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Federal Budget 2021-22: Motor industry insights

Federal Budget 2021-22: Motor industry insights

The Federal Budget 2021-22 underpins the striking economic recovery experienced in the Australian retail automotive industry starting in mid-May 2020, with many of the measures announced putting the industry in good stead to invest in growth, expansion and their employees in the Budget’s forecasted period.

It builds upon the responsive measures implemented over the past 12 months, encouraging motor dealers to take a lead in Australia’s economic recovery.

Prior to the pandemic, the retail automotive industry had experienced a continuous period (28 months) of declining sales volumes and recession-like conditions with the average dealer breaking even or being in a loss position for both FY2018 and FY2019. However, since mid-May 2020, the industry has experienced extraordinary trading conditions with increased sales driven by stimulus, increased wealth effects, ‘staycations’, tax incentives and constrained stock. Consequently, leading to many dealers achieving extraordinary goals, some of which had never been achieved before.

The extension of the ‘instant asset write-off’ measure until 30 June 2023 comes as welcome news for the industry with it providing ABN holders (and dealers themselves) with the confidence to invest in new equipment. Particularly for the retail automotive industry, commercial vehicles and utes will benefit from this measure for the next 25 months.

Additionally, motor dealers with an aggregated turnover of less than $5 billion are eligible for the 2021-22 Temporary full expenses extension. This will provide them with the opportunity to access the tax-value of losses generated by full expensing deductions early, allowing them to carry back tax losses from 2022-23 income year in order to offset profits dated back to 2018-19.

Significant tax relief provided to middle and lower-income earners combined with increased support to families will likely encourage consumers to spend. These measures combined with the overall wealth effect provided by the recent rise in house prices will give dealer customers the confidence to make a vehicle purchase.

Like most industries, the retail automotive industry has experienced skills shortages for the past decade. The removal of cessation of employment tax-deferred Employee Share Schemes (ESS) and the reduction of red-tape for ESS will provide assistance in addressing the shortages in skilled workers, with it helping to attract and retain employee talent. Although these measures are viable, skill shortages are most likely a long-term issue that will continue to be amplified by the pandemic. However, this can potentially be overcome by acquiring talent from other industries and investing in the growth and development of dealership staff.

Overall, the budget’s forecast and spending on infrastructure will underpin a ‘long run’ in the current economic recovery that we are experiencing and drive confidence in consumers and businesses. Unemployment is forecast to remain low and settling at 4.5% which will no doubt provide financial stability for many Australians and continue to spur overall economic activity.

For further information please contact your Pitcher Partners representative.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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