In the leadup to March 29, our experts weigh in with their Budget expectations and wish lists. While likely a ‘poll winner’ given its announcement merely months out from a Federal Election
Josh Frydenberg’s fourth Budget needs to address rising energy prices, acute worker shortages and flood-affected households.
While we expect this Budget to be another missed opportunity for substantive tax reform, we believe the Government will address the issue of workforce shortages and support the growth of private businesses.
“SME businesses would appreciate tax initiatives that support them to invest in growing their businesses post-pandemic, and in particular, measures that ease the costs of attracting and retaining employees,” said Greg Travers, Director, Tax Services at William Buck.
“I expect that these issues, as well as broader tax cuts for individuals, are where the Government will focus.”
Greg said that despite this, genuine tax reform is needed to support Australian businesses to employ more people and make it easier for owners to invest in growing their business.
“Unfortunately, there are still so many instances where the current tax system works against these common-sense ideas.”
“FBT for example acts as a disincentive for employers to do things to attract and incentivise employees.”
“While State governments are providing incentives for people to spend with local businesses such as NSW’s Dine and Discover vouchers, the Federal Government is charging businesses FBT for taking employees to lunch or buying flowers for someone’s birthday.
“An SME business that wants to support parents returning to workforce through subsidized childcare will pay FBT. A large business that can set up employer sponsored childcare on business premises gets a tax exemption, but an SME business providing similar support gets taxed.
“Businesses are trying to help employees get set up at home for the new hybrid/flexible work arrangements. A desktop computer for home is taxed, but a laptop is tax exempt. Give your employees a decent work chair for home and you end up with an FBT liability,” said Greg.
“Businesses have adapted to the reality of work post pandemic. The tax system needs to adapt too.”
Greg said that while specific tax laws create some issues, the very design of the tax system creates others.
and cost for businesses, and these differences create a perception of inequity in the tax system.”
Mr Travers said there are ideas and solutions for the current, or future governments, to explore.
Leveraging the $50M turnover threshold to create more tax measures geared towards supporting Australian businesses, and exemptions from measures targeted at much larger taxpayers, is one idea.
“Why not exempt smaller businesses from FBT? There are SME businesses that spend $3,000 complying with their FBT filing obligations and their total FBT liability is $3,000. That seems pointless,” said Greg.
“Incorporating that thinking into an ‘opt in small-medium business entity’ could be a way to fundamentally reform the system.
”Why not give small businesses that operate via a trust the ability to ‘opt in’ to a company-like tax treatment? It could remove tax complexity for them and allow profits to more easily be reinvested back into the business.”
“These are some specific examples, but longer-term thinking, and genuine tax reform is what is really needed.”
With the war in Ukraine causing a hike in the prices of oil and natural gas, the Federal Budget needs to address the issue.
“Rising energy prices are going to become a key factor in rising broad based inflation. For consumers an energy price hike of the current magnitude, is akin to an interest rate rise,” said Scott Girdlestone, Director, Wealth Advisory.
“With wage inflation only starting to improve, the Budget should consider reducing, or temporarily reduce the petrol excise to reduce the cost of inputs, as we sit right now the risk of the economy moving into a period of stagflation are increasing significantly which should be of great concern to our standard of living.
“With a backdrop of higher energy prices and given Australia’s economic growth post-COVID is still in its infancy, the RBA should use its discretion to continue to apply accommodative monetary policy, particularly given global funding costs are rising which will have an impact here independent of official interest rates rising.
“If wage inflation can’t close the gap on price inflation, then we have a serious problem in the medium term,” said Scott.
“Notwithstanding, given a significant part of our exports are energy focused, if the RBA can get this right, subject to geo-political risk, Australia should do relatively well in the short-term.”
Manufacturing, Technology and Grants
While the onset of COVID saw much discussion around support for nationalisation of manufacturing in Australia, there needs to be increased support announced this Budget.
Ian Cattanach, Director, Business Advisory at William Buck said, “While there was some support for the manufacturing sector in the form of the Patent Box scheme and various grants, it was largely directed toward larger manufacturers and multi-nationals.”
“We would like to see more programs specifically director toward fostering grass roots manufacturers and their associated suppliers,” said Ian.
Jack Qi, Director, Tax Services said he expects minimal new policies helping Australian entrepreneurs and tech founders outside of programs specifically targeting emissions reduction, manufacturing and diversity/equality.
“We want to see the Government increase the Budget allocated for the Export Market Development Grant (EMDG), a new set of R&D Tax Incentive rules specifically catering for agile software projects and a further simplification of our employee share scheme tax rules,” said Jack.
The global pandemic has demonstrated over the last two to three years the importance of a strong and functioning health system, and ours needs support.
“With General Practice forming a key part of the health system, we need a more sustainable model for funding in GP practices and a fully functioning telehealth system for all,” said Belinda Hudson, Director, Business Advisory.
“We expect to see significant funding for mental health and aged care reform,” she finished.