What the federal budget means for Australian business

Our leading team of economists have broken-down how the 2014 Federal Budget impacts Australian business. As well as analysis, we outline the key initiatives and how the industry is responding.

By NAB Group Economics

Our leading team of economists have broken-down how the 2014 Federal Budget impacts Australian business. As well as analysis, we outline the key initiatives and how the industry is responding.

NAB’s view

Cutting the company tax rate from 30% to 28.5% will benefit a considerable number of businesses. However, for the largest 300 businesses this cut is likely to be offset by the Paid Parental Leave Scheme levy. It is also worth noting that the tax cut, the Paid Parental Leave Scheme and levy appear to be in government contingencies suggesting some uncertainty about their implementation.

The infrastructure package is aimed at improving road, rail and air transport links, albeit is heavily weighted towards roads. The construction phase will initially benefit engineering and construction firms as well as those building product suppliers. Improved freight movements and passenger transport should assist productivity and have some impact on wellbeing.

Treasurer Joe Hockey reiterated in his Budget speech that the “age of entitlement” is over, including for business. That said, business was spared the full weight of cuts recommended by the Commission of Audit which included abolishing 17 industry assistance programs, merging two, and reducing funding for four.

On the positive side there is an increase of capital to EFIC and EMDG, and the establishment of the Entrepreneurs Infrastructure programme, however the cessation of some other industry assistance programmes including Commercialisation Australia, the Innovation Investment Fund, Enterprise Solutions and Enterprise Connect (saving $845.6 million over five years), could be detrimental to some businesses.

Moreover, a cut to the Commonwealth Scientific and Industrial Research Organisation (CSIRO) (approximately $111.4 million) could detract from the agency’s ability to assist with industry enhancing innovation.

Finally, although the Industry Skills fund provides targeted training, the government is expected to make savings of $1 billion by ceasing 10 other skills and training programmes from 1 July 2015.

Key initiatives

Lowering the company tax rate to 28.5% for up to 800,000 small and medium sized businesses, to begin 1 July 2015.
$11.6 billion for the infrastructure sector with highlights including $1.5 billion for East West Link in Melbourne, $2 billion for WestConnex Sydney, and $866 million for Perth Freight Link.
Corporate Australia will benefit from the removal of the Carbon and Mining taxes.
$200 million of additional capital to the Export Finance and Insurance Corporation (EFIC) and $50 million increase to the Export Market Development Grants (EMDG) programme.
The Establishment of an Entrepreneurs Infrastructure Programme worth $484.2 million to focus on commercialising ideas, and small business capabilities and access to information.
Restart initiative contributing $10,000 over 24 months for employers hiring a person aged over 50 who been unemployed for over 6 months.
Businesses in health and biomedical, resource technologies, and advanced manufacturing are targeted beneficiaries of the new Industry Skills fund whose objective is to provide specialised training to these sectors at a cost of $476 million over four years, with business expected to make a co-contribution.
The Federal Government will contribute $100.6 million to the $155 million Growth Fund that has contributions from both Victorian and South Australian State Governments and Holden and Toyota. This program will assist transitioning industry, businesses and individuals affected by the end of car manufacturing through five different programs.

Industry comment

On the whole business welcomed the budget initiatives, as tax cuts and budget measures were largely expected.

“The 2014–15 federal budget is a solid start to putting the fiscal strategy back on track, but there is much more work to do to support growth and deliver a sustainable budget position for the long term,” said Business Council of Australia Chief Executive Jennifer Westacott.

“On physical infrastructure, the additional $11.6 billion for the Infrastructure Growth Package to support asset recycling with the states, boost road and rail funding and invest in Western Sydney is a significant investment in the growth of the economy,” said Ms Westacott.

However some concerns have been raised relating to the cuts in R&D and Industry assistance.

“Growing the economy requires Australia to adopt a more global mindset and an unprecedented focus on innovation and knowledge infrastructure.

“Some of the cuts to research and development and industry assistance programs are not consistent with this imperative, nor is the constant chopping and changing in the R&D funding arrangements which by their nature need to be long term and predictable”.