Due to Revenue Shortfall Australia will have Businesses Estimate their Taxes Monthly Instead of Quarterly

Posted by PITHOCRATES - October 27th, 2012

Week in Review

Commodity prices have fallen.  Cooling the great mining boom in Australia.  So how does the government address this falling tax revenue?  Do they cut their spending?  No.  They make businesses gamble with their cash-flows (see Monthly tax bill to help plug budget hole – Sydney Morning Herald by Peter Martin posted 5/22/2012 on Canberra Hub).

The budget will receive a $8.3 billion boost in the three years from 2014 as the government moves to collecting company taxes every month, rather than quarterly…

In its first year the measure is expected to give the budget a $5.5 billion boost because it will collect revenue that would have been paid in future months.

Accountants say it will not result in business paying significantly more tax overall, but will increase the compliance burden and require companies to pay their tax earlier.

With businesses likely to oppose any moves to extract more revenue, Treasurer Wayne Swan said the change would provide a more timely and accurate reading of the corporate tax take, but was not a tax rise.

‘‘We think this is only fair and it’s only logical,’’ Mr Swan said in Canberra. ‘‘We don’t see why companies cannot be in the same boat as companies that pay their GST monthly.’’

Revenue raised by the mining tax has also been downgraded by more than $3 billion, to $6.5 billion from $9.7 billion.

This tax collection policy will increase tax revenues by $8.3 billion (Australian dollars) in three years but this is not a tax rise.  They’re doing this to relieve the pressures from the lost mining tax revenues but this is not a tax rise.  You can do some accounting tricks to pull revenue into earlier accounting periods and push out cost to later accounting periods.  This will help the earlier accounting periods.  But it will hurt the later ones.  When a company, or a government, plays these games they either have a revenue problem.  Or a spending problem.  Apparently Australia has both.

Corporate income taxes are estimates.  GST taxes are not.  The corporations calculate their final income taxes due after the close of the year.  When they know their final earnings on the year.  Whereas anytime someone buys something the seller knows the exact GST due.  So the GST they pay at the end of the month is the exact amount of GST due.  Even if they have no sales for the last three months of the year.  Not the same with corporate income taxes.  Should something happen, say, like a fall in mining revenue due to a fall in commodity prices, a corporation could lose money in the latter months of their earnings year.  Even suffer a loss on the year.  If they do the government will have to refund those previous estimated tax payments.  Possibly causing the corporation to borrow money in those later months because they’re short on cash.  Because they overpaid their taxes.

This will increase the cost of doing business.  It will strain cash-flows.  And just make running a business harder.  As cash is the lifeblood of a business.  It’s the only thing you can use to pay your employees.  Your vendors.  Your insurance companies.  Your payroll taxes.  This new policy could force businesses to overpay their income taxes leaving them starving for cash later in the year.  And if they can’t find money to borrow they could put their businesses in jeopardy.  Possibly in bankruptcy.  And if they do there will be even less tax revenue for the government to collect.  Monthly.  Or quarterly.

This is bad policy.  Brought on by excessive government spending.  A common problem in advanced economies.  Especially during good economic times.  When they make spending commitments as if those good times will last forever.  Something a business can’t do.  Because when the economy changes a business has to change to survive in the reality of the economic times.  Unlike government.  Who does everything within their power to pass their poor policy decisions onto the private sector.



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