to provide a 100-point identification check and other information to ASIC at the time of registering a new entity.

The government introduced DIN legislation in February, and the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 into parliament to give ASIC, liquidators and the ATO significant new powers to curtail phoenix activities and prosecute culpable directors. It also creates new phoenix offences (with criminal and civil penalties) for illegal phoenixing. The reforms had not been passed as at 1 April.

Energy & climate change

The Coalition introduced its $3.5b Climate Solutions Package in the Budget — $2b of which will go towards practical emission reduction, working with farmers and Indigenous communities. It also announced a $100m Environment Restoration Fund to deliver large-scale environmental projects.

“This will make a key contribution to us meeting our 26 per cent emissions reduction target under the Paris agreement,” said environment minister Melissa Price announcing the Climate Solutions Fund proposal in February.

Labor’s 10-year energy investment framework is aimed at boosting Australia’s renewable energy generation and storage, and at delivering on its commitment of 50 per cent renewable energy by 2030. Labor says it will provide an additional $10b to the Clean Energy Finance Corporation (CEFC), over five years, to support large-scale generation and storage projects, including solar and wind farms, and to provide concessional loans for purchases of solar and battery systems by households. In January, it said it would set aside $1b in funding from the CEFC for clean hydrogen development and make up to $90m available for research and pre-commercialisation of hydrogen technologies.

It will also create an independent Energy Security and Modernisation Fund to help manage the transition to more renewables and provide $5b to “future-proof” Australia’s energy network by supporting new battery storage, transmission lines, gas pipelines and dams.

Plus, Labor’s new Energy Productivity Agenda will see $31m committed to helping Australian businesses improve energy efficiency. This will include grants of up to $20,000 to help manufacturers reduce energy usage.

“With respect to the wholesale market, Labor has foreshadowed a plan to diversify the generation mix (coal, solar, wind, gas),” says Matt Rennie, EY’s power and utilities partner. “It also plans to build new capacity in the network at transmission and distribution level, including assisting new technologies such as battery storage. It is focused on retail margins to bring down price through attention to the standard vs market offer contracts.”

The Coalition’s development of energy policy has been hampered by party infighting, especially over the highly divisive issue of coal-fired power stations. Nonetheless, it still plans to subsidise new power projects, but has watered down plans to break up power companies manipulating the market.

It’s also moved on from the National Energy Guarantee, which sought to impose on energy retailers an obligation to supply sufficient quantities of “reliable” power to the market, and an obligation to reduce emissions between 2020–2030.

Labor supports a target to cut emissions by 45 per cent by 2030, and sourcing 50 per cent of our energy from renewables. Labor has said it won’t approve any new coal-fired power stations — and will set up a Just Transition Authority to manage the retirement of the coal fleet, with generators required to give three years’ notice of closure.

The Coalition has given the green light for Snowy 2.0 to proceed and will make an equity investment of up to $1.38b in the project in a bid to support new renewable energy in Australia’s future energy mix. Labor promises to keep Snowy Hydro in public hands and to end incentives for state privatisation of electricity assets.

Labor wants a national electric vehicle target of 50 per cent of new sales by 2030 and a government fleet target of 50 per cent of new sales by 2025.

The Coalition has announced a national electric vehicle strategy and has released a discussion paper on developing a hydrogen energy industry.