BUDGET 2016: Tax cuts for firms pulling in up to $10m

TREASURER Scott Morrison has foregone $9 billion in extra tax revenue to hand small business its second tax cut in as many years, and give more middle income earners tax relief, effective a day before the July election.

Mr Morrison's efforts to avoid the political pitfalls of the Abbott government's 2014 budget, but still "living within our means", in an effort to get within $6 billion of a budget surplus in four years.

The budget showed that plan would be funded mainly by spending cuts across government, amid government coffers falling another $20 billion into deficit, down to $39.9 billion,  since last year's forecasts.

After Joe Hockey gave small businesses a 1.5% tax cut, Mr Morrison has added another 2.5% cut to their tax rate, down to 27.5%, while also expanding eligible businesses from those earning $2 million or less to any firm earning up to $10 million.

It will cost the federal government $5.3 billion in lost revenue over four years from 2016-17.


That tax cut will be progressively widen to include firms earning up to $100 million by 2019-20 and then all businesses in the country over the next 10 years.

Mr Morrison has said he believed the corporate tax cuts would help drive economic growth and see businesses put on more staff, despite tax experts who have spoken to Australian Regional Media saying the international evidence was mixed on whether or not companies would just "book" the extra cash.

Despite several years of low wages growth, Mr Morrison also said he would deliver an effective tax cut for middle-income earners, increasing the threshold for the 37% tax rate from $80,000 to $87,000.

The move would pull about half a million taxpayers out of the second-highest tax bracket, with the government losing an extra  $3.95 billion in estimated revenue.

In what could be a forecast for more tax cuts in the election campaign, Mr Morrison told parliament the government "would like to do more, but this is what we can afford today".

He also again rejected any changes to negative gearing or capital gains tax,  in contrast to Opposition Leader Bill Shorten's pledges to cut CGT discounts by 50% and limiting negative gearing to new homes from July, 2017.

Deputy Prime Minister Barnaby Joyce secured some $2 billion for the national water initiative, to fund new dams and irrigation projects, but Nationals MPs failed to convince Mr Morrison not to go ahead with a new tax on backpacker farm workers' income.

Mr Morrison said that if Australians wanted to enjoy higher living standards, "we need to ensure our tax system encourages investment and enterprise".

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