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‘Cautious’ budget to focus on energy transition

By Charbel Kadib
4 minute read

Incentives to drive Australia’s energy transition and a “rise in net taxes” are expected to characterise the Commonwealth government’s 2023–24 budget.

Treasurer Jim Chalmers is set to hand down the Albanese government’s federal budget for the 2023–24 financial year later this evening against the backdrop of elevated inflation, mounting cost of living pressures, and global market volatility.

The government has said its budget would aim to strike a balance — easing the cost-of-living burden for vulnerable Australians without exacerbating inflationary pressures.

According to HSBC chief economist Paul Bloxham, the budget would be “cautious in its spending initiatives”, and would involve a “rise in net taxes” in a bid to subdue aggregate demand in the economy and “ease the high-inflation challenge”.

“Despite the budget bottom line that is likely to be much better than had been expected six months ago, we expect the government to save much of the revenue windfall,” he added.

A key component of the government’s limited spending is expected to be a $14.6 billion cost-of-living relief package, which includes an increase to the age cut-off for the Parenting Payment (Single) from eight to 14 from 20 September 2023.

Measures to increase tax revenue are expected to include changes to the Petroleum Resource Rent Tax (PRRT).

Treasurer Chalmers said the changes would ensure offshore LNG industry “pays more tax”, providing investors with policy certainty to “allow the sufficient supply of domestic gas”.

This, he claimed, would ensure Australia “remains a reliable international energy supplier and investment partner”.

HSBC’s Paul Bloxham also expects budget initiatives to focus on accelerating to Australia’s energy transition in support of broader ambitions to combat climate change.

Electronic vehicle incentives, investment in energy infrastructure, ‘safeguard mechanism’ reforms, and the Small Business Energy Incentive

The small business energy incentive is billed as a “bonus tax deduction” — providing businesses (annual turnover of less than $50 million) with an additional 20 per cent deduction on spending supporting “electrification and more efficient use of energy”.

Small businesses would be permitted to claim up to $100,000 of total expenditure, with a maximum bonus tax deduction of $20,000 per business.

Businesses would need to deploy or install eligible assets between 1 July 2023 and 30 June 2024.

“It will help small businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps,” Treasurer Chalmers said.

“Tradies, manufacturers, restaurants, hairdressers, real estate agents, and other small businesses are the backbone of communities across Australia.

“This incentive helps ensure these businesses share in the benefits and opportunities of the energy transition that’s now underway.”

Targeting multinationals

Meanwhile, HLB Mann Judd’s tax consulting partner, Jolyon Dare, said the government would take aim at multinational corporations operating in Australia by empowering the Australian Taxation Office (ATO) to investigate potential breaches of transfer pricing and thin capitalisation rules.

“I would expect there to be a continued focus on this as part of Tuesday’s budget announcement, including deferrals on some of the measures previously announced as taxpayers haven’t had time to absorb the impact of the changes,” he said.

But this, he claimed, would hurt Australia’s competitiveness in global markets.

“Multinationals operating here are already subject to a higher penalty regime and scrutiny.

“The ‘significant global entity’ concept is out of step with other countries — the local operation could be a very small part of a big global entity but still be subjected to enormous tax risks just by being here.

“Depending on Australian revenue, the tax rate for multinationals is 25 or 30 per cent, which is high by global standards.”

However, when asked how the community would receive the budget, Treasurer Chalmers claimed the government’s budget would be well balanced.

“I hope they recognise the effort that we’ve put in to try and look after people doing it tough,” he said.

“But also, there’s a lot in the budget about laying the foundations for future growth in our economy because we need to help people through a difficult period now. But we also need to invest in the future.

“So, the budget will be about seeing people through a difficult period, but also setting Australia up for success into the future.”