BUDGET 09-10: Budget risky yet innovative

Big spending and moderate savings in the Federal Budget have been deemed both risky and innovative by business groups

Big spending and moderate savings in the Federal Budget have been deemed both risky and innovative by the Australian Chamber of Commerce and Industry (ACCI) and Tax Institute of Australia (TIA).

ACCI Chief Executive Peter Anderson says the infrastructure investment is a solid foundation for recovery, but the overall Budget misses other opportunities to address deficit.

"It’s a Budget aimed at these tougher times, but the mix of big spending and moderate saving is a risky high-wire act, albeit a calculated one," he says.

"If the recovery comes soon the Budget strategy might just work. But it’s a big drop and hard landing from a $57.6 billion deficit if the recession is long and deep."

On the plus side, infrastructure spending will contribute to a more efficient and competitive economy when recovery finally comes around, according to Anderson.

"But more should have been done to take pressure off the cost of doing business at a time when the private sector is doing it very tough. That will delay the recovery," he says.

The ACCI applauds extension of the small business investment allowance and says the tax credit arrangement will also help foster innovation.

In light of last night’s announcement, the ACCI is calling for the Government to set up a formal framework for getting the Budget back into balance.

The TIA is also scrutinising the Budget provisions, noting both innovative and negative aspects.

President Joan Roberts says the policy options are not entirely consistent with Australia’s Future Tax System Review, which exhibits simplicity, equity and efficiency.

"The new thresholds for private heath insurance rebate, up front tax exemption for employee share schemes, and the three private insurance tiers are examples where short-term revenue savings policies have the potential to entrench high effective marginal rates," she says.

"We believe that serious thought should be given to minimising the potential for these thresholds to entrench high effective marginal rates."

Suggestions include the adoption of the Board of Taxation’s recommendations regarding managed investment trusts, off-market buy backs, foreign source income anti-tax deferral regimes and GST administration.

Despite identifying various Budget weak points, Roberts is in support of the tax-break provisions.

"The up-lift in the rate of the small business tax break and its extension of time combined with an increase in the R&D expenditure cap are further opportunities that should provide a strong impetuous for small business to invest," she says.

"The simplified R&D Tax Credit scheme has the potential to continue that growth."

Overall, the Budget offers both opportunities and challenges, according to Roberts.

"The Taxation Institute looks forward to examining the budget announcements in more detail and consulting with the government to ensure the opportunities are delivered efficiently and with minimum compliance cost," she says.

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