The 2019-20 Budget has been designed to ensure few in the community will be offended.
The Government is firmly in election mode, spruiking its perceived Budget winners and its economic credentials. The question remains, will this be enough to sway the Australian electorate, and overhaul the 5% deficiency in the current polls?
Some of the key impacts for businesses and stakeholders across Australia, if Budget measures become law, include:
- a 20% increase in the immediate asset write-off to $30,000 for businesses that turnover less than $50m;
- a six-year staged reduction in the marginal tax rate from 32.5% to more closely align with the corporate tax rate, which is hoped to stimulate consumer spending;
- a low-income taxpayer’s receipt of $1,080 per individual (or $2,160 for dual income families) from an increase in the low-income offset for individuals; and
- stimulation of activity in the infrastructure construction sector.
Pitcher Partners’ pleas on behalf of privately-owned middle market businesses have not gone unheard, with the Government acting to drop the proposed draconian Division 7A measures announced by Treasury in October 2018. Those proposals were riddled with implementation issues at a significant cost to private business owners. The Government has now promised a more consultative and measured process in reforming these laws, reverting to the original objectives of the targeted reforms first articulated in Budget 2016-17.
Concealed with a budget that seeks not to offend, the real losers are state governments, with implications for business and voters. Treasury papers forecast a loss in GST revenue of $10.3 billion compared to prior estimates, impacting state budgets in coming fiscal periods. How states will deal with this when faced with the prospect of declines in receipts from property transactions and valuation taxes and levies, remains to be seen. However, do not expect payroll or duty relief in the upcoming state budget cycle.
The Budget 2019-20 is built on Treasury forecasts for the economy for the coming three years. Examination of these forecasts will reduce confidence among SMEs. While the Government maintained economic growth (albeit slowing from previous forecasts, and below 3%), the Treasury projects an 11% contraction in dwelling investments over 2019-21, which Government expects to offset through stimulus in other business investment. Specifically, price and wage growth resulting from maintenance of employment levels, together with ‘productivity improvements’, is expected to stimulate economic activity. Historically, slowdown in the housing sector has had negative implications for the middle market.
Government focus on business tax compliance also continues, with ATO compliance programs receiving a funding boost of $1 billion. It is indisputable that those businesses rorting the system should be brought to account. However, increased ATO scrutiny of those already compliant will be increasingly disruptive, and costly, for business.
Disappointingly, for both business and individuals, the Budget lacks significant structural vision. The challenge of re-positioning Australia from digging holes (mining), farming, and construction to value-creation remains absent. While there are programs to progress science, technology, engineering and mathematics (STEM) and apprenticeships, there is limited innovation in the agenda. There is no fundamental shift in education, training or tangible technology development, indicating a poor focus on long-term investment.
Overall the Budget offers little in the way of policy change or structural reform. Government spending on infrastructure is the chosen remedy to a slowing economy and the tool to seduce voters in an imminent election.