In the biggest business-boosting budget in Australia’s history, federal Treasurer Josh Frydenberg announced a $35 billion programme designed to help beleaguered businesses get back on their feet following COVID-19.
Among a raft of measures the government is delivering, almost all businesses will now be able to claim the full value of any investment in plant and equipment as an instant asset write-off. They will also be able to write off losses from last year, this year and next year back into previous profitable years.
Companies will have 50 per cent of the wages of apprentices paid, as well as a subsidy on the wages of other young people. Small business will also benefit from simplified GST, fringe benefit tax exemptions, many other cuts in red tape, and free mental health support.
Prime Minister Scott Morrison announced last week the $1.5 billion Modern Manufacturing Strategy, which has selected six sectors to focus on, including food and beverage.
Advanced Manufacturing Growth Centre (AMGC) managing director Dr Jens Goennemann said the budget was a vote of confidence for manufacturing from the federal government and the refunding of the AMGC would allow it to continue to have an impact on the manufacturing sector.
“Manufacturing is a job multiplier, a capability, and an enabler,” he said.
“Manufacturing is a capability a nation must-have, Australia’s highly skilled manufacturers proved the nation could manufacture the critical medical equipment the nation needed in response to COVID. Now, under continued support from AMGC, manufacturing will help lead the economic recovery of the nation post-pandemic,” Goenneman said.
Kickstart
All up, the government is spending $98 billion to kickstart the economy, with the $26.7 billion instant asset write-off the biggest part of that. The national debt will nudge a trillion dollars as a result.
KPMG chief economist Dr Brendan Rynne says the government has gone “all-in”, “betting on the private sector to pony up and drive the post-coronavirus economic recovery for the nation”.
“The government is banking on a response that builds self-sustaining growth momentum. The fear has to be that the Budget concessions simply kick the can down the road – the sugar hit is short-lived, with economic activity brought forward but leaving a void in future demand,” Rynne said.
The government said the plan should deliver economic growth next year of 4.75 per cent, more than compensating for the expected 3.75 per cent fall this year. However, those figures are based on a vaccine being widely available next year, with national and international borders being re-opened as a result, but a successful vaccine is far from certain.
Instant asset write-offs, tax concessions
The instant asset write-off will provide what Josh Frydenberg says will be a “game changing” financial stimulus. That means any piece of equipment available is now able to be 100 per cent written off this financial year, and the next one.
Pitcher Partners National Association national chair John Brazzale said the quickfire measures announced will encourage firms to spend, including allowing the full cost of eligible assets to be deducted by businesses, with turnovers up to $5 billion.
Brazzale said: “For middle-market businesses, the initiatives are designed to reward those with the money able to invest in new equipment and new opportunities.”
The carry-back losses plan will cost $4.9 billion and will mean that losses which could normally only be carried forward against future profits can now be claimed against past profits, with Frydenberg saying, “These are not normal times”.
Almost all businesses will be able to apply for carry-backs for losses accrued in 2019-20, 2020-21, and 2021-22. Frydenberg said: “In order to keep their workers businesses need our help now. They cannot wait for years for the tax system to catch up. Companies that have been doing it tough through the crisis will be able to use their losses earlier.”
Brazzale said: “For those with tax losses last year, this year or next, they can be offset against previously taxed profits — rather than having to be carried forward against profits in future years. This measure will also apply to corporate tax entities with turnover up to $5 billion and will no doubt appeal to many.”
Rynne said a consequence of the government-induced boost to private consumption and investment spending is an increase in inflation of 1.75 percent for this financial year and 1.5 percent for the next.
“It is highly likely we will see price increases in investment goods as businesses take advantage of the concessions offered in the Budget,” he said.
Jobs
On the jobs front, the new JobMaker Hiring Credit will provide up to $10,400 a year for new employees, who have been on JobSeeker, Youth Allowance or the Parenting Payment for at least one of the past three months. These people will need to work more than 20 hours a week.
The measure is predicted to support around 450,000 jobs, about four times the number for the Boosting Apprentices Wage Subsidy for new apprentices or trainees, which will see eligible businesses reimbursed up to 50 per cent of an apprentice or trainee’s wages worth up to $7000 per quarter.
For young workers newly employed aged between 16 and 30, businesses will receive a $200-a-week subsidy and a $100-a-week subsidy for those aged between 30 and 35. JobKeeper will remain in place until March, on its reducing rate.
Small business owners will also be able to receive “free, tailored and accessible” mental health support, through the Beyond Blue New Access programme, which is receiving a significant boost in funding.
The government has also committed $17.4 million over two years for relocation assistance for workers who are prepared to work in regional areas for at least six weeks. Eligible workers will be able to receive one-off relocation rebates of up to $6000.
The Budget also provides $317.1 million to extend the International Freight Assistance Mechanism into 2021. Fresh produce industry body PMA ANZ said the initiative supports Australian growers to export produce into key export markets, maintain overseas customer connections as well as continue to contribute to the global supply chain.
The industry group said: “As much of our fruit and vegetable industry relies on irrigation it’s great to see the investment of $2 billion in building water infrastructure and helping to increase our water security, build regional resilience, deliver jobs and grow the agriculture sector.”
Recycling
Frydenberg announced the government was banning the export of plastic, paper, tyres and glass waste.
“This budget will invest $250 million to modernise our recycling infrastructure, stop more than 600,000 tonnes of waste ending up in landfill and by doing so help to create a further 10,000 jobs,” he said.
Included in that is the $190 million Recycling Modernisation Fund (RMF), which will go into new infrastructure to sort and recycle plastic, paper, tyres, and glass. The government says the RMF would stimulate $600 million of investment in the local recycling industry. It comes as the country institutes a ban on the export of waste plastic, paper, tyres, and glass.
Australian Packaging Covenant Organisation (APCO) CEO Brooke Donnelly said it is fantastic to see the federal government continuing to make waste and recycling a top priority in Australia.
“For anyone who wants to understand more about what this year’s budget means for the resource recovery industry, APCO is delighted to announce that we will be joined by Trevor Evans, the assistant minister for waste reduction and environmental management, together with three leading industry representatives for a post-budget webinar discussion next Wednesday (14 October),” Donnelly said.
Iugis chief of stakeholder relations Jeff Olling said it was concerned about the lack of food waste initiatives being specifically called out as part of the $250 million earmarked to modernise recycling infrastructure.
“Australia is the fourth highest contributor to food waste per capita in the world, and the issue costs the economy an estimated $20 billion a year; that’s critical lost capital that could help navigate our current recession.
“Reduction in food waste will bring both health and economic benefits which are key to our recovery. The government cannot lose sight of its importance in achieving a sustainable future.”
Criticisms and concerns
Brazzale said: “While subsidies can reduce pressure on businesses, it must be noted that it’s not a long-term solution to the deeper structural issues that need to be addressed. Now is the opportunity to make the key structural reforms needed to build a sustainable economy and to see those changes in the next federal budget.”
While it was “no surprise” the budget was focused on the here and now, Brazzale said it didn’t deliver the future vision for Australia’s long term recovery.
“The Budget fails to incentivise the growth of intellectual property, Australian resourcefulness and digital change needed to become a value-add economy.
“We will need new industries and faster creation of ideas that can be taken to the world. We will need serious investment in sectors that are primed for growth and support for sectors that need to transition. We will need a tax system and an industrial relations system robust enough for dynamic global markets.
“These are big structural reforms that have been left off the list this time and – while that is understandable – by the 2021 budget we would want to be seeing the transformational, system-wide changes that will be required to move Australia’s economy forward.”
Rynne said what was conspicuously missing from the budget was any certainty around Newstart payments beyond the end of this calendar year.
“The jobs mantra around which the budget is framed cannot be faulted. However, confidence begets confidence; uncertainty begets uncertainty.
“Many people have lost jobs through no fault of their own and, despite the expansive incentives on offer to businesses to employ new staff, will remain unsure about their ability to successfully navigate the rapidly changing labour market.
“People without jobs, or who fear losing their jobs, will still have a cloud of doubt surrounding their financial future.
“We strongly believe the government should be looking to next year’s Budget to roll out serious economic reforms,” Rynne said.
