According to RSM Bird Cameron, the Federal budget will impact manufacturers in four different ways. These include the budget repair levy, FBT rate increase, funding constraints for innovation, and lack of focus on the broader infrastructure.
1. Temporary 2 per cent budget repair levy
The budget repair levy applies for 3 years from 1 July 2014 to taxpayers above $180,000 of income at the rate of 2 per cent above the excess income, affecting approximately 400,000 taxpayers. Personal income tax rates are to remain unchanged up until 2016 – 2017. With the Australian economy still heavily reliant on income tax revenues, it remains to be seen if the government is planning to announce some cuts leading up to the next election as a sweetener.
2. FBT rate to increase to 49% from 1 April 2015 to align top marginal tax rate
The budget papers indicate a 6.6% increase in revenues from FBT in 2014-2015 but FBT revenue increases by 13.1% in 2015-2106. The increase is forecast to generate over $1bn of additional revenue by 2017-2018. However, employers who provide benefits to employees earning less than $180,000 a year will need to review the cost of providing the benefits in this form. Employees who have a salary package with benefits and earn less than $180,000 should consider if the previous advantages of their salary package are still valid.
The refundable and non-refundable R&D tax incentives will be reduced by 1.5 per cent to align with the previously announced cut in company tax rate. This means that companies undertaking R&D will now need to find additional funding for projects to substitute the R&D tax incentive they were previously receiving.
At the same time, the Government has announced a $20 billion medical research fund to be established and funded by $5 out of every $7 of additional patient contribution. With the Government specifically targeting medical research to the exclusion of other sectors, RSM Bird Cameron believes this is a missed opportunity for the budget to provide other initiatives to mobilise the economy on an innovation trajectory.
Similarly, the announcements around infrastructure seem purely targeted at road transport, rather than encompassing broader infrastructure. Infrastructure investment creates jobs and raises tax revenue, and that is what is needed to boost the economy.