Business forced to dig deep as Budget spending restrained

Treasurer Jim Chalmers has delivered a Budget focused on softening the blow of inflation and cost-of-living rises, with a promise of “spending restraint … while doing what we can to help people struggling to make ends meet.” 

But for small and medium business, that Budgetary restraint could prove frustrating — despite a handful of measures designed to support energy efficiency, there is little else for business.
Structural reform that could support business through the forecast economic tightening is absent, as economic growth is expected to slow from 3.25 per cent in 2022–23 to 1.25 per cent in 2023-24.  

While the small-scale measures have been designed to avoid inflationary pressure, the focus on reducing the cost-of-living pressures has diverted attention from more strategic thinking, according to Pitcher Partners National Chairman John Brazzale. 

“Businesses are on notice that the next two years are going to be dire for some, and there’s very little in this Budget that will change the trajectory or help business through these difficult times,” Mr Brazzale said. 

“They are going to need to find their own path and not rely on Government-led structural change to reshape the Australian economy and mitigate the tougher time ahead.  

“Significant challenges remain for business, from supply chain issues to accessing reliable, lower-cost energy, to the pace of digital disruption and labour costs and supply.”  

Two minor initiatives have been offered for smaller businesses designed to support small-scale capital investment.  

A temporary increase of the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024, is limited to SMEs with aggregated annual turnover of less than $10 million. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.  

A second measure will provide an incentive for SMEs to electrify assets and make improvements to energy efficiency. SMEs with aggregated annual turnover of less than $50 million will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy.  

“Given the real need for capital investment in mid-market businesses, these initiatives should be offered to those with an annual turnover of up to $250 million,” Mr Brazzale said. 

Business expenditure of up to $100,000 will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000 (in effect, a cash benefit of up to $5,000 not received for another year).  

The incentive is also available to depreciating assets, as well as upgrades to existing assets, encouraging investment in more efficient electrical goods or demand management assets like batteries. 

“These are small-vision initiatives that don’t really help business grapple with the costs and change needed for energy transition. Moreover, the tap has been turned off on the more meaningful investment incentive in the form of the Temporary Full Expensing which finishes next month,” Mr Brazzale said. 

“Given an underlying message of the Budget is that electrification and energy transition must occur — the launch of the Net Zero Authority, for example — there is scant detail or support for the millions of businesses that need help with that change.” 

On the tax front, businesses still recovering from the COVID years will be encouraged to re-engage with the ATO, with an amnesty program in place for SMEs with an aggregate turnover of less than $10 million.  

This will remit failure-to-lodge penalties for outstanding tax statements originally due from 1 December 2019 to 29 February 2022, provided they are lodged by 31 December 2023. 

The measure is estimated to increase receipts by $718.0m and increase payments by $275.4m over the 5 years from 2022–23.  

At the same time, businesses will be required to align superannuation and PAYG payments, in a bid to improve compliance and boost employee returns.  

The Treasurer hopes improvements to Australia’s migration system and increased labour force participation on the back of improved childcare access and only slightly higher unemployment might also help businesses struggling to secure workers in high-demand industries.  

Overall, though, the business sector is likely to see this Budget as a missed opportunity, Mr Brazzale said, with Government shying away from more visionary reforms.  

Find out more about how the Federal Budget will impact mid-market businesses in our web hub here.