FEDERAL BUDGET 2012: Where are the tax cuts?

The differences between Australia and the US have been starkly illustrated in the 2012-13 Australian budget. In the 2012 Presidential election campaign, Mitt Romney wants to cut US taxes to 25 per cent while President Obama wants them cut to 28 per cent – remarkable unanimity.

Our government was planning a 1 per cent reduction in company tax and was expecting consequent growth dividends to benefit all Australians and reduce unemployment.

But, of course, that company tax cut was to come out of the revenue that the government speculates can be raised from the mineral resources tax.

The corporate tax cut was rejected by the opposition who plan to abandon the resources tax.

The government has responded by not cutting corporate tax, so the Australian company tax rate will stay at 30 per cent. That will boost the budget bottom line by $300 million in 2012-13, $1.2 billion in 2013-14, and $1.55 billion in 2014-15.

Total money that the 1 per cent tax cut would have returned to the corporate sector over four years was $4.5 billion.

But the government has spent most of the $4.5 billion corporate tax cut money on low-income benefit schemes, which are effectively welfare, and do nothing for productivity. They will be hard to reverse.

The employment benefits and community prosperity benefits that the Americans recognise stem from corporate tax cuts have been lost on 'old-style labour values'.

But Tony Abbott must share part of the blame. It is unlikely Australia can sustain a 30 per cent corporate tax rate when America is 25 or 28 per cent.

By contrast, miners feared that the government would abandon the diesel fuel rebates and defer tax deductions on overburden removal. Such measures would have decimated coal expansion and caused BHP's Olympic Dam project in South Australia to be mothballed.

South Australian Premier Jay Weatherill knew Olympic Dam faced mothballing and pleaded with the federal government not to take that action. He was successful. Had the government raised money from diesel it would have not have had to rely on an optimistic forecast for the mineral resources rent tax to gain a surplus.

Meanwhile, there are a number of corporate measures that will help the small enterprise sector and boost productivity.

From July 1, businesses with a turnover of less than $2 million will be able to write off each eligible business asset costing less than $6,500. Some 2.7 million businesses will be able to update computers, phones, etcetera, and gain an immediate tax deduction.

In addition, in 2012-13 companies of all sizes will be able to ‘carry back' losses of up to $1 million. That means that if a retailer made a profit in year one and paid $300,000 in tax then, and in the next year that retailer incurred a loss due to depreciation on new investments, then it will be able to get back the $300,000 tax paid.

So, in 2012-13 there will be some refunds. It's not a big item but it will encourage smaller enterprises to update their equipment.

Small enterprises are becoming important users of new technology, which is not expensive, and these measures will encourage them to invest. It's one of the few things in the budget to help productivity.