2013-14 Budget continues proud record of tax reform

The 2013-14 Budget continues the Gillard Government's proud record of tax reform to deliver a stronger, smarter and fairer tax system:

• A stronger tax system with a secure revenue base to support high quality public services that Australians expect and deserve;
• A smarter tax system that encourages entrepreneurial activity and workforce participation; and
• A fairer tax system that ensures tax concessions are appropriately targeted and everyone contributes their fair share to our society.

In 2010, the Australia's Future Tax System (AFTS) review outlined a 40-year vision for Commonwealth and state tax systems. The Gillard Government has now acted on over a third of the 138 recommendations made in the AFTS review in a few short years.

Cumulative AFTS recommendations by implementation year

New measures in the 2013-14 Budget

The 2013-14 Budget includes the following new measures:

• Protecting the corporate tax base from erosion and closing loopholes. The Government is making changes to protect the corporate tax base from loopholes and abuses that have emerged in recent times. This will provide savings of more than $4 billion over the forward estimates. Further information on this package can be found in the joint media release issued by the Deputy Prime Minister and Treasurer, and the Assistant Treasurer.
• A more responsive tax system. The Government will extend the Pay As You Go monthly instalment measure announced in MYEFO so that it also applies to all large entities (not just corporates). This move from quarterly payments to monthly payments will be phased in over almost four years and will ensure the instalments of companies, large trusts, superannuation funds, sole traders and large investors are aligned to their incomes. This will provide savings of $1.4 billion over the forward estimates.
• Targeting trust tax avoidance. The Government will provide the Australian Taxation Office with $67.9 million to investigate and audit the use of complex trust structures by high wealth individuals to avoid and evade tax. This will provide a net gain to revenue of $311.1 million over the forward estimates.
• Increasing the Medicare levy low income thresholds. The Government will lift the low‑income thresholds for families paying the Medicare levy in line with the CPI, with effect from 1 July 2012. This will ensure the Medicare levy does not add to cost of living pressures for low‑income families. This will have a cost of $38 million over the forward estimates.

Further measures act on explicit recommendations of the AFTS review:

• A more sustainable family payment system. The Government will abolish the Baby Bonus from 1 March 2014 and replace it with new family payment arrangements for newborns. Further information can be found in the media release issued by the Minister for Families, Community Services and Indigenous Affairs.
• Better targeting health expenditure. The Government will phase out the poorly targeted net medical expenses tax offset (NMETO), with transitional arrangements for current claimants. The NMETO predates universal health care and it is appropriate to phase it out as DisabilityCare Australia is implemented and once aged care reforms have been in place for several years. This will provide savings of $963.5 million over the forward estimates.
• Reforming the taxation of tobacco. The Government will index tobacco excise and excise equivalent customs duty to average weekly ordinary time earnings (AWOTE) instead of CPI. Consistent with legislative requirements for taxpayer confidentiality, estimates cannot be published for this measure.

Measures in the 2013-14 Budget which have previously been announced

The 2013-14 Budget also includes the following new measures which have previously been announced:

• DisabilityCare Australia. The Government is increasing the Medicare levy by half a percentage point to provide a strong and stable funding source for DisabilityCare Australia, our most fundamental social policy reform since Medicare. From 1 July 2014, the Medicare levy will increase from 1.5 to 2 per cent. This will provide tax revenue of $11.4 billion over the forward estimates and $20.4 billion between 2014‑15 and 2018‑19. The money raised from the increase in the Medicare levy will be placed into a DisabilityCare Australia Fund for 10 years which will only be drawn upon to fund the additional costs of delivering DisabilityCare Australia. Further information can be found in the joint media release of 1 May 2013 issued by the Prime Minister, the Deputy Prime Minister and Treasurer, and the Minister for Disability Reform.
• Deferral of the 2015-16 tax cuts. The Minister for Climate Change, Industry and Innovation announced on 8 May 2013 that due to the lower projected carbon price in 2015-16, the Government will defer the 2015-16 tax cuts until the carbon price is projected to be above $25.40 in the Budget. This is currently estimated to be in 2018-19. This measure saves $1.5 billion over the forward estimates. Further information can be found in the joint media release of 14 May 2013 issued by the Deputy Prime Minister and Treasurer, and the Minister for Climate Change, Industry and Innovation.
• Superannuation reforms. The Government has announced a package of reforms to improve the fairness, sustainability and efficiency of the superannuation system. This package of reforms saves around $900 million over the forward estimates period. Further information can be found in the joint media release of 5 April 2013 issued by the Deputy Prime Minister and Treasurer, and the Minister for Financial Services and Superannuation.
• Supporting our agricultural sector. The Government is enhancing the Farm Management Deposits (FMDs) scheme by increasing the non-primary production income threshold from $65,000 to $100,000. The changes will also allow primary producers to consolidate multiple FMD accounts when they have been held for at least 12 months. These enhancements will help farmers drive their own financial viability, encourage innovation, investment and diversification, and cut red tape. This is estimated to reduce revenue by $13 million over the forward estimates period. Further information can be found in the joint media release of 27 April 2013 issued by the Deputy Prime Minister and Treasurer, and the Minister for Agriculture, Fisheries and Forestry.
• More timely R&D credits for smaller businesses. The Government is also delivering on its commitment to make the 45 per cent R&D refundable tax offset available in quarterly instalments from 1 January 2014. Providing the offset throughout the year will improve cash‑flow for smaller companies and support further investment in R&D. This measure has no fiscal balance impact but will cost $270 million on an underlying cash basis over the forward estimates. Funding for this measure was provided in the Contingency Reserve in the Mid-Year Economic and Fiscal Outlook 2011-12. Further information can be found in the joint media release of 12 April 2013 issued by the Assistant Treasurer and the Minister for Climate Change, Industry and Innovation.
• Better targeting support for investment in R&D. From 1 July 2013, the Government is better targeting support for research and development (R&D) to companies with annual aggregate Australian turnover of less than $20 billion. This will target the incentive to companies that are more responsive to it, delivering value for money for the community. This will provide savings of $1.1 billion over the forward estimates. Further information can be found in the joint media release of 17 February 2013 issued by the Deputy Prime Minister and Treasurer, and the Minister for Industry and Innovation.
• Reforming self-education expense deductions. The Government will better target work related self‑education expense deductions by introducing an annual cap of $2,000 a person as part of a package of reforms to make a down-payment on the National Plan for School Improvement. This will provide savings of $514 million over the forward estimates. Further information can be found in the media release of 13 April 2013 issued by the Deputy Prime Minister and Treasurer.

Tax Studies Institute

The Government will establish the Tax Studies Institute as a centre for excellence in tax research at the Crawford School of Public Policy at the Australian National University. The Government will provide a one‑off endowment of $3 million to establish the Tax Studies Institute and the Australian National University will provide additional support and funding of $750,000 each year, plus $500,000 upfront.

As a centre for excellence, the Tax Studies Institute will raise the quality of national debate on tax reform and awareness of taxation policy issues, ensuring that the momentum of tax reform is sustained into the future.

The Tax Studies Institute will collaborate with leading academics and public policy experts from institutions across Australia and internationally. A new Chair in tax policy will be established, to be taken up by an internationally renowned tax and public finance expert who will direct the new Institute.