A TAX break for small businesses and a cash payment to parents of school-age children ahead of the carbon tax price hikes will be two sweeteners in an otherwise tough federal budget to be delivered tomorrow.
Up to 110,000 loss-making small businesses will be cushioned from the effects of the two-speed economy with a tax break costing $700 million over three years.
Businesses will be able claim losses of up to $1 million against tax they have paid in the previous two years. A business claiming the full amount would get a refund cheque of $300,000 representing the company tax rate of 30? in the dollar.
The budget will also put hundred of dollars into the pockets of 1.3 million families with school-age children ahead of higher prices from the July 1 introduction of the carbon tax.
The plan to replace the existing refund for school expenses with a "Schoolkids bonus" of $410 a year for each primary school child and $820 for high school students turns a rebate that required receipts into a general payment at a time when the government has been under fire over cost-of-living pressures.
The new bonus will start next January and will be paid twice yearly. But all eligible families will receive a lump sum next month for their existing entitlement for 2011-12 without having to produce receipts or make claims.
Loading it into this financial year means it will not affect the government's plan for surpluses from next financial year.
The scheme, welcomed by parent groups, will cost $2.1 billion extra over five years.
But shadow treasurer Joe Hockey said: "The Labor Party is panicking about the impact of the carbon tax on everyday Australians and they are trying to give people a sugar hit with an upfront payment."
Coalition education spokesman Christopher Pyne said it was "just another form of carbon tax compensation that can be spent on anything at all".
In his fifth budget, Treasurer Wayne Swan will pitch to low and middle income earners and to small business. The well off will be hit by measures including a crackdown on their superannuation tax break, but there will also be tightening of welfare, including for single parents and welfare recipients who travel overseas for more than six weeks a year. The crackdown will not affect pensioners. A good reception for the budget is vital for Prime Minister Julia Gillard, whose leadership has been subject to a new bout of speculation over the past week.
The economic aim of the budget, which will see a massive turnaround from a deficit of around $40 billion to a small surplus probably between $1.5 billion and $3 billion is to allow room for monetary policy to take more of the weight in economic management. The markets are expecting more interest rate cuts later in the year.
Mr Swan said the "modest" surplus would "build up over time". He told the Nine Network that "not everybody is in the fast lane of the resources sector". The ability of small businesses to carry back losses a measure that originally came out of last year's tax forum would give from July 1 businesses that "strike choppy water" the certainty to be able to invest.
Frequently Asked Questions about this Article…
What small business tax break did the federal budget introduce for loss-making businesses?
The budget lets eligible small businesses carry back losses of up to $1 million and offset them against tax they paid in the previous two years. The measure is expected to cushion up to about 110,000 loss-making small businesses and was costed at roughly $700 million over three years.
How much cash refund could a business get from the carry-back loss measure?
A business claiming the full $1 million carry-back loss would receive a refund equivalent to the company tax rate — about $300,000 under the 30% company tax rate cited in the budget coverage.
When does the carry-back loss measure start and where did it come from?
The carry-back losses measure takes effect from July 1 and was originally proposed as part of last year’s tax forum. It’s intended to give businesses that 'strike choppy water' more certainty to invest.
What is the new Schoolkids Bonus and who benefits from it?
The Schoolkids Bonus replaces the existing school expenses refund with a general payment of $410 a year for each primary school child and $820 for each high school student. It will be paid twice yearly starting next January, and the government will also pay a lump sum next month to eligible families for their 2011–12 entitlement without requiring receipts.
Why did the government include cash payments and tax breaks ahead of the carbon tax?
The cash payments to parents and the small business tax break were presented as buffers against higher prices expected after the carbon tax begins on July 1. The government framed these as help for everyday households and small businesses facing cost-of-living pressure from the carbon price.
How much will the Schoolkids Bonus and the small business tax break cost the budget?
According to the article, the Schoolkids Bonus will cost about $2.1 billion extra over five years, while the small business carry-back loss measure is estimated to cost around $700 million over three years.
How does the budget affect different income groups and welfare recipients?
The budget targets low- and middle-income earners and small businesses for support, while proposing measures that hit the well-off (including tightening superannuation tax breaks). It also includes tighter welfare rules for some groups — for example, restrictions for single parents and welfare recipients who travel overseas for more than six weeks a year — but pensioners were not affected by the crackdown.
What is the fiscal aim of the budget and what could it mean for interest rates and investors?
The budget aims to turn a large deficit (around $40 billion) into a modest surplus — probably between about $1.5 billion and $3 billion — so the surplus can 'build up over time.' The policy shift is intended to give monetary policy more room, and markets were expecting more interest rate cuts later in the year as a result.
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