Business left to shoulder the burden as government steps back

PITCHER PARTNERS NATIONAL 29 MARCH 2022:

The Federal Government will be hoping the public judges its performance on the past year of economic recovery, rather than against the backdrop of cost-of-living pressures and increasing demands for disaster relief on the East Coast.

A budget that relied very heavily on past announcements and previous measures did little to tackle the structural changes and economic reform needed to set the economy up for long-term sustainability and growth.

Pitcher Partners National Chairman John Brazzale said the Federal Treasurer had stressed the end of emergency government support and had left it up to the business sector to drive the economic recovery from here.

“There’s nothing in this Budget that will stand in the way of business but there’s equally nothing that provides a strong incentive for investment or action,” he said.

“Unlike other recent budgets, there’s very little to get the pulse of business racing.”

Business was mentioned just a handful of times in the Budget speech, with two key sweeteners, a 20% increase in the tax deductibility of employee training and a similar tax deduction boost for the introduction of digital technology investment.

Mr Brazzale warned that while the deductions would be welcome for smaller businesses, any complexity in eligibility criteria would rapidly outweigh the benefits.

“The cap of $100,000 for digital transformation will be set too low for most businesses, given the cost of investment required to introduce new systems or software,” he said.

“There is also the concern that if the application process is too complex then the 20% bonus will be rapidly eroded.”

What was more notable for business lies in what was not said by the Treasurer — no comment on rising inflation and little on wage growth, other than to note it was likely to accelerate to the fastest pace in a decade.

The popular business instant asset write-off was also not mentioned and will still end in June 2023, although this could be revisited before the Federal election.

“After several Budgets in which support for business was a key feature, and which very successfully saw the economy grow, on the back of private investment and hiring, this Budget marks a much more subdued level of support,” Mr Brazzale said.

“More importantly, there was no appetite for structural reform or long-term changes that create the climate for more significant business investment.

“Given the headwinds of renewed COVID cases, flooding across NSW and Queensland, the war in Ukraine, cost of living pressures, labour shortages and inflation, it would have been good for business to receive the right signals to drive confidence.”

The outlook delivered by the Treasurer Josh Frydenberg relies strongly on positioning the Government as doing enough to mitigate external threats, that are largely outside the Government’s control.

These factors included the war in Ukraine, the pandemic and the devastating floods in Queensland and New South Wales, which are expected to cost Australia as much as half a percentage point on real GDP.

Although household consumption was predicted to rise, fuelled by wage growth and driven by spending patterns returning to pre-COVID levels, Treasury warned this would be offset by rising interest rates and higher fuel prices, as well as weaker housing price rises.

New business investment was expected to see sharp falls, however, declining from 9 per cent in 2022-23 to one per cent in 2023-24.

Mr Brazzale said business was shouldering increased costs from fuel to labour to wholesale goods and components, and the Budget provided little relief.

The Budget assumed businesses would have higher earnings in 2022-23 which would support the higher level of wage growth but failed to address the impact that rising costs of doing business would have on profit margins.

“After two difficult years, the Government might want to step back but business cannot — it is still doing the hard work of keeping the economy running,” he said.

“This Budget leaves business to continue that work alone.”