With much commentary today on the Federal Budget we have highlighted some of the things less obvious but important to business.
More to come in the Letters from Melbourne and Canberra.
On a negative, the business expense tax break announced by Treasurer Josh Frydenberg in the early days of the COVID-19 pandemic was removed in Tuesday’s Budget. This expensing plan allowed companies with a turnover of up to $5 billion to instantly deduct the full cost of eligible capital assets. Expanded to cover more than 3.5 million businesses and about $200 billion worth of investment, the program was extended in last year’s budget. But along with loss carry-back rules, it was absent from Tuesday’s budget papers. For those looking at new assets, or capital investments if your turnover is greater than $5 billion per annum, this tax break program will conclude on 30 June 2022.
As a part offset Mr Frydenberg introduced a new $1 billion technology investment boost to support digital adoption by small businesses. It covers eligible expenditure incurred from budget night until June 30, 2023. Small businesses with annual turnover of less than $50 million will be able to deduct an additional 20 per cent of the cost of expenses and depreciating assets for digital adoption, such as portable payment devices, cybersecurity systems or subscriptions to cloud-based services. An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
A new skills and training boost for small businesses was announced. Small businesses will be able to deduct an additional 20 per cent of spending on external training courses provided to their employees, provided they operate in Australia or online, and are delivered by entities registered in Australia.
Wage growth and cost of living were a key component of a budget that was feared to include a greater spend angle for election purposes. Low unemployment and a slow return to some immigration continues to see pressure to lift wages for key employees, who are often difficult to replace without much greater overall impact to a business. Ongoing difficulty in attracting new, or additional staff continues to impact across the public and the private sector. Inflation and economic pressure from higher interest rates are the caveat in this space with much caution amidst rising overall cost structures.
Forecasts for economic growth have been revised upwards in this budget, driven by “stronger-than-expected momentum in the labour market and consumer spending”. Real GDP is expected to grow by 4.25 per cent in 2021-22, 3.5 per cent in 2022-23 and 2.5 per cent in 2023-24, 2024-25, and 2025-26.
Business should meet with Local Councils who have been allocated $500 million + for key local project delivery. Better connectivity for regional Australia to ports, airports and other transport hubs is a also a part of this federal budget.
For business supplying, or wanting to supply Defence a greater budget allocation should open up opportunities as long as business is ready to meet Defence requirements with appropriate products and services. The 2022-23 budget contains a massive $9.9 billion to develop Australia’s offensive and defensive cyber capabilities, with the program dubbed REDSPICE (Resilience, Effects, Defence, Space, Intelligence, Cyber, and Enablers). Australia’s defence spending will rise to $48 billion in 2022-23, nearly 2.2 per cent of GDP, up from $44.62 billion (2.1 per cent of GDP) in 2021-22.
In a move to help with housing shortages a doubling of the Home Guarantee scheme to 50,000 places per year my help, particular in regional Australia with a housing shortage caused by changes in living habits through the pandemic period. A housing crux remains a key issue in many regional locations struggling to capitalise on demand growth and liveability.
Was it a good budget, could it have introduced greater, needed reforms to manage debt levels? Was that ever likely so close to a federal election?