Prime Minister Tony Abbott has promised a “dull and routine” budget this year but all indicators suggest his government’s second budget will be anything but boring—at least when it comes to small business.
Australia’s two million small businesses have grown accustomed to tough federal budgets over the years but if the government’s pre-budget spin is to be believed, this year could be different.
From tax cuts to changes to the business registration process, the government has made much of its plans to energise the small business sector.
SmartCompany will be in the media lockup up at Parliament House this evening to prepare our special budget edition. But for now, here are 14 things you can expect to hear about tonight.
As was the case last year, voters can expect the government to deliver a deficit again this year.
Deloitte Access Economics’ annual budget monitor, released last week, has estimated Treasurer Joe Hockey will reveal an underlying budget deficit of $45.9 billion for the 2014-15 financial year, which would put the budget bottom line $5.5 billion worse off than projected this time last year.
Deloitte is also tipping little improvement for the 2015-16 financial year, with the underlying cash deficit expected to be stuck at $45.3 million.
“China continues to carve chunks out of Canberra, leading to rampant revenue shortfalls,” said Deloitte economist Chris Richardson.
“But the biggest ‘new bad news’ on bucks is in PAYG. Wage growth jumped ahead of productivity gains during the boom but it is now only limping along as businesses try to claw back their competitiveness. That’s set to tear a new hole in the heart of the budget.”
For his part, Hockey has previously warned of a blow-out in the budget bottom line if the price of iron ore continues to fall.
In early April, Hockey said he was contemplating an iron ore price of as low as $US35-a-tonne, which would mean writing off as much as $25 billion in additional revenue over four years. However, the iron ore price has since recovered to closer to $US57-a-tonne, meaning Hockey may have some extra cash to spend.
2. Small business tax cut
The government has been promising a small business tax cut since it was elected and tonight’s budget looks set to deliver on that promise.
However, it is likely only incorporated small businesses will directly benefit from a 1.5% cut in the company tax rate, with unincorporated small businesses to instead be offered other forms of tax relief.
There has also been conflicting reports about the revenue threshold that will determine whether or not a small business will qualify for the tax relief. While some reports have put the threshold at $5 million, more recent reports have said the government will limit the tax cut to companies with $2 million or less in annual turnover.
3. Accelerated depreciation measures
Small businesses that are not incorporated are set to benefit from the re-instatement of an accelerated depreciation allowance with an annual threshold of $10,000.
Both the Council of Small Business of Australia and the Australian Greens Party have called for the government to allow small businesses to write-off purchases more quickly, after the Coalition scrapped similar measures that were tied to the mining tax.
The Greens have said they will help the government pass its small business tax cut through the Parliament if the budget includes provisions for instant asset write-offs and a loss carry-back scheme.
4. Business registration changes
Last week Small Business Minister Bruce Billson announced a raft of budget measures designed to make it cheaper and easier for entrepreneurs to start a new business.
One of these measures involves how small business owners register their new business. Billson told SmartCompany the government will “streamline the business registration process” by creating a single website for new business owners to register their businesses using “one key identifier”.
The change is expected to save new businesses around $13.7 million in compliance costs each year.
5. Professional advice write-offs
The government’s small business package will also include changes to the way professional costs associated with establishing a new business can be depreciated.
“Something that people may not realise has been a concern for some time is that professional costs depreciate over five years,” Billson said last week.
The change will mean costs associated with obtaining professional business advice, legal fees and fees paid to the Australian Securities and Investments Commission will be able to be depreciated by a business immediately.
6. Crowdsourced equity
While the government has been working since November 2014 to make it easier for businesses to raise equity via crowdfunding, you can expect to hear more about this method of raising capital in tonight’s budget.
Some of the costs associated with setting up crowdsourced equity funding will be covered by the changes to the depreciation of professional costs and Billson said the government will also provide additional funding to ASIC to support crowdsourced equity arrangements in the budget.
7. Capital gains exemption for business that change legal structures
Billson said “businesses in transition” will also benefit from tonight’s budget, which will include a measure to eliminate some of the “risks” associated with changing the legal structure of their business, including the imposition of capital gains tax.
“You might start out your small business with a structure as a sole trader and it might suit you at that time, but if you find success … the evolution and growth of your business may be better supported by a new entity structure for your enterprise,” Billson said.
But Billson said the measure will only apply to businesses that change legal structures once after formation and the government is “not anticipating or seeking to accommodate a sort of flip-floppery” between different business structures.
“That would not be in anyone’s interest,” he said.
You can also expect to hear Billson speak about the business structures over coming months, with the minister saying he is considering ways to dispel the hesitation of some entrepreneurs to consider incorporating their business.
“We have heard too often that for many, the costs and complexity and compliance burden for small proprietary companies is excessive and not justified in the eyes of some small business enterprises,” Billson said.
“We will take the reforms that the Howard government introduced in 2003 and see if there is scope to take them further to lift the regularly burden.”
8. Changes to paid parental leave
Paid parental leave will be a key budget talking point again this year, with Treasurer Joe Hockey announcing over the weekend the government will attempt to crack down on parents who “double dip” on paid leave from both their employers and the government.
While this time last year the government was reaffirming its commitment to its now-dumped multi-billion dollar paid parental leave scheme, on Sunday Hockey revealed close to 80,000 new mothers will lose access to some or all of the federal government’s existing paid parental leave scheme from July 2016.
The scheme currently provides $11,500 to new mothers, made up of 18 weeks of leave at the minimum wage for primary care givers earning $150,000 or less a year.
However, some parents are also able to access paid parental leave from their employer, if the organisation they work for has a scheme in place. The government wants to make sure workers cannot “double dip” by accessing both schemes.
More than 50% of new mothers are not expected to be affected by the change, while 20% will lose access to the government’s scheme and another 27% will only have partial access to the government scheme.
But Peter Strong, executive director of the Council of Small Business of Australia, told SmartCompany less than 1% of small businesses would currently be offering employees paid parental leave.
“Double dipping is a big business thing,” Strong said.
9. Investment in childcare
Along with small business, childcare is also a key focus for the government’s second budget.
Social Services Minister Scott Morrison has announced the government will invest in childcare by providing an additional $327.7 million over four years through a Child Care Safety Net, which will be designed to provide financial support to disadvantages and vulnerable families.
The minister has also revealed a $3.5 billion “Jobs and Families” package, which he said “will provide greater choice for more than 1.2 million families by delivering a simpler, more affordable, more flexible, and more accessible child care system”.
The package will include a revamped Child Care Subsidy, which the government will seek to introduce from July 1, 2017.
The subsidy will be on a sliding scale that depends on a household’s combined income. For households with incomes of up to approximately $65,000, the subsidy will be 85% per child of the actual child care fee or the benchmark price, whichever is lower. This will drop to 50% for incomes of approximately $170,000 and above, while those with incomes under $185,000 will no longer have a cap on the subsidy they can receive.
Morrison said the subsidy will mean families with combined household income of up to $165,000 will be around $30 better off a week, while those with combined household income about $170,000 will receive the same average level of support.
As part of the plan, the government will abolish the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programs in favour of the single, means-tested subsidy.
But the package is contingent upon the government being able to pass measures included in last year’s budget that would stop payments under the Family Tax Benefits scheme to single-income families with children under the age of six.
10. ‘Netflix’ tax
Australians could soon be paying more for a Netflix subscription, with the government expected to use the budget to introduce a so-called “Netflix tax” on overseas-sourced digital products, including movies, television shows and books.
Imposing the goods and services tax on “intangibles” is a move that has been championed by Assistant Treasurer Josh Frydenberg, although Treasurer Joe Hockey made the case for extending the GST to digital purchases in April.
“I see those things as integrity measures for the tax base, not the broadening of the GST or an increase of the GST,” Hockey said at the time.
“The states have agreed in principle that we should move in that regard. I have offered to work as quickly as possible with them to introduce legislation to address that in relation to intangibles.”
Frydenberg is also reportedly pushing ahead with plans to lower the $1000 GST-free threshold for online purchases from overseas retailers, although reports last week suggested this would happen post-budget.
11. Tighter rules for age pension eligibility
Late last week, Social Services Minister Scott Morrison revealed the winners and losers from the governments proposed changes to the age pension eligibility test.
Morrison said the government’s aim is create fairer access to a “more sustainable pension”, with the changes to come into effect in January 2017.
While the minister said 90% of 3.7 million Australians who receive the pension or pension-linked payments will either be better off or see no change to their payments, approximately 91,000 current part-pensioners will no longer be eligible for the pension and another 235,000 will have their payments reduced.
The changes, which are estimated to deliver $2,4 billion to the budget bottom line, relate to the value of the assets used to determine whether an individual qualifies for a pension or not, with wealthier retirees to feel the cuts.
The government plans to reduce the maximum value of assets outside the family home a couple can hold while still qualifying for a part pension, from $1.15 million to $823,000.
The threshold for single retirees will drop from $775,000 to $547,000.
But the revamp of the system means 170,000 pensioners with modest assets will receive an average of more than $30 extra a fortnight, with around 50,000 part-pensioners to move to the full pension.
Morrison also announced the government will not proceed with a plan to index the pension to the Consumer Price Index, as announced in last year’s budget.
12. Multinational tax disclosure
While a Netflix tax has been ruled in for this year’s budget, a “Google tax” is reportedly out.
Hockey had previously said one option for cracking down on profit shifting by large multinational corporations would be to impose a 30% company tax rate on profits earned from activity within Australia but declared overseas—a scheme known as a “diverted profits tax”.
However, reports suggest the government has shelved any plans for a “Google tax” and is instead likely to opt for new disclose laws for companies suspected of engaging in aggressive international tax minimisation.
13. More money for the ABS
The budget is expected to include a $250 million funding boost for the Australian Bureau of Statistics to allow the bureau to overhaul its computer systems, some of which are up to 30 years old.
The ABS had previously indicated it may not be able to undertake next year’s census because of the urgent need to upgrade its systems, however, the funding injection will mean the Census and Statistics Act can remain unchanged.
The upgrade to the ABS computer systems will also help the bureau address concerns about the reliability of its monthly employment statistics.
COSBOA executive director Peter Strong told SmartCompany the additional funding for the ABS is “money well spent”.
“The more data we have, the more we can manage and predict things and plan for the future,” he said.
14. Changes to the PBS
The federal government could have a fight on its hands over its proposed budget changes to the pharmaceutical benefits scheme (PBS).
While big pharmaceutical companies are expected to bear the brunt of the government’s proposed $5 billion in savings from changes to how some drugs are considered under the PBS, pharmacists will likely be affected by plans to introduce a discount for pharmaceutical co-payments.
The Pharmacy Guild of Australia is already pushing back against the proposal, which is estimated to costs pharmacists around $800 million over a five year period. Not all pharmacies are expected to be able to afford the discount and therefore their patients could miss out.
COSBOA’s Peter Strong says the government will have a fight on its hands.
“The Pharmacy Guild is powerful for a reason, not because it’s shonky but because it’s reputable, big and an important part of the community,” Strong told SmartCompany.
“They represent thousands of highly trained, ethical individuals.”