Treasure Wayne Swan will save $16.4 billion to deliver a $1 billion budget surplus and 10,500 companies will pay for more than half of the government’s savings.
Under new measures released in the Mid-Year Economic and Fiscal Outlook (MYEFO) by the Treasurer at 11am today, “large” companies will have to submit pay-as-you-go (PAYG) tax instalments monthly instead of quarterly.
At present, all companies submit PAYG instalments quarterly.
The Treasurer has estimated that the measure will help boost the Federal government’s coffers to the tune of $8.3 billion over four years.
This is more than half of the $16.4 billion savings made in the MYEFO.
“The government will say this [measure] is effectively a timing difference,” Gavin Ord, the business policy advisor at CPA Australia, says. “The government gets its money quicker from large companies, but it means that those large companies don’t have the use of that money.”
The government later released more information about which companies would pay. “… from 1 January 2014 companies with turnover of $1 billion or more will be required to remit their Pay As You Go (PAYG) company tax instalments monthly, not quarterly. Companies with turnover of $100 million or more will have a further one year period to prepare for this change, with monthly payments to start on 1 January 2015. Companies with turnover of $20 million or more will have over three years to prepare for the change, with monthly payments to start on 1 January 2016.”
This measure will affect around 350 companies from 1 January 2014, around 2,500 companies from 1 January 2015 and around 10,500 companies from 1 January 2016.
John Brazzale, managing partner with accounting firm, Pitcher Partners, says the measures will have a signficant impact on the cash flow of these companies, particularly those closest to $20 million revenue end of the spectrum.
Ord believes businesses will be angry. “We expect this is a measure that business will not be happy with,” he says.
Ord says the measure could have a number of adverse impacts on businesses and the economy. They include:
- Reducing the cash flow of large companies.
- An adverse impact on large-scale projects as return on investment calculations are affected by reduced cash flow.
- Increased pressure for extended terms on suppliers to large companies, widening the impact of the measure across the economy.
- Increased cost of administration as payments move from four to 12 per year.
- Increased cost of administration as forecasts, budgets and return on investment calculations are revised to meet the new conditions.
The changes to PAYG will be phased in, with the details of that process released later in the day via the Treasuer’s portal. In his speech today, Swan added little clarity: “We will give businesses a year to prepare, and 350 will be affected from January 1, 2014, and there will be a longer time for others.”
This year’s MYEFO has attracted more attention than usual because of the Federal Government’s determination to return a budget surplus, come what may, despite deteriorating global economic conditions that are affecting Australia.
The slowing mining and resources sector and falling commodity prices have contributed to a $20 billion fall in the estimated tax receipts since the Federal government’s May budget forecasts.
“This is by far the biggest new measure,” says Ord.
Cyclical business dangers
The PAYG measures will be particularly difficult for cyclical businesses, such as the already-suffering retail sector, and for big farming businesses.
While companies can apply to the Australian Taxation Officer to vary their instalments, they risk substantial fines if their calculations are out by more than 15%, says Ord. “That is not a lot of margin for error, especially when there is so much uncertainty about the economy and revenue,” he says.
If they do not apply to vary their instalments, companies may have to pay PAYG tax before they have collected the revenue to do so. Under the quarterly payment system, companies could smooth the ups and downs of business conditions.