The Age | 20 February 2013
It was funded by the axing of accelerated research and development tax breaks for about 20 mining, financial services and retail companies with turnovers above $20 billion, a move forecast to raise $1 billion over four years.
But late last year, in cabinet-in-confidence advice, industry minister Greg Combet’s department argued vehemently against that plan, although the plan had the strong backing of Treasury.
The department warned that Treasury’s $1 billion option would encourage the big companies to find ways to rearrange their financial relationships with related overseas entities and buyers in order to reduce their Australian turnover to below the $20 billion threshold.
The advice also said the Australian Taxation Office had warned it could be difficult to legislate to prevent companies from legally circumventing the policy.
If companies do avoid the government’s attempt to deny them the generous tax break, it will pose another big problem for the stretched federal budget, because the government has promised to spend $400 million of the estimated $1 billion in savings on other job-creating programs and is understood to be keeping the other $600 million to help pay for its education and disability programs in the May 14 budget.
The industry department said axing the accelerated tax break for big companies could also have a negative impact on research in mining, manufacturing and financial services.
It recommended an alternative policy: capping research and development payments to $100 million for companies with turnover of more than $15 billion.
It said this option had received more backing during the deliberations of the business tax working group and was more in line with overseas practice.
It is believed that Combet did not take his department’s preferred option to cabinet, possibly because it was clear it would not be supported.