By Emma Koehn and Dominic Powell
Will the federal government make its $20,000 instant asset tax write-off scheme a permanent fixture of the tax system? Will it allocate more funding to address challenges in the skills and training sector? What will its crackdown on the “black economy” look like?
While in previous years the small business community has been given much to look forward to in the lead up to the federal budget, just how much will be in this year’s federal budget for SMEs remains to be seen.
Treasurer Scott Morrison has said the government is well aware of the cost of living pressures faxing many Australians and policies that address housing affordability are widely tipped to be in the budget. The Treasurer has also made it clear the government will not shelve its plans to give corporate tax relief to all Australian businesses, regardless of their size.
SmartCompany will be in the media lockup up at Parliament House this evening to prepare our special budget edition. For now, here are 12 things you can expect to hear about tonight.
Voters can once again expect the budget to deliver a deficit this year, with estimates suggesting the 2016-17 financial year deficit will come in at around $38.3 billion.
Deloitte Access Economics’ annual Budget Monitor predicts the deficit will be $1.8 billion worse than the government’s mid-year estimate, and slightly more than the $37 billion deficit in 2016.
However, an increase of 65% to company profits before tax in 2016 means Deloitte estimates the 2017-18 cash deficit will come in at $27.5 billion.
“Happily, that’s $1.2 billion better than projected in Mid-Year Economic and Fiscal Outlook — but that improvement comes thanks to China and to the Reserve Bank’s interest rate cuts last year, not to decisions taken by a courageous Canberra,” Deloitte said.
2. Good debt and bad debt
Not satisfied with just one definition for debt, Treasurer Scott Morrison has said the government will determine between “good” and “bad” debt in the upcoming budget.
In a speech in April, the Treasurer explained the distinction aims to “make clearer the share of expenditure that is contributing to investment that increases productive capacity and produces future income”, compared to debt that “is being incurred to deal with everyday expenditure”.
“Bad” debt includes financing for welfare, health, and other everyday expenses, whereas “good” debt covers financing for infrastructure, and growth-inducing policies and projects.
“We all need to understand what is driving the growth in our public debt and we need to budget in a way that creates accountability for increasing public debt and the interest payments that go with it,” Morrison said.
“It can be very wise for governments to borrow, especially while rates are low, to lock in longer term financing and invest in major growth producing infrastructure assets, such as transport or energy infrastructure. But to rack up government debt to pay for welfare payments, Medicare costs or other everyday expenses, is not a good idea.”
Previously, Morrison says the government had “lumped in [debt] together”, and the new approach is intended to begin to change the federal government’s spending culture.
3. $20,000 instant asset tax write-off scheme
The government’s popular $20,000 instant asset tax write-off scheme is widely tipped to be extended in the 2017 budget after small business Minister Michael McCormack said he was “hopeful” SMEs would get another year of the beneficial scheme.
Speaking to The Weekly Times last week, McCormack said he had asked Morrison to extend the scheme another 12 months, and had endeavoured to convey the benefits of the scheme for the nation’s SMEs.
“I’ve spoken to the Treasurer. He knows how good the program is, he knows how successful it is,” McCormack said.
“We know cashflow is king in any small business — it (the asset write-off) has worked for them and put money back in their pockets, which they nearly always then reinvest into their businesses.”
Initially introduced in 2015, the accelerated depreciation scheme is due to expire on June 30. McCormack first raised the idea of extending the scheme in January, and it was made available to businesses turning over $10 million or less, up from $2 million, in March.
SmartCompany readers said retention the extension of the scheme was a high priority when surveyed, with many hoping it will be extended for an additional 12 months or implemented indefinitely.
4. Further company tax cuts
The business community is expecting the next phase of the government’s corporate tax plan to be included in the budget papers, after the Treasurer reaffirmed commitment to its 10-year scheme to lower the corporate tax rate.
The first part of the package, which lowered the company tax rate for businesses with annual turnover of less than $50 million, was secured earlier in the year after negotiations with Senator Nick Xenophon.
While there’s been a push from big corporates to further extend the tax plan, SMEs have told SmartCompany they are less enthused by the idea.
““[I don’t want to see] a reduction in company tax [rates] for companies with turnover greater than $50 m,” one business owner said last week.
5. Payment times
The small business community has been calling on the government to legislate on maximum payment times in light of the small business ombudsman’s recent inquiry into the impact of late payments on cashflow.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell says she believes legislation is the only way to ensure the big end of town commits to faster payment times.
While state governments have made moves in this area with voluntary codes, the SME community will be waiting to see whether the Coalition will come up with its own policy measures to address the impact of late payments across the board.
6. Education funding
The government will look to inject $18.6 billion in funding over the next 10 years to schools on a “needs basis”, with 353 over-funded schools set to receive a drop in funding due to the plan.
The announcement was accompanied by the reveal of the government’s plan for a “Gonski 2.0” review into how to improve Australian student’s results, headed by Australian businessman David Gonski, who initiated the original Gonski review in 2011.
“This reform will finally deliver on David Gonski’s vision, six years ago, after his landmark review of Australian school education,” Prime Minister Malcolm Turnbull said in a speech last week.
7. Changes to uni course prices and HECS debts
However, the day before announcing the schools funding change, the government outlined its $2.8 billion plan to shake up the university sector by increasing university course fees, and lowering the HECS repayment threshold from $55,000 to $42,000.
For a four year course, fees will go up between $2000 to $3600, but the maximum amount students pay for a four-year Commonwealth-supported course will be capped at $50,000.
Education Minister Simon Birmingham labelled the reforms “fair, reasonable and necessary”, and guaranteed no further changes to fee deregulation or university funding thanks to the reform.
8. $100 million for manufacturing businesses
Innovation Minister Arthur Sinodinos announced on Monday a $100 million fund to help Australian manufacturing businesses stay competitive in a time of rapid change.
The package includes $47.5 million for an “Advanced Manufacturing Growth Fund” to contribute to “high growth” manufacturing projects in South Australia and Victoria, as well as $20 million to be delivered over the next two years for a research centre to work on projects in the advanced manufacturing space.
9. Housing affordability changes
Whatever the government comes up with to address the explosive issue of housing affordability, you can bet big structural reforms will be safe. Housing is one policy area where there is a clear alternative being presented by the Labor Party. However, changes the opposition promotes to tax arrangements, including negative gearing, will be off the table for Budget 2017.
Instead, policies aimed at increasing supply and boosting first home buyer savings are anticipated, including a first home buyer savings scheme, incentives for downsizing out of family homes, and reduction of red tape to speed up development.
10. Changes to welfare
The government has indicated changes to welfare will target those intentionally avoiding entering the workforce, claiming they want to stop the system from “funding a lifestyle choice”.
Potential measures include fines for those misusing or extending Centrelink payments when individuals are not entitled to them.
Meanwhile, a $350 million commitment is expected to provide mental health and support services for Australian veterans.
11. The banks
The banks are expected to get a few shout-outs in the budget papers as the government looks at dispute resolution processes and competition in the banking sector.
Policies that have been floated include the consolidation of a number of financial services regulators into one “super ombudsman” body and new measures to increase competition in the sector, including a review of the industry by the Productivity Commission.
12. “Black economy” measures
The government started discussing tackling the “black economy” in 2016, when it established a taskforce in its Mid-Year Economic and Fiscal Outlook (MYEFO).
The budget is expected to contain measures to tackle the $21 billion problem, which poses a big challenge for revenue collection.
An interim report into the area, handed down by head of black economy taskforce, suggested the labor hire sector was of significant concern. The Australian Taxation Office has also been looking at businesses operated “outside” the tax system, and said in March it would be dropping in on 400 businesses to ensure they were complying with obligations when handling cash payments.