Payroll relief and better R&D tax concessions head ACCI’s pre-budget wish list

The Federal Government must introduce payroll tax relief for businesses and widen the eligibility of the updated R&D tax concession, the Australian Chamber of Commerce and Industry has said in its pre-budget submission to the Treasury department.

It also recommends a lowering of the top marginal tax rate to 40% and more support for businesses struggling to adjust to the new Fair Work industrial relations systems.

ACCI has addressed the upcoming release of the Henry Review in its submission, which the Government has said will be released before the Budget in May. ACCI said any response from the Government should include a reform of payroll tax, and that thresholds for the application of payroll tax constitute “a major barrier” to growth of SMEs.

“A key priority of any proposal for tax reform should be the alleviation of the payroll tax burden on Australian business. Payroll tax is a direct tax on employment and one that is levied without any regard to a firm’s capacity to pay.”

“Survey evidence reveals that the detrimental employment impact of payroll tax is significant. If the priority of the government is ensuring sufficient job creation to achieve full employment, reducing the burden of payroll tax should feature prominently amongst the Henry Review’s recommendations.”

The submission cites data from state revenue offices suggesting the cost of significantly increasing exemption thresholds would be “relatively modest”.

“ACCI believes increasing the exemption thresholds to at least $2 million in all jurisdictions is a desirable first step in what needs to be ongoing effort to reduce the payroll tax burden that would culminate in its eventual abolition.”

Additionally, ACCI has joined the Australian Industry Group in calling for a review of the proposed changes to the R&D tax credit, saying the new changes would stifle eligibility for small businesses.

ACCI is concerned that all the changes on the eligibility of the R&D activities will substantially reduce the support available to all companies, especially SMEs, pharmaceutical, software, manufacturing and mining firms. The changes may also increase the red-tape burden to apply and qualify for the R&D tax incentive.

“Australia ranked lowest among OECD countries in terms of the percentage of firms that introduce new-to-market product innovations, with only 7% of SMEs and 12% of large firms introducing novel innovations.”

ACCI also said more should be done to help employers get up to speed with the new Fair Work laws, saying that although the January 1 start date has come and gone, “there is still much to be done”.

“In addition, in many areas because of the extent and scope of the changes as employees move from previous State awards coverage to Federal awards, or move within the Federal system to the modern awards, it will be some time until the regulator – the Fair Work Ombudsman – is in a position to be able to provide definitive advice and information about what award coverage and which employee classifications apply to specific employees.”

“Recent indications suggest, in fact, that it is likely that FWO will not be in this position until the latter part of 2010… Appropriate funding should be allocated in the budget to enable this to occur.”

It also indicated its support for the paid parental leave scheme, and said the Federal Government should avoid taxing businesses for such a project.

“It is important that any scheme introduced is properly and comprehensively funded by the
Government. It is not intended that the scheme be funded by employers and this should extend to the administrative costs of the scheme.”

“There is growing concern among business about the additional cost and administrative obligations that will be imposed on business through the current proposals which intend that in most cases the funding to eligible employees be delivered via their employers.”

The comment may be a veiled attack on Opposition leader Tony Abbott’s plan, which would see large businesses taxed to private a 26-week paid leave scheme.

Other recommendations within the ACCI submission include:

• Increased fiscal restraint and an effort to return the budget to surplus.
• Considering more policies to restrict spending than the 2% spending cap.
• A thorough release of the Henry Review’s recommendations with a timeline for tax reform, including reducing the top tax rate to 40%.
• Measuring the success of tax reform through the lens of investment and relief for SMEs.
• More should be done to encourage policies to underpin productivity in the face of an aging population.
• More should be done to encourage reform to enhance productivity including better rules for regulation, competition and free trade, quality infrastructure provision and retaining flexible labour markets.
• More focus on building infrastructure, with emphasis on private sector investment.