2019 Federal Budget: What it means for Small and Medium Business
Small business won tax cuts, an increase to the instant asset write-off, increased infrastructure spending and investment in apprenticeships.
Small business groups’ agenda for reform
Extension of instant asset write-off: In January 2019, the Government announced the $20,000 instant asset write-off scheme for businesses turning over less than $10m will be extended to 2020. The scheme will also be extended to cover assets up to $25,000. While many business groups welcomed the announcement, many have also called for the instant asset write-off to be permanent for small business, with some groups even urging Government to explore further investment allowances for asset purchases above $25,000.
Tax cuts: Currently, companies with an aggregated turnover of less than $25m, and have no more than 80% of their assessable income as base rate entity passive income have a tax rate of 27.5%. In October 2018, the Government introduced the Treasury Laws Amendment to accelerate future reductions in the corporate tax rate for small businesses to 26% for the 2020/2021 and 25% in 2021/2022 and subsequent income years. This move has been strongly supported by small business groups.
But given many small businesses rely on sales and services contracts with larger businesses, industry groups such the Australian Chamber of Commerce have also called for a single company tax rate of 25% for all businesses (small, medium or large) by 2024/2025 to encourage larger business to invest, with flow on benefits for small businesses.
Training, Education & Employment: The Council of Small Business of Australia (COSBOA) has urged Government to focus on the skills needs of employees and businesses (rather than the training sector) and to move skills training back to the Department of Industry. They also want funding of welfare and community-based training to be separated from skills-based training, as COSBOA is of the view employers should not be asked to take the place of welfare and social workers. COSBOA is urging the Government to provide greater support for group training of apprentices into small businesses. NAB’s latest Quarterly SME Survey (Q4 2018) also indicates that finding suitable labour continues to be a key constraint to output and it remains at a relatively high level.
Business simplification: According to NAB Bankers (NAB Business Banker Survey January 2019), Government policy and regulation is the most influential factor influencing the business conditions of their customers. Business groups are also calling for the removal of unnecessary red tape or poorly designed compliance processes. For example, COSBOA believes employers need to be removed from managing paid parental leave (PPL) payments on behalf of the Government. Master Builders Australia believes the burden of regulation and bureaucracy is particularly onerous on the building sector and recommended the Federal Budget take account of this situation.
Access to finance: Tighter lending requirements in the wake of the Banking Royal Commission have been particularly problematic for small business looking to access funds. Indeed, NAB’s latest Commercial Property Surveys found accessing finance for developers was harder than at any time since the Survey began in 2010. Consequently, industry groups have called for a review of prudential regulations and capital requirements that increase the cost of capital for small businesses.
Other: There were a range of other ideas including: relief from high energy prices; and reducing company registration fees charged by ASIC as a tangible measure to support Australian small businesses.
What the budget actually delivered for SMEs
While not meeting their entire “wish list”, small business is a winner from the Budget, with the Government describing it as “the engine room of the economy”. The most significant benefits for small business include tax cuts, an increase to the instant asset write-off, increased infrastructure spending and investment in apprenticeships. Personal tax cuts and increased infrastructure spending should also flow through to SMEs. While the Government announced plans to hand out one-off payments for consumer electricity bill relief, missing was any relief for small business.
The instant asset write-off, which allows businesses to write-off assets (such as tools or equipment) against their taxable income,has been extended and expanded. It will now cover purchases under $30,000, up from $25,000, and can be used by businesses with an annual turnover of under $50m, up from a $10m limit previously. Medium sized businesses will welcome this new access to the scheme. The threshold applies on a per asset basis so businesses will be able to instantly write off multiple assets. Around 22,000 additional businesses employing approximately 1.7 million people will now be eligible for the tax write-off with the changes projected to cost the budget $400m over four years. These changes will apply from April 2019 to 30 June 2020 – it isn’t a permanent scheme like the industry had hoped for. In total, these changes will benefit around 3.4 million businesses employing around 7.7 million workers. The Government’s decision to increase and extend the instant asset write-off should help to alleviate cash flow pressures for SMEs and help them with their expansion plans.
The Government also announced that the corporate tax rate for companies with annual turnover of less than $50m will fall from 27.5% to 26% next year and 25% starting in 2021/2022. This five years earlier than previously planned and is expected to benefit roughly 970,000 companies. The Government will also increase the unincorporated small business (up to $1,000) tax discount rate from 8% in 2019/2020 to 13% in 2020/2021 and 16% in 2021/2022.
In recognition of SME concerns around skill shortages (a key constraint to their output), the Budget contained a $525m investment in vocational education and training directed towards “areas of future high demand” – albeit only $54.2m is new money over five years and the majority ($463m) in part from reallocating Skilling Australians Fund money unspent because Queensland and Victoria did not sign up to the scheme.
Vocational education and apprenticeship numbers have suffered in recent years, with funding cited by businesses as a significant factor. Incentive payments to employers will double to $8,000. Employers will receive $4,000 ($2,000 after the first 12 months of an apprenticeship and $2,000 at its completion) on top of an existing $4,000 employer incentive. There is also a total payment of $2,000 for the apprentices themselves ($1,000 after 12 months and $1,000 at the end of their apprenticeship). The Government says these measures (at a cost of $156.3m), will support up to 80,000 new apprenticeships over five years and the list of eligible occupations will be reviewed annually to reflect skills shortages.
An additional $48.3m will be put into establishing a National Skills Commission. The package is in response to an as-yet unpublished review by former New Zealand tertiary education minister Steven Joyce. A national careers institute and careers ambassador will also be introduced to help promote vocational education.
The Budget also proposes 10 “training hubs” across Australia at a cost of $50.6m over four years, focusing on training in industries that have a local skills shortage. It is designed to target youth unemployment in regional areas.
The Government will also provide $60m over three years from 2019/2020 to top up the Export Market Development Grants (EMDG) scheme (along with a further $1m in 2019/2020 for promoting Australian industry overseas). The EMDG scheme is aimed at helping SMEs to develop export markets and is a popular support program for tech companies and start-ups. The Export Market Development Grants (EMDG) program provides reimbursement for export promotion expenses for businesses with an annual turnover of less than $50m. Eligible activities include attending trade shows overseas, digital advertising, marketing consultant fees and visa fees. The scheme reimburses up to 50 per cent of eligible expenses above $5,000, with a total grant on offer of $150,000.
While this new money will be welcomed by SMEs, the Budget did not address concerns that Government grant programs are inaccessible and onerous for SMEs to apply for. Moreover, the Budget papers did not provide detail in regards to how Australian industries would be promoted overseas.
To find out more, read our 2019 Federal Budget – What the budget means for small and medium sized businesses or explore: