Small businesses are bracing themselves for a hit following the release of Treasurer Wayne Swan’s Mid-Year Economic and Fiscal Outlook, which has downgraded the 2012-13 projected surplus to $1.1 billion.
According to Swan, the Australian economy “walks tall in the world” despite worsening global conditions cutting almost $22 billion from tax receipts.
However, Swan admitted that the government will have to find $16.4 billion in savings in order to reach a surplus. Next year’s projected $1.5 billion surplus has been cut to a $1.1 billion.
“The decisions taken in this MYEFO were difficult but critical at a time of falling revenues and ongoing global headwinds,” Swan said.
Shadow small business minister Bruce Billson has attacked the measures, warning cafes, hairdressers and other small businesses will “pay a high price for Labor’s mismanagement”.
“The Gillard government sees struggling small businesses as the easy targets upon which to build Labor’s shonky, wafer-thin surplus,” Billson said in a statement.
Here’s how business will be affected:
1. Company tax
The biggest savings will come from changes to company tax payments – large companies will pay their tax in monthly instalments rather than quarterly instalments.
“[These changes are] better aligning tax payments with the way businesses pay GST and making payments closer to when the income is earned, like wage and salary owners,” Swan said.
The changes are expected to save the government more than $8 billion over four years. As of January 2014, it will apply to companies with a turnover of at least $1 billion.
But Innes Willox, chief executive of Australian Industry Group, says the move will detract from cashflows and impose higher compliance costs.
“This over-emphasis on squeezing more out of companies will detract from the business community’s ability to get on with the job of reinvesting,” he said in a statement.
This financial year, state governments will face a $765 million cut in specific grants, which, according to Swan, is part of an “agreed indexation scheme”.
Swan said the indexation scheme means payments to states fall as Commonwealth tax revenue falls.
The news comes after the government announced $652 million in National Health and Medical Research Council grants, following a freeze on research grants earlier in the year.
The government has also resumed its Clean Technology Investment Programs, although Willox warned it will take time to repair the damage of the grants freeze.
“The pause in approving these grants had come at a cost to business and had undermined confidence in the scheme,” he said.
“Ai Group will work with the government to ensure… changes to grant programs and apprentice incentives have as little adverse impact as possible.”
3. Fringe benefits concessions
The government has decided to remove the concessional FBT treatment for in-house fringe benefits, accessed by way of salary sacrifice arrangements.
This move is estimated to raise $445 million over four years.
However, Pitcher Partners managing director John Brazzale said it will impact employees who salary sacrifice to purchase the goods or services provided by their employer where, under current rules, they get concessional valuation treatment for those goods and services.
“Employees that salary sacrifice for those goods and services will lose the benefit of the concessional valuation treatment so it will cost employees more for those goods and services,” Brazzale said in a statement.
“The issue for those employers that want to continue providing employees with benefits is that they may need to top up their employees’ salaries.”
“Ultimately, it will either be greater cost to employees or employers will need to compensate employees in these types of salary sacrifice arrangements.”
4. ATO compliance activities
The government will provide $390 million to the Australian Taxation Office for further compliance activities.
According to Brazzale, increased ATO compliance activities are expected to generate a gain to the budget of $2 billion.
“This measure provides the ATO with about $140 million per annum of additional funding, and this will allow the ATO to continue its strategic compliance initiatives in the small business area and to follow up on long-term outstanding debt,” he said.
“It also means the ATO will target outstanding tax lodgments of business, tax avoidance and tax evasion schemes.”
“It is important that taxpayers ensure they continue to comply with their taxation obligations or, if they can’t, they should be speaking to their advisors.”
The hospitality industry has been dealt a blow, with the government confirming the cost of tourist visas will increase.
The Australian Tourism Export Council has already slammed the move, warning it could deter backpackers.