2022 Federal Budget: What it means for Small and Medium Business

For business, the 2022 Federal Budget was all about tax breaks and apprenticeships – plus a helping hand for a hard-hit tourism industry.

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Group Economics overview of the budget

With the looming election and the promise by the Opposition of a new budget if elected, there is considerable uncertainty over how many of the announced measures will be implemented. We also don’t know what else the Government will announce in the lead up to the election (although the Contingency Reserve which widens to $15.4 billion by 2025-26 is pointing to some further announcements).

That said, the focus of spending was largely as expected. Cost of living measures were a centre piece, including halving the petrol excise for 6 months (worth 22c per litre), an extra $420 on the LMITO, and one-off special payment of around $250 for pensioners and welfare recipients.

Planned infrastructure spending was upped by $17.9 billion – largely concentrated on roads and rail. A new Regional Investment package of at least $11 billion was announced as well as significant new spending on defence – worth $270 billion over 1o years. Elsewhere there were incentives for investment in agriculture, medical manufacturing and digital.

Other measures included tax benefits for SMEs to invest in training and technology and an extension and expansion on home loan guarantees for housing.

Our analysis of the Structural Budget impulse using OECD methodology points to, very little structural tightening over the forward estimates – with the structural position improving by only 2% of GDP over the next 3 years. This sees the structural deficit still around 5% of GDP by 2024-25. Indeed, the small reduction in the headline Budget was largely brought about by a better economy – we think more could have been done.

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. See Fiscal Stimulus section.

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. Further measures that cut red tape, reform taxation and provide greater support for renewable energy would have been welcomed. This budget also does not change expectations for monetary policy – i.e., the RBA will move soon to moderately increase rates (we expect that process to start by August this year).

What did the Business sector want? 

For the 2022-23 Budget, a wide range of measures were advocated by industry bodies and small business leaders. COSBOA’s Budget submission was based on 3 pillars – streamlining regulation; targeted needs-based support during post-COVID growth; and industry associations as a priority channel for business support. More specifically, they urged Government to:

  • Suspend the creation of new compliance processes while small businesses recover from COVID-19.
  • Simplify the industrial relations system with a small business model schedule, as well as reg tech and fin tech solutions.
  • Continue COVID-19 deregulation measures, such as allowing electronic signatures on all documents.
  • Better incorporate industry consultation when creating compliance processes for small businesses.
  • Re-instate the government’s business consultation website.
  • Use industry associations to deliver programs designed to empower small business growth and provide small business advice, and use pre-existing pathways.
  • Empower small business owners to use technology to grow their businesses.
  • Fund an initiative for small business owners to better respond to cyber security threats.
  • Relax the 20-hour working limit for certain visa holders for all industries for two years.
  • Address concerns around tax implications, reductions to pensions or family tax benefits, and higher tax rates.
  • Create initiatives to bridge the gap between small business employers and job seekers with relevant skills, and ensure VET students graduate with relevant skills.
  • Run an inquiry into Australia’s insurance market, give more resources to the ACCC, and review Australia’s merger regime in line with international best practice.

CPA Australia also noted the current challenging conditions for business, and that despite Australia’s low unemployment rate, “many businesses face labour shortages, supply disruptions, increasing costs and weak customer demand”. While these challenges are likely to ease, “the risks of weaker than expected global growth, further supply and labour shortages, and future COVID-19 outbreaks and variants are real, adding considerable uncertainty to the short-term outlook”. They also urged Government to consider a number of recommendations to support small business including:

  • Significantly increase funding to assist small businesses to improve their capability and capacity to digitally transform.
  • Make temporary full expensing (TFE) permanent for small businesses.
  • Increase the size of the skilled labour pool.
  • Back-off on new regulatory requirements to give businesses breathing room to focus on current challenges.
  • Access to business advice for small businesses, especially those in difficulty. An incentive could be in the form of a voucher or grant (the CPA suggest around $1,500).
  • Fiscal strategy to prioritise economic transformation, as opposed to debt repayment.

The Australian Chamber of Commerce & Industry noted that as with the earlier lockdowns, “the recovery is likely to be uneven” and called on the government to:

  • Extend the 25% small business corporate tax rate to cover all small to medium enterprises by increasing the base rate entity eligibility criteria to an aggregate turnover of less than $250 million.
  • Establish a small business ICT Modernisation Fund to encourage greater investment in technology and digital innovation.

Among other key industry groups, Australian Industry Group also encouraged Government to invest in developing business capabilities such as digitisation and trade, particularly for SME businesses. Chartered Accountants ANZ urged Government to: further extend temporary full expensing and commit to an ongoing, simplified instant asset write-off regime for eligible small business taxpayers; make the loss carry-back permanent; support the implementation of small business CGT changes proposed in the Board of Taxation’s review of small business tax concessions; and review the PAYG instalment system with a view to making it easier for micro and small businesses to comply on an opt-in basis.

More generally, small businesses hoped to see: further cuts to red tape to relieve them of onerous compliance tasks and reduce the cost of doing business; help with digital tools and processes; further reductions to the company tax rate; the creation of more assistance packages for businesses impacted by COVID and have struggled to stay afloat during the pandemic; and more measures to help hire and manage employees, such as low cost training and re-skilling packages and incentives to hire workers.

What did the Budget deliver? 

  • Small business skills and training boost: businesses with aggregated turnover of up to $50 million will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees.
  • Small business technology investment boost: businesses with aggregated turnover of up to $50 million will be able to deduct an additional 20 per cent of expenditure (capped at $100,000) incurred on business expenses and depreciating assets that support digital adoption (e.g. subscriptions to cloud-based services, cyber security systems, portable payment devices).
  • Varying the GDP uplift factor for tax instalments: GDP uplift factor for PAYG and GST instalments set at 2 per cent for the 2022-23 tax year (compared to 10 per cent that would have applied under statutory formula), subject to legislation being passed in parliament. The 2 per cent uplift rate is capped at $10 million annual aggregated turnover for GST instalments and $50 million for PAYG instalments.
  • Skills and training: $2.8 billion in funding for an overhauled apprenticeship incentive scheme to grow the number of qualified trades people by subsidising the wages of select apprentices and trainees, providing up to $5,000 payments to new apprentices (in priority sectors) and up to $15,000 in wage subsidies for employers who take them on.
  • Other Measures
    • $5.6 million over 4 years from 2022-23 for the Fair Work Commission to establish a dedicated unit to support small businesses, including unfair dismissals and general protections disputes.
    • $25.2 million over 3 years ($18.4 million in 2022-23) to support small business including:
    • $10.4 million over 2 years from 2022-23 to enhance and redesign the Payment Times Reporting Portal and Register to improve efficiency and reporting;
    • $8.0 million in 2022-23 to the Australian Small Business and Family Enterprise Ombudsman to work with service providers to enhance small business financial capability;
    • $4.6 million over 2 years from 2021-22 to support the New Access for Small Business Owners program delivered by Beyond Blue to continue to provide free, accessible, and tailored mental health support to small business owners; and
    • $2.1 million over 2 years from 2021-22 to extend the Small Business Debt Helpline program operated by Financial Counselling Australia to continue to provide financial counselling to small businesses facing financial issues.
  • Tourism Support: Around $146.5 million to support the recovery of the Australian tourism sector in response to the pandemic impact, including further assistance for travel agents. Almost half will be rolled out globally as part of a government bid to reignite international tourism after nearly two years of border closures due to COVID-19.
  • Export Support: $80.0 million over 4 years from 2022-23 to provide additional support for small and medium export businesses to re-establish their presence in overseas markets through the Export Market Development Grants program.
  • Government Contracts: More help for SMEs to secure Commonwealth contracts. Under proposed changes, Government departments will be required to split up major projects to give smaller contractors a greater chance to compete for work. The Government has also authorised the Department of Defence to undertake limited tenders with SMEs for procurements up to $500,000 from 1 July 2022.

Small businesses were among the winners in the 2022-23 Budget. They will be pleased the government has increased tax breaks for SMEs investing in new technology and skills, as well as taxation reforms which should help improve business cash flows. Extra funding in apprenticeships will also be welcomed by small businesses, while extra spending to reduce the burden of red tape should assist in bringing down the costs of doing business. Indirectly, SMEs serving the infrastructure sector stand to benefit from an additional $17.9 billion committed to infrastructure projects across the country. A $480 million investment to improve NBN infrastructure in regional, rural and remote areas should also benefit SMEs in these areas. But many will be disappointed the Government did not extend temporary full expensing of investments.

How did Business react? 

The Budget has been generally well received by key small business groups. The Council of Small Business Organisations Australia (COSBOA) welcomed the Budget as providing well considered structural reform with CEO Alexi Boyd stating:

“The Government should be highly commended for its commitment to reducing the regulatory burden on small businesses people.”

The 120% tax deductions on skills training and better digitisation practices were especially welcomed by COSBOA as it has highlighted technology and cybersecurity needs as key impediments to small businesses. However, this year’s Budget is not all perfect, with:

the Budget lacking in more immediate relief measures to address the number one issue for small business right now: workforce shortages.”

Business Council of Australia (BCA) CEO Jennifer Westacott said:

“This Budget helps take immediate pressure off Australians and begins laying the groundwork for a more secure economic future. A growing economy and a strong budget position – powered by the private sector – will deliver jobs for Australians and the revenues needed to fund services and support. The dividend of our world-beating recovery means the government can provide temporary cost-of-living relief while continuing to lock in growth and start repairing the Budget.” 

CEO of the Australian Chamber of Commerce and Industry Andrew McKellar however was more reserved stating that:

“While business has been well served by continued investment to skill our local workforce, slash red tape and enhance digital capability for small enterprises, we are without a long-term agenda for Australia to realise its economic potential.”

The Australian Small Business and Family Enterprise Ombudsman Bruce Billson said:

“Tonight’s Budget represents a financial and strategic commitment to ensuring small and family businesses are digitally enabled, resilient and have the support, incentives, skills and training needed to be truly competitive.”

To find out more, read our Federal Budget 2022-23 – What does it mean for SMEs report