2021 Federal Budget: What it means for Small and Medium Business

The 2021 Federal Budget delivered extensions to tax schemes and apprenticeship/training schemes, while tourism and aviation were big winners.

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Group Economics overview of the budget

The Treasurer wasn’t kidding when he said budget repair has been put on hold until unemployment was below 5%, with a raft of new spending measures offsetting the cyclical improvements in the budget due to a better than expected economic outcome. Overall, the momentum of the recovery has more than offset the pullback in stimulus, but this budget aims to provide further support.

In terms of spending the largest item was the aged care package – at around $17.7 billion over the forward estimates. But there were other big spends in the areas of Infrastructure ($15 billion) and NDIS ($13.2 billion). The Low and Middle-Income tax offset was extended a year ($7.8 billion) and the Investment Asset Write Off also was extended. Other areas of focus included childcare, home ownership support and a number of tweaks to superannuation to ensure greater flexibility (as well as support for women).

Something of a surprise was relatively little to boost private sector investment which will be critical to maintain the recovery’s momentum. Also, there was not a lot of emphasis on public housing and no attempt to bring forward the third phase of tax cuts (which will be much cheaper than first thought given the better labour market outcomes forecast) or company tax changes. It is worth noting that the Budget does not include election spending which will either occur via an early Budget (the election must be called by May 2022) or via Government announcements.

Structurally the Budget is taking back only around 2% of GDP in policy stimulus – compared to a net 8% stimulus in 2019/20 and 2020/21. Clearly a structural surplus is a long way off. In looking at the near-term trends, the fiscal situation is once again driven by the expense side rather than revenue. Indeed, compared to MYEFO there is little change.

Overall, we have no problem with the focus on maintaining the support for economic growth, but we see the scope for more structural/productivity enhancing measures to have been included. Cutting red tape, tax changes and greater support for alternative energy environment would have been preferred. That said, as noted above, we are only getting a partial view of the likely budget outlook and much can and will probably change in the lead up to the election.

What the budget delivered

Temporary full expensing: The temporary investment tax incentive announced in last year’s budget has been extended for a further 12 months until 30 June 2023. Businesses with a turnover up to $5 billion will be able to deduct the full cost of any eligible asset they purchase for their business, including the cost of improvements to existing assets, until 30 June 2023.

Temporary loss carry-back provision: Similarly, companies will now be permitted to carry back tax losses for an extra 12 months from the 2019-20, 2020-21, 2021-22 and now 2022-23 income years to offset previously taxed profits in 2018-19 or later income years.

Extension of loan scheme for small business: The government is extending the SME Recovery Loan Scheme which builds on the SME Guarantee scheme. It includes an increased government guarantee of 80 per cent, a higher maximum loan size of $5 million and maximum loan term of 10 years with interest rates capped at around 7.5 per cent. Borrowers may also be offered repayment holidays of up to 24 months on appropriate products. The Scheme is available to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in eligible Local Government Areas in March 2021.

Tax cuts: The corporate tax rate for SME’s will drop to 25 per cent from 1 July 2021 from 27.5 per cent.

Digital economy strategy: The Government will provide $1.2 billion over six years from 2021-22 for the Digital Economy Strategy. For SMEs, $53.8 million over four years from 2021-22 to create a National AI Centre and four AI and Digital Capability Centres to drive and support SMEs to adopt and use transformative artificial intelligence technologies; $15.3 million over three years from 2021-22 to promote and accelerate the adoption of e-invoicing by businesses and across all levels of Government; $12.7 million in 2021-22 to expand the Australian Small Business Advisory Service Digital Solutions program reach to up to 17,000 small businesses.

Deregulation: $134.6 million over four years from 2021-22 to progress the Government’s deregulation agenda to make it easier for businesses to employ people and reduce the regulatory burden of interacting with the government.

Other measures:

  • The Government will allow businesses to self assess the economic life of certain intangible assets (such as patents) for tax depreciation purposes to encourage investment and hiring in innovative activity.
  • Government is broadening the scope of the Administrative Appeals Tribunal to help SME’s put a pause on any debt recovery action launched by ATO until the underlying dispute is resolved. More funding also made available the Australian Small Business and Family Enterprise Ombudsman to continue helping small businesses resolve disputes.
  • New efforts to give SMEs a bigger slice of the procurement pie. Government will provide $2.6 million over four years from 2021-22 to support and strengthen participation in Commonwealth procurement. Funding includes: scans of procurements to map any common ‘pain points’ for SMEs; increased communication of procurement opportunities to potential suppliers; targeted Government Procurement Learning Events for SMEs about how to access supply chains and work in major project environments; and a pilot of direct engagement of SMEs by the Department of Industry, Science, Energy and Resources for contracts up to $200,000.
  • Removal of current exclusion that applies to deductions for the first $250 spent on education courses, which will give more business owners (and their employees) a reason to learn new skills.
  • Small craft brewers and distillers will benefit from an increase in the cap for claims on the Excise Refund Scheme from $100,000 to $350,000 from 1 July 2021.
  • Almost $130 million to encourage entrepreneurship through the New Enterprise Incentive Scheme (NEIS) and Entrepreneurship Facilitators Program support people who want to start, run and grow their own business.

SMEs were among the winners in the 2021-22 budget. They will be pleased with the expansion and extension of government support in relation to full expensing and loss carry back, particularly those still suffering from the fallout from COVID. Some will however be disappointed that loss carry backs provisions were not made permanent or widened. Extra funding for new training, upskilling and apprenticeships will be particularly welcome for SMEs in sectors suffering skills shortages such as IT and Agriculture, while increased spending on the digital economy should help SMEs streamline productivity, improve cash flow with reduced admin and faster payments, and bring down the costs of doing business. Many SMEs will also be pleased their calls to improve procurement opportunities and reduce burdensome regulations and bureaucracy were heeded in this budget. Indirectly, SMEs serving the infrastructure sector should benefit from an additional $15.2 billion for a range of infrastructure projects including a new freight hub in Melbourne and upgrades to key highways and railroads around the country.

How did business react?

The budget has been generally well received by key small business groups. Council of Small Business Organisations Australia (COSBOA) CEO Peter Strong said: “This budget delivers substantial benefits for small business owners in five key areas, namely: business tax relief, simplifying compliance with Australia’s IR laws, encouraging continued investment in digital commerce, and creating a national agency to accelerate recovery from ever-frequent natural disasters”.

The Australian Small Business and Family Enterprise Ombudsman Bruce Billson also said: “The Federal Government’s 2021 Budget is a clear acknowledgement that small and family businesses are central to the nation’s economic recovery and future prosperity. Tonight’s budget represents a substantial financial and strategic commitment to making Australia the best place to start, grow and transform a business.”

Business Council of Australia (BCA) CEO Jennifer Westacott said: “This budget propels Australia out of the pandemic and lays the foundations for a jobs-led recovery.”

Acting CEO of the Australian Chamber of Commerce and Industry Jenny Lambert said: “Incentives to increase workforce participation, promote business investment and boost productivity, crucial pillars of economic success, are the standout wins for business in tonight’s Budget.”

To find out more, read our Federal Budget 2021 What the budget means for small and medium businesses report.