The 2019 federal budget was revealed last week, with many changes indicated for small business, and so we asked leaders in the SME world for their opinions and reactions.
As a recap, the conditional budget saw an increase in the instant asset write-off threshold to $30,000, lower tax rates and an easier tax dispute service for small business.
In this week’s Let’s Talk Forum, we specifically take a look the pros and cons, weighing it all up from a small business perspective.
Stephen Barnes, Prinicpal of Byronvale Advisors Pty Ltd
The Xero Small Business Insights report made findings that I think this budget went some way to address. The report found that when small businesses receive a tax cut about half that money goes towards hiring employees, raising wages or boosting investment in the business and the other half is retained as cash in the business. The announcement of the bringing forward of tax cuts should therefore assist businesses in these areas. The report also found that small businesses were paid on average about a week late. The budget announcement of a new e-invoicing system, and the requirement for government agencies and large business to speed up the timeliness of payments will be welcomed by small businesses.
For me the jury is still out of the instant tax write-offs. Increasing the amount to $30,000 will help but it is access to the funds to buy Josh Frydenberg’s ‘fridge for the café’ that will be the major consideration for most small businesses and not the instant write-off. Capital intensive business with high investment costs will also not be able to utilise the write-off for their businesses. The Xero report also found that Australia’s small businesses would borrow up to $80 billion over the next 12 months if they could get the funding. The announced $2 billion securitization fund is welcomed but probably not large enough. The announced establishment of a dedicated Small Business Taxation Division at the ATO, the reduction is red tape and the associated financial reporting and audit costs, and the pilot small business tax clinics will assist businesses focus on growing their businesses.
Work180’s CEO, Gemma Lloyd
We’re very happy that the government has decided to allocate some funding to increase the participation of women and girls in STEM.
At Work180 we are so passionate about getting girls interested in STEM we have been running SuperDaughter Day — which aims to make STEM fun for girls — for four years now to try and correct the huge gender imbalance in STEM.
During this time, more than 2000 girls have attended, and nearly all parents have said the day made their daughters more interested in STEM-based activities.
Women still account for only 16 per cent of tech workers, and the percentage of female tech graduates has been in decline for 30 years. And while the $3.4m will help focus training on young women, we must never get complacent when it comes to encouraging girls — which will make up 50 per cent of the workforce — to become interested in STEM.
Combating such a stark gender divide requires the combined efforts a of governments, schools, employers and broader institutions, and this dedicated fun will help kick-start the process.
DetchSingh, Co-founder and CEO, Hypetap
The budget reply again highlights the Government’s lack of support for innovation and R&D from both sides of the political divide. While there is a big push for the country to be an innovation nation, the Government is doing little to support the startups and tech companies shaping our future and importantly, fuelling our economy.
Further cuts to R&D announced earlier this week is simply a step backwards. If we continue on this trajectory, we risk losing great ideas to other countries that better support and encourage innovation and R&D.
Alex Alexandrou, General Manager at Reckon
Prior to the budget, we know that SMEs were doubtful that the federal commitments would deliver positive change for their business. However, the focus on a ‘cash splash’ was pleasing to see and could well be a promising sign for small businesses ahead of the upcoming election.
The extension of the instant asset tax write-off to 2020 will be greatly appreciated by small businesses, with the increase of the threshold to $30,000 a real win. With additional cash in hand for SMEs, this can improve business cash flow and further promote growth opportunities.
However, many of us tech companies were hoping to see a renewed focus on innovation and greater clarity on the R&D tax incentive scheme. Australia’s positioning as a regional innovation hub is lagging behind the more progressive markets of China, South Korea and Japan. This budget made it clear that innovation has been placed on the backburner, which could have huge long-term implications for start-ups and small businesses that not only rely on the tax concession to drive research, development and innovation, but for the broader tech industry and national economy.
Ainsley Johnstone, Co-CEO of Think Talent
Many small businesses are set up as trusts, so the reduced tax rate does not apply at a business level unless they change their organisation structure, which has a cost impact and creates other risks.
It also doesn’t address the major tax issue that growing organisations face, such as payroll tax, which becomes a bigger concern when you consider salary inflation off the back of jobs growth, and visa restrictions in the recruitment sector. Why are there are not special considerations for businesses turning over less than $5M to help them grow?
As for the creation of new jobs, it looks positive, but I am wondering why the government is still focused on restricting visas in the recruitment sector? I understand we need to hire as many Australians as possible, however expats are paying for the privilege through tax, and are contributing to reducing our unemployment rates.
When you look into the visa assessment and cost structure, it seems work against small business. The government is making decisions on how we grow our business and is taking a major clip of the ticket from along the way.
Mark Fletcher, Cohort Go, Co-founder and CEO
The 2019-20 federal budget has been touted as creating a stronger economy, with the Morrison government promising to secure a better future for Australian business. While it is set to deliver an estimated surplus of $7.1 billion to help safeguard Australia’s economic prosperity, the drop in R&D funding has the potential to hinder its success. The past two budgets have seen the R&D tax incentive program cut by $4 billion – such a drop has potentially devastating consequences for the advancement of many in the startup and tech sector.
One positive outcome from the budget was the addition of a Small Business Taxation Division. This has the potential to be a great value-add for startups and small businesses, with the addition of individual case managers and quicker turnarounds on decisions.
Ed Mallett, Managing director and founder of Employsure
Among the budget highlights for businesses was a promise to cut SME taxes to 25 per cent and increase their access to finance with a new $2 billion fund. The instant asset write-off was also increased from $25,000 to $30,000 and can be utilised every time an asset under that amount is purchased, effective immediately. The instant asset write-off will also be expanded to businesses with a turnover of up to $50 million, covering an additional 22,000 businesses.
These initiatives are positive for the SME community, and many SMEs in our network are pleased with the outcome. However, small businesses tax breaks and funds are only half of the solution.
Budget 2019 delivered no new policies to promote growth, make it easier for SMEs to operate, or to modernise the workplace. Technology continues to disrupt standard concepts of employment leaving Australian business at risk of being tied to an out-dated regulatory environment; depriving SMEs of the opportunity to thrive globally.
Also missing in Budget 2019 was the customary rhetoric of reducing red tape. We have had significant consultation with small businesses over the last eight years and the overwhelming view is the legislation is far too complicated for the majority of Australian businesses with less than 20 employees and no HR or legal departments.
Our view is that Government should make practical and realistic reforms that attempt to make it simpler for businesses to do the right thing and build their confidence to employ, which is what our economy needs.
In addition, minimum wages need to be addressed. Since small businesses employ majority of the Australian workforce and generate a fifth of our GDP, it is vital that they are provided with sufficient support to remain profitable whilst spurring growth.
Carl Hartmann, Co-founder of Shortlyster
Extreme care needs to be taken with any reductions to the R&D tax scheme. Almost every technology startup I know depends on this scheme to be able to build their innovative new products, and is a fundamental reason for keeping engineering teams in Australia. If the intent of the reduction is more scrutiny and to limit the amount of funds available to larger companies that are taking advantage of this generous scheme, then that is something I think is understandable. However, if it in any way makes it more difficult, or imposes limitations on the startups that are conducting bona fide R&D and creating skilled jobs in the process – then the government needs to understand this can be the “straw that breaks the camel’s back” and forces Australian startup engineering teams to move off-shore, either to jurisdictions with similar schemes (such as the UK) or markets with lower labour costs and larger talent pools, such as SE Asia.
Dipra Ray, CEO at mPort
I think the Federal Budget for 2019 will make a positive change for the country as it provided significant wins for the community, and businesses. The noteworthy parts of the budget were:
- Well-targeted tax relief for consumers which will hopefully boost consumer confidence
- Strong focus on infrastructure and congestion busting, which will be a big positive for businesses who can be located further out from the main cities but can still access high quality talent
- Seeing a $60m boost to the EMDG scheme is a much-welcomed improvement, as the continued expansion of this is critical for businesses who wish to grow globally and become world-beaters
- Overall, it was pleasing to see all of the above achieved without having to increase taxes or cost burdens further on enterprise, and to see a forecasted budget surplus
In terms of cons, I’m unsure there were many notable negative sides to businesses in this budget as it was fairly generous across the board, due to the strong fiscal discipline over the past few years.
Darren Winterford, CEO at EdApp
The most obvious pros from the budget are the announced tax cuts and asset write offs for small business. This is a clear motivation for businesses to free up that cash to drive growth and hiring. Income tax changes aren’t enough to drive any real consumer growth locally as they’ll be used to pay down record debt levels so we wouldn’t expect companies to spend on local growth. But it will be useful for local hires and international marketing spend which is where 80% of our customers are. The not so obvious con was the increase in cost for visa applicants. In the tech industry it’s difficult to find the skills we need and anything that creates friction for hiring talent is a loss for us. The next best thing would have been seeing more to encourage skill development locally, but again there hasn’t been any obvious gains here.
Michael Alp, Vice President, Asia Pacific and Japan, at Pure Storage
Continued investment in science, research and technology ($9 billion package), is essential for boosting Australia’s economy and competitiveness on the world stage. The government should not forget about the critical role of data in both the execution and management of its digital plans. Without the right infrastructure in place (e.g. for data storage, backup and recovery etc.), digital strategies will remain just that – strategies.
Craig Howe, Managing Director – APAC, at global technical consultancy, Contino
Digital investment is always about removing friction. From a citizen’s perspective, the additional $67.1 million allocated to the GovPass program, the government’s digital ID project, will be welcomed to speed up interactions with government services, which have traditionally been quite laborious. If executed well, streamlined services such as the MyGovID project will create substantial cost savings and help propel Australia further towards a digital future.
To foster public adoption of any digital service, however, the government must work hard to build trust in the system. To do this, the government must provide a clear opt-in/op-out process, optimise the service across all platforms (mobile, web, tablet etc.) and most importantly, build awareness through widespread education on its value and applications.
Without this, uptake will remain low, and the service risks becoming yet another capability that is superseded before it’s begun.