HENRY TAX REVIEW: Government neglects Henry Review recommendation to introduce automatic tax return, cut corporate rate to 25%

While the Government has introduced one of the Henry Review’s major recommendations in the implementation of a new mining tax, many other proposals have been excluded such as an automatic tax return system.

Additionally, a cut in the corporate tax rate to 25%, extending the definition of a small business to $5 million and cutting the amount given through family welfare payments such as the Baby Bonus are all recommendations that have been rejected by the Government.

Instead, the Government has adopted some of the major recommendations with some amendments. While the Henry Review recommends allowing businesses to write-off assets worth up to $10,000, the Government has implemented a $5,000 limit.

Additionally, while the Review has said the corporate tax rate should be cut to 25%, the Government has said a 2% cut will apply from 2014-15, with the possibility of further cuts if revenues allow.

The introduction of an optional tax return system has also been excluded, although treasurer Wayne Swan has said the Government will continue to investigate the feasibility of such a scheme.

While the Government has adopted some measures entirely, such as allowing assets to be placed in a pool for depreciation and introducing a 40% tax on mining companies, other recommendations have been excluded altogether.

Some of the recommendations left alone by the Government include:

• Increasing the small business entity threshold from $2 million to $5 million.
• Allowing businesses to carry back a revenue loss to offset the prior year’s taxable income.
• Excluding financial institutions from interest withholding tax on interest paid to non-residents.
• Reforming current trust rules to be less complex.
• Introducing congestion charges for registered vehicles on congested roads, with revenue gained to be put towards further institutional reform.
• Introducing the development of mass-distance-location pricing for heavy vehicles.
• Improvements to third party compulsory insurance.
• Introducing volumetric taxes for alcoholic beverages which would converge to a single rate at some point in the future.
• Emphasising a review of institutional arrangements to ensure zoning and planning for residential construction does not inhibit supply and impact housing affordability negatively.
• Reform of income support payments, with the introduction of three major categories: pension, participation and student assistance.
• Replacing Family Tax Benefit parts A and B with a single family payment.
• Integrating certain state taxes such as land tax and local government rates.