The 2019 federal budget has been announced with some specific news for small businesses across Australia. We talked to Reckon CEO Sam Allert to get his 2 cents on what the budget means and how small businesses have fared.
With a strong focus on this last year, it’s no surprise we are seeing welcome cuts to wages and personal income tax in a bid to appease small business. Sam Allert expands:
“This will be greatly appreciated by small businesses, who have been fearful that a sluggish economy is hurting consumer confidence. As we approach the election, many small businesses say Labor’s plan to enforce a living wage could negatively impact their bottom line. By making changes to income tax rather than adding legislation on wages, the Coalition will have the upper hand with small businesses on this subject.”
Instant tax asset write-off
This was one to watch and we covered the developments closely after last year’s extension to the $20,000 asset write-off scheme. We predicted an extension until 2020 and it indeed came to pass.
There was one surprise development though, with the threshold of the asset value raised to $30,000. With hopes of permanency rather than extensions, however, will a one year prolongment and cap increase placate small business? Sam Allert expands on the changes;
“While this will go a long way in providing a more stable prospect for them, there is always more to be desired. Many small businesses who were hoping for the policy to be enshrined in permanency will be closely monitoring Labor’s campaign on this front in the lead up to the election.”
“However, our research shows that while 91 per cent of small businesses want to see the initiative extended, only half (53%) have utilised the tax offset since it was set in place, indicating a need to educate business owners on what they can actually write off, such as vehicles and equipment.”
R&D tax incentive and innovation
This is where disappointment and difficulty sets in for many tech focused Australian businesses.
Australia has already been hit by the Federal Government over the last few years by large industry-crushing cuts to science, innovation and technology.
On top of controversial data laws passed last year which were panned by global and local technology companies, the innovation potential for Australian companies and the confidence of local technology startups has been hobbled.
To remedy this, small businesses were looking to at least see favorable R&D tax incentives in the budget, but were largely let down.
“Many of us tech companies were hoping to see a renewed focus on the R&D tax incentive and get a little more clarity on the scheme, so it’s disappointing that this was only lightly broached. It’s also worrying that expenses for the Department of Industry, Innovation and Science is expected to decrease over the course of the year.”
The idea of Australia as an ‘innovation nation’ seems to be further from reality than ever before. Sam expands;
“Australia has been wanting to position itself as a regional innovation hub for some time now, but still lags in comparison to the progress we’ve seen in China, South Korea and Japan. Any further roadblocks like these will not only have huge implications for businesses that rely on the tax concession to drive research, development and innovation, but for the broader industry and national economy.”
Export development grants scheme
With international brands inevitable entering the local market, an approach is needed to enable the reverse: Australian companies expanding their own markets. In this vein, the EGDS aims to subsidise export companies in Australia to stimulate the sector. This year we see a modest addition to the kitty.
“The $60 million top-up to the Export Development Grant Scheme is a positive step forward in taking Australian SMEs global and enabling them to effectively compete on a world stage. Cash flow is the number one pain point keeping small businesses up at night, which has in turn inhibited their growth ambitions.”
Tech skills shortages & migration
This skilled migration scheme seeks to address the issue of a skills shortage by attracting international tech workers. While a welcome scheme in itself, it is countered by concurrent government policies which place negative pressure on those same technology industries and stifle home grown talent.
“The introduction of the pilot Global Talent Scheme last year is definitely a welcomed initiative for the tech industry. However, more can be done to make Australia a more attractive and competitive market for overseas talent.
We had hoped for some discussions around skilled migration policies in the budget, especially with the current and very real shortage of tech-focused skills in Australia.”
Corporate tax cuts
Some good news for Aussie small businesses in the form of tax cuts. Just under half (45%) of the 1000 businesses we polled last month said that a tax reduction would be a factor in their success.
“The reduction of the corporate tax rate for small businesses to 25 per cent couldn’t come sooner. We are pleased with the government’s decision to bring it forward to 1 July 2021. A lower tax rate will reduce businesses’ inhibitions on capital investment, hiring and wage growth, which will in turn create a positive knock-on effect on average household income, benefiting Australia as a whole.”
Small business education, training & upskilling
Our pre-budget poll indicated that 83% of businesses wanted to see more subsidies for skills and training. Some of these wishes have been granted.
“We welcome the government’s investment of $525.3 million in vocational education and training. With Australia experiencing a skills gap spanning many trade professions from carpenters to electricians, more support in the form of education, training and upskilling is a certainly a positive outcome for small businesses.”
“While tax cuts go a long way in helping small businesses improve their cash flow, today’s pace of technological change has meant that more needs to be done to enable them to stay ahead of the curve.”
Black economy crackdown
Illegitimate cash business transactions and tax avoiding activity will be in the spotlight again this year. To even up the playing field and cut down on unreported business activity, a cap of 10,000 in cash for business transactions has been cemented.
“Those that engage in black economy activities such as ‘cash only’ for illegitimate reasons are getting an unfair advantage as they can undercut other businesses doing the right thing and who are paying their fair share of taxes.
The government’s decision to limit cash transactions to below $10,000 from 1 January 2020 is another step in the right direction, and we’re looking forward to the next string of actions and proposals from the Black Economy Taskforce.”
“We welcome the Coalition’s plans to offer additional funding to financial regulators, but small businesses will need reassurance that credit sources do not dry up as more stringent checks are introduced. In Reckon’s research, 44 per cent of small business owners say they have already been affected by falling house prices and tighter lending conditions imposed by banks. This comes as no surprise, given many small business owners secure loans on their homes.”
Housing affordability has been a long running issue for many Australians and this trickles down to many small businesses who’s position is influenced by property prices. In a bid to boost the attractiveness of regional Australia for business, where housing is more affordable, a regional funding boost was announced. More needs to be done, however, to make a strong impact. Sam Allert explains;
“Many start-ups and small business owners still struggle with the major cities’ high living costs and worry they will never be able to buy a house. The additional $1 billion funding boost to regional Australians is a positive step forward, and will help in enhancing livability of those areas. However, more can be done.”
“Specific regional incentives will encourage small business owners to relocate and take advantage of more affordable housing, while creating valuable employment opportunities in regional Australia and easing the pressure on major metropolitan areas.”
Rising energy prices
While small business wants to see lower electricity prices, appetite for fossil fuels is falling fast.
“In our survey of Australian small businesses, 69 per cent say they have been affected by increasing energy prices, showing a high demand for policies that encourage electricity cost reductions.
The Coalition has confirmed it will underwrite several energy generation projects to bring down prices, which could include gas and coal. While this will please some small business owners, it will alienate those that are more environmentally conscious.”