Budget 2021 – SMEs what is in it for you?

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It was a pleased-as-punch Treasurer Josh Frydenberg who delivered Australia’s Budget 2021 on Tuesday night.

The ravages of 2020, from the global pandemic COVID-19 to Australian’s own battles against mother nature’s floods and fire fury, meant there was every chance the nation’s treasurer could be curled up in the foetal position. In fact, it was the opposite, as spending to success was high on the agenda. It was smiles all round as low unemployment levels and the economic bounce back look to be on track. 

The pillars on which Budget 2021 have been built upon – or at least how the Government would like us to view those pillars – are:

Treasurer Josh Frydenberg proudly stated “The deficit was $52.7 billion less than forecasted in the October 2020 Budget.” Net debt, while huge at $617.5 billion, but is “…low by international standards…we are better placed than nearly any other country to meet the economic challenges that lie ahead….Australia’s economic engine is roaring back to life.”

Let’s cut through the rhetoric and see what Budget 2021 actually has in store for SME’s.

  • Full expensing (ability to write off the full value of any eligible asset purchased) and loss carry-back has been extended to for 12 months until 30 June 2023. First announced in last year’s October budget, Treasury expects a GDP boost of $18 billion by the end of 2022-23 and 60,000 jobs to be created. 
  • Offering a tax reduction for SME’s to 25% from 1 July 2021. 
  • The Administrative Appeal Tribunal has been granted the ability to pause or modify debt recovery action. SMEs in dispute with the ATO, have a way to appeal ATO debt pressures.
  • Driving business innovation and adoption of new technologies, including the establishment of a national network of Artificial Intelligence Centres. 
  • Future proofing our cyber security by expanding the cyber security innovation fund. 
  • Encouragement for investors to increase investment in Australian medical and biotech technologies. The lever is the ‘Patent Box Tax Regime’  (A patent box regime targets the last stage of the innovation lifecycle, namely commercialisation.) The taxes on any income from a company’s patent will be at 17% starting from 1 July 2022. 
  • The Government has asked the Board of Taxation to review the administrative framework of its $2 billion Research and Development Tax Incentive (R&DTI). This has a deadline of the end of 2021. The easier the application process the more companies will take up the incentives on offer, leading to more innovation in Australian SMEs. 
  • Expect a proliferation of Craft Brewers and Distillers as they receive full excise refunds with a cap of $350,000 from 1 July.

To keep Australians spending (hopefully not only on craft beer and boutique spirits), low and middle income tax offset (LMITO) will be extended for a further year to June 2023.

  • Unlocking business investment and job creation, the Government’s Deregulation Agenda continues to support Australia’s economic recovery.
  • Making it easier for businesses to employ people by reducing the regulatory burden. Lessening time interacting with the government, is set to save on average $430 million in annual compliance costs. Not to mention hours wasted on hold by diligent employers seeking compliance.
  • 300,000 workers are set to receive additional SG payments each month from 1 July 2022. The $450 a month earning minimum threshold has been abolished. 
  • The work test will be abolished for super contributions made by people aged 67 to 74 years.
  • People aged 60+ will be able to contribute some of the proceeds of sale of their home to super whereas this used to apply only to people aged 65+.
  • The Government is changing the framework for individual tax residency in a measure aimed at encouraging highly skilled individuals to relocate down under. Given we are a clean, safe and highly developed nation, they’ll be lining up at the nation’s doorstep. 
  • Employee shares will not be taxed when the employee leaves the business and in some circumstances, employers can now issue up to $30,000 worth of shares a year up from $5,000.
  • The global game market opportunity may have been missed. At least the attempt to capture some of the $250 billion global game market via a 30 percent refundable Digital Games Tax Offset. The offset is part of the government’s $1.2 billion digital technology and digital economy package. 

So, the economic bounce back continues with the indicators showing that it is in heartening form. Any recovery that is led by craft beer, boutique spirits, lower taxes and gaming can’t be bad can it? 

Other Winners?

Other “winners” from last night’s budget include the aged care sector, women that would like to work (via boosted childcare subsidies) and women more generally through spending on initiatives such domestic violence support services and medical research focused conditions affecting women. We call them winners though arguably, the spending pledged in these areas is a drop in the ocean compared to what could and should be spent in both of those areas. 

Meanwhile, another $13.2b has been pledged over four years to boost the National Disability Insurance Scheme while flagging the need for reform. Providers will brace themselves to see what these well-intentioned but often botched reforms will mean for them.

The Government also flagged increased spending on rural health though again, the $80.9m earmarked for this initiative might be seen as too little. 

Our Take on Budget 2021

The Government is right to be focused on job creation. We have some big holes to fill and a productive nation helps to do that. Not to mention the positive impact on the individuals who will gain that employment.

Tax cuts are always welcome and the SME sector can certainly use them. To the extent it helps them grow, it certainly supports the aforementioned job creation.

We have long promoted innovation among our client base. The incentives on offer are welcome. We’ll have more to say on the patent box in the coming days.Meanwhile, the reforms to super are also positive. Helping people boost their super balances allows them to retire with less of the financially-driven stress that comes from not knowing if they have enough savings to enjoy life. 

Yet, here’s the thing. It seems like Budget 2021 is a ‘populist’ budget to us. The Government has sprayed around a fair bit of money when it’s all added up but diluted the impact of that spending by trying to please or at least appease everyone. What’s really evident is that where the Government has taken criticism, they have taken steps to respond. Are they hoping to buy silence on the issues of aged care, the iniquity faced by women, the disabled and low-income earners?

And whilst in some ways, it shows they are listening to the community and that’s a positive, it doesn’t necessarily show great leadership. We are not saying that those areas don’t deserve spending – of course they do. But the search for utopia will surely fail.

What we are saying is that the Government ought to be focused on the issues that give the most ‘bang for our buck’. What we are also saying is that some of the spending initiatives look so underfunded, so underdone that they are doomed to fail. 

Aren’t we better off to spend in the few areas that will generate the greatest return, such that we can afford to properly fund the other areas in time and for all time?

Regards

Neil Parker

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