He has done this through a broad suite of policy initiatives, including brought-forward personal income tax cuts, full expensing for depreciable business investments, wage subsidies to encourage the employment of new staff and reforming insolvency arrangements to aid businesses to continue to trade.
Overall, this a Budget with plenty of useful measures for business. The tax loss carry-back rules are a great initiative which will benefit many companies which are still operating well during this crisis and deserve support. This is a smart policy decision which can unlock cash quickly for businesses that have shown they can be profitable.
It would be ideal if the carry-back went back further than 2019 but it is still a very substantial act of assistance to companies who have been made profits in previous years but have been battling through the Covid-19 era.
It means that companies which suffer tax losses in the 2020, 21 and 22 tax years can carry those losses back and reclaim the tax on the profits they made in 2019 or carry it forward to later years.
The expensing of capital assets acquired and installed before June 2022 – an extension of the instant asset write-off scheme – will also have a significant impact on business decisions.
Companies with turnover up to $5B will be able to deduct the full cost of eligible depreciable assets of any value in the year they are first used or installed, and the cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
This will certainly help with the cost of purchasing capital equipment although, given it is temporary, it is mostly a timing advantage in bringing forward business investment, rather than an investment allowance would have brought a higher cost to the Budget. It also requires companies to have sufficient confidence to invest in the next two years.
There are also some other tax measures of note. For groups with international operations there is an important, and much-needed change to the company tax residence rules. Going forward, foreign subsidiaries will only be Australian tax resident where they have a significant economic connection with Australia.
This will prevent international subsidiaries from being tax resident on technical grounds and will simplify international tax.
The Government will introduce a Fringe Benefits Tax (FBT) exemption for retraining benefits provided to redundant or soon to be redundant employees.
Without this measure, FBT would apply at a rate of 47 percent effectively doubling the cost of providing retraining benefits. In addition, there is a potentially significant win for the reduction of FBT administration costs.
The ATO will gain increased powers to allow employers to rely on existing records rather than the current prescribed declarations and other records employers and employees must maintain. This measure will apply from the FBT year commencing April 1 after the enabling legislation is enacted.
At the smaller end of the market, there is also an extension of several small business tax concessions to entities with a turnover up to $50M, which should benefit an additional 20,000 businesses.
Western Sydney Benefits
From a business perspective, the bringing forward of the personal tax cuts will also be welcome as they will stimulate economic growth. Overall, it is a budget focussed on stimulus measures for mid-market growth and job creation, supported by welcome tax changes.”
Western Sydney is already the beneficiary of substantial infrastructure spending over the next 10 years.
This year’s budget has also announced additional national infrastructure spending which will benefit Western Sydney businesses that supply the construction and infrastructure industries and will provide more projects for companies that are able to tender to supply these infrastructure announcements.
Dr Brendan Rynne, KPMG Chief Economist, says the Government has gone 'all-in' with the Budget, betting on the private sector to pony up and drive the post-coronavirus economic recovery for the nation.
This big bet is seen in the economic forecasts underpinning the Budget. Private final demand is forecast to kick-up in 2021-22 by about 7 percent after recording a fall of about 3.5 percent, while public final demand swings in the opposite direction, up about 5.75 percent and 2.5 percent in 2020-21 and 2021-22 respectively.
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.
What is conspicuously missing from the Budget is any certainty around the outlook for Newstart payments beyond the end of this calendar year.
“We strongly believe the government should be looking to next year's Budget to roll out serious economic reforms, many of which can be readily found in the Productivity Commission's 2017 "Shifting the Dial" report”, Dr Rynne said.
David Pring is Managing Partner of KPMG Western Sydney.
