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Economic Transformation or a lick of new paint?

25 July 2006

Economic Transformation or a lick of new paint?

Business Tax Review proposals are step in right direction but not as “radical” as we were led to believe

The Government’s long-awaited Business Tax Review discussion document has just been revealed. Ernst & Young tax director Geof Nightingale says while it contains positive proposals which will hopefully stimulate growth, if and to what extent they are put in place, it is does not constitute the “radical” review that the business community was expecting.

The document presents a shopping list of proposals but it’s quite clear that the Government will not let business have them all. Business is asked to

choose from:

-dropping the company tax rate from 33% to 30%, at an annual estimated cost of $540 million.

-Targeted tax credits for:
- R&D activities
- export market development activities, and
- skills improvement;

- depreciation rate changes and
- compliance cost reduction measures.

The final mix of measures taken forward by Government will depend on submissions and the fiscal constraints it faces as the next 12 months unfolds.

Mr Nightingale says the reduction in the company tax rate will level the playing field between Australia and New Zealand which is good news, although the cut is unlikely to take effect before 1 April 2008.

Different business sectors will have different view of the priorities of the measures proposed but a reduction in the corporate tax rate will find widespread support.

There is a sense of deja vu for business as well as some of the proposals appear to dip back into the 70’s and early 80’s where export market development rebates were a feature of our tax system.

Mr Nightingale said that the limited scope of the review has contributed to the relative conservatism of the proposals. The Government specifically excluded capital gains tax, changes to GST and personal taxes from the scope of the review, leaving officials to come up with ideas largely within the existing framework.

Business will welcome the strong dismissal of payroll tax by the Government as an option to subsidise the reforms.


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