2019 Federal Budget: What it means for Agribusiness

Big spending for drought and flood relief were a feature of this year’s Federal Budget, along with a Future Drought Fund and an Emergency Response Fund.

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The budget delivers substantial spending for drought and flood relief, as well as a Future Drought Fund (announced late last year) and an Emergency Response fund.

The North Queensland Flood Recovery Package includes $3.1b over five years – this will support the North Queensland livestock industry to recover from the devastating floods earlier this year. The package has a number of components but the largest three are:

  • up to $1.75b for financial institutions to provide interest rate relief for business loans to flood affected primary producers;
  • $1b for loans through the Regional Investment Corporation to assist in restocking and damaged crops and on-farm infrastructure; and
  • $300m in grants to primary producers (with a cap of $400,000 per producer) to assist in restocking and damaged crops and on-farm infrastructure.

The government will also establish a $3.9b Future Drought Fund, although this is was already announced in MYEFO in December. The fund will use $3.9b in uncommitted funds from the Building Australia fund, with the value of these invested funds expected to grow to $5b over the next decade. $100m in disbursements will be available from the fund per year from 2020-21.

The government will establish a further $3.9b Emergency Response Fund, to fund natural disaster recovery. Up to $150m will be available from the fund annually from 2019-20. There will also be $130.5m over the forward estimates to reduce the risk and impact of disasters.

There will also be $29.4 million to improve industry access to export markets, $30m for agriculture biodiversity as well as $18.3m to continue the war on fire ants.

The instant asset write-off – which allows businesses to write off assets (such as tools or equipment) against their taxable income – has been extended and expanded. It will now cover purchases under $30,000, up from $25,000, and can be used by businesses with annual turnover of under $50 million, up from a $10 million limit previously. Medium sized businesses will welcome this new access to the scheme. The threshold applies on a per asset basis so businesses will be able to instantly write off multiple assets. Around 22,000 additional businesses employing around 1.7 million people will now be eligible for the tax write-off with the changes projected to cost the budget $400 million over four years. These changes will apply from April 2019 to 30 June 2020 – not the permanent scheme business had hoped for. In total these changes will benefit around 3.4 million businesses employing around 7.7 million workers. The Government’s decision to increase and extend the instant asset write should help alleviate cash flow pressures for SMEs and help them with their expansion plans.

The government also announced that the corporate tax rate for companies with annual turnover of less than $50 million will fall from 27.5 per cent to 26 per cent next year and 25 per cent starting in 2021-22. This is some five years earlier than previously planned and is expected to benefit around 970,000 companies. The Government will also increase the unincorporated small business (up to $1000) tax discount rate from 8% in 2019-20 to 13 per cent in 2020-21 and 16% in 2021-22.

Regarding income tax, in the near term the low to medium income tax offset has doubled to $1080 per annum and the second tax threshold (of 32.5%) has been raised from 87k to 90k.  However the really big tax adjustments don’t come until 2022-23.  Put differently the near term cost to the Budget is only $700m per annum, whereas $4.5bn of the total spend of $6.7bn in the four years to 2023 comes in the final year. A lot more money is given to the Tax office to improve integrity but again is mainly spent in the out years.

Read more in our 2019 Federal Budget: What it means for agriculture report