Business to gain a $700m tax lifeline
"The extra cash flow will help them ride out difficult times and take advantage of new opportunities through investment" ... Treasurer, Wayne Swan. Photo: Penny Bradfield
BUSINESSES struggling with the high dollar and other pressures of the mining boom will be thrown a $700 million lifeline in tomorrow's federal budget while parents of schoolchildren will receive large cash payments, which double as compensation for the carbon price.
Treasurer Wayne Swan said today that his fifth budget would be the toughest in a quarter of a century, but noted that a senior IMF economist had given the plan to return to surplus a "ringing endorsement" in today's Australian Financial Review.
"Everyone in politics knows this payment is about the carbon tax" ... shadow treasurer, Joe Hockey. Photo: Jim Rice
The budget, the response to which is looming as another test of Julia Gillard's embattled leadership, will allow businesses that make a loss to claim tax deductions against profits made in previous years.
More than 110,000 companies will be eligible for the measure, which will allow a maximum loss deduction of $1 million and a maximum annual tax refund of $300,000.
As well as a survival mechanism to keep ailing businesses afloat while the dollar and other costs remain high, the government is promoting the measure as an incentive to invest and diversify to adapt to the changing economy.
''The extra cash flow will help them ride out difficult times and take advantage of new opportunities through investment,'' Mr Swan said yesterday.
Losses made in 2012-13 and onwards will be able to be claimed against previous profits.
The tourism sector, one of the hardest hit, welcomed the measure, but the Australian Industry Group said it was not generous enough and feared it would be funded by cutting research and development concessions.
However, cuts to R&D are not believed to be in the budget.
The government also announced it had scrapped the education tax refund, in which parents could claim back education expenses, because very few people were aware of the scheme and it was not being used.
Instead, at the cost of an extra $2 billion over four years, the government will pay low- and middle-income families an annual bonus of $410 for each primary schoolchild and $820 for each child in high school.
Today the caucus will meet for the first time in six weeks and there is widespread despondency through ALP ranks about the next election, with the general expectation of a heavy defeat.
Mr Swan, whose fortunes are linked closely to those of the Prime Minister, said yesterday Ms Gillard was ''as tough as nails and she ain't going anywhere''.
A backbencher told the Herald she had given up door-knocking, so hostile was the response from voters towards Ms Gillard and the carbon tax in particular.
At the same time nothing was being organised and there was no standout leadership candidate, other than Kevin Rudd.
It was broadly perceived within the ALP yesterday that the revamping of the education tax refund into the schoolchildren's bonus was more about extra help with the cost of living to take the edge off the carbon tax.
The budget will contain the tax cuts, pension increases and family tax benefit increases that were promised to compensate for the cost-of-living impact of the carbon tax on low- and middle-income earners.
Mr Swan was circumspect when asked whether the schoolchildren's bonus was extra de facto carbon tax compensation.
''Well it hasn't been designed in this context but the … schoolkids bonus is a very important cost of living measure,'' he said.
''We've put cash in the hands of parents when they need it.''
Similarly, Ms Gillard said while the Australian economy was in better shape than most, it was understandable for families to feel under pressure trying to make ends meet.
The shadow treasurer, Joe Hockey, was more forthright.
''Everyone in politics knows this payment is about the carbon tax,'' he said.
''This has got nothing to do with education and everything to do with the carbon tax and the fact that people are about to be hit with a great big whack on their cost-of-living expenses,'' Mr Hockey said.
"Whatever they claim on Tuesday night is flawed because nobody – including members of the Labor Party – believes that Wayne Swan and Julia Gillard are going to be there to actually have to deliver it."
The budget will turn a $40 billion-plus deficit for this year into what Mr Swan said would be a ''modest'' surplus for 2012-13.
Mr Hockey has challenged Mr Swan to ''stop the spin, stop the fudging and give us a real surplus''.
He has refused to say whether he will back a new education rebate and small business tax breaks in the budget, saying he wants to see the detail.
Mr Hockey said he could not understand how Labor could properly be returning the budget to surplus in light of a slew of pre-budget announcments that showed it was spending more than it was saving.
''Wayne Swan doesn't know whether he is Santa Claus or the Christmas Grinch,'' he said. ''On the one hand the government is making large announcements and handing out money, and on the other hand they're talking about tough cut backs.''
With Jessica Wright
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