The 2023-24 Federal Budget, delivered by Treasurer Jim Chalmers focused on softening the blow of inflation and cost-of-living rises. The mantra was helping people struggling to make ends meet.
For business, that budgetary restraint could prove frustrating, with only a handful of positive measures, predominantly designed to support energy efficiency. There is an absence of structural reform to support business through the forecast economic tightening. Businesses will need to find their own path and not rely on any Government led change to reshape the Australian economy and mitigate the tougher times ahead.
The economic forecasts for the next two years foreshadow significant challenges for many businesses:
- Growth in economic activity is forecast to fall from 3.25% this year to 1.5% next year;
- Real wages are forecast to continue to rise to 4%, as employees seek to catch up to recent high inflation; and
- Access to the labour market will continue to be competitive, despite net migration of almost 1 million people over the next three years.
Looking at specific sectors, investment in dwelling construction is expected to contract by 2-3% for the coming three years. Retailers are on notice that household consumption is set to level off with minimal growth in the period 2023-25, and investment by business will also slow considerably over the same period.
Two minor initiatives are offered in this year’s Budget for smaller businesses to support small-scale capital investment. The first is a temporary increase of the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024, limited to businesses with aggregated annual turnover of less than $10million. The $20,000 threshold will apply on a per asset basis, so eligible businesses can instantly write off multiple assets.
The second measure will provide an incentive for businesses to electrify assets and make improvements to energy efficiency. Businesses with aggregated annual turnover of less than $50million will be able to deduct an additional 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Business expenditure of up to $100,000 will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000. In effect, this will result in a cash benefit of up to $5,000 however is unlikely to be received until after 2024 tax returns have been lodged.
Arguably, it would have been more effective to retain Temporary Full Expensing which finishes on 30 June 2023, as it would have supported continued larger investment by more businesses.
On the compliance side, businesses still recovering from the COVID-19 years will be encouraged to re-engage with the ATO, with an amnesty program in place for SMEs with an aggregate turnover of less than $10million. The ATO will remit failure-to-lodge penalties for outstanding tax statements originally due from 1 December 2019 to 29 February 2022, provided they are lodged by 31 December 2023.
Consistent with most recent Budgets, ATO compliance oversight and taxpayer reviews have received increased funding to seek out those avoiding income tax and GST obligations. At the same time, businesses will be required to align superannuation and PAYG payments, in a bid to improve compliance and boost employee returns (and business administration).
Overall, the business sector is likely to see this Budget as a missed opportunity with the Government baulking at more visionary reforms.
