Why wealthy might get stung by budget tax changes

BDO tax expert Mark Molesworth predicts the wealthy, energy companies and businesses at the top end of town could be the biggest targets in next month’s federal budget.

As we approach the federal budget for 2023-24, it seems that the Government is determined to raise revenue through targeted measures aimed at small cohorts of well-off Australians, such as the wealthy, energy companies, and businesses at the top end of town.

The Government’s Tax Expenditures and Insights Statement, released in February, highlights potential areas of tax concessions that could be targeted. Tax breaks on superannuation earnings and contributions are not the largest tax expenditure, yet the government’s recent proposed changes could indicate that more measures aimed at smaller populations of well-off entities may be on the horizon.

BDO tax partner Mark Molesworth

One potential area of focus is the capital gains tax (CGT) discount for assets owned for more than 12 months, which could be reduced for gains over a certain threshold, limiting the impact to a smaller, wealthier cohort. Additionally, the CGT main residence exemption, which is the single largest tax concession provided, could also be trimmed if the government thinks that the increased tax revenue is worth the political pain. To limit the impact to a small group of taxpayers, a prospective change that only applies to increases in value from the time of the budget and where the property sells for more than $2 million might make this just palatable.

In the energy sector, oil and gas producers should expect tax changes this year as Treasurer Jim Chalmers mulls over Treasury’s report on the $2 billion-a-year petroleum resource rent tax (PRRT). There have also been calls for the government to increase the major bank levy, targeting entities that are doing well financially and are very small in number.

We could also still see a tweak to the long-debated stage three tax cuts due to start in 2025, targeting high-income earners. What we probably don’t expect to see are system-wide tax reforms that affect a large cohort of taxpayers or consumers. On that basis, we don’t expect to see any changes to the rate or the base of the GST, however acceptable or desirable those changes might be.

Mark Molesworth is a tax partner at BDO.