In the lead up to May 11, our experts weigh in on their expectations and wish lists. While likely a ‘poll winner’ – the post-pandemic budget will do little for substantive reform.
Much like last year, William Buck expects this budget to be focused on shorter term economic stimulus rather than longer term improvements to the tax system.
Greg Travers, Director, Tax Services said this is a missed opportunity that is going to make it more difficult for Australian private businesses to grow and succeed post pandemic.
“Strong Australian private business means greater employment and sustainable economic growth across the country.
“Genuine tax reform will support Australian businesses to employ more people and make it easier for owners to invest in growing their businesses” said Mr Travers.
“Unfortunately, there are so many instances where the current tax system works against these common-sense ideas.”
“FBT acts as a disincentive for employers to do things to attract and incentivise employees. Perversely, while State governments are providing incentives for people to spend with local businesses, the Federal government is charging businesses FBT for doing the same,” he urged.
“The fact that the FBT laws needed to be changed to allow businesses to retrain and reskill employees whose roles have become redundant just tells you that the system is broken.”
The issues aren’t limited to employment. Supporting business owners to invest in growing their businesses will be critical to Australia’s longer-term economic prosperity.
“Division 7A is a classic example of a tax law designed to do one thing, but which actually impedes business owners from investing in their businesses,” said Mr Travers.
“The Government recognised 5 years ago that these rules needed to be fixed, but that still hasn’t happened. Concerningly, some of the proposed changes would have made things even more
Specific tax laws create some issues, but the design of the tax system creates others.
Mr Travers said the different way the tax system applies to different entities – companies and trusts are the classic example – is a long-standing issue.
“That two businesses with the same economic results can get fundamentally different tax outcomes just based on the nature of the legal entities involved shows a tax system that needs reform.”
Mr Travers said there are ideas and solutions for the current, or future Governments, to explore.
Leveraging the $50M turnover threshold to create more tax measures geared towards supporting Australian businesses, and exemptions from measures targeted at much larger taxpayers, is one idea.
Incorporating that thinking into an ‘opt in small-medium business entity’ could be a way to fundamentally reform the system.
“The Government has sought to reset the agenda on debt. It needs to do the same with tax policy. Now is the time for longer term thinking that gives Australian businesses a tax system to support not just their post pandemic recovery, but their long-term prosperity,” he finished.
The Government needs to rethink its plans to increase the Superannuation Guarantee to 10% and respond to the Retirement Income Review which indicated that an increase in the Super Guarantee percentage is not required.
Tricia Kleinig, Principal, Superannuation said current levels of super savings will provide more than adequate levels of savings for people’s retirement.
“The issue here is that wages growth will be slower while there are increases in the rate of Super Guarantee which leads to lower standards of living in peoples’ working lives,” said Ms Kleinig.
“We would also like to see an allowance made for those that withdrew from their super last year to put extra money back in, if and when their circumstances change.”
Manufacturing and Grants
With the Government in fiscal-repair mode, William Buck has subdued expectations for this Budget from an innovation and grants standpoint.
Jack Qi, Director, Tax Services said he is anticipating very targeted grants specific to certain focus areas, given Scott Morrison has gone on record to state his preferred approach for Australia to be technology adopters rather than inventors.
“Manufacturing will feature prominently, as will likely climate and diversity initiatives, while the R&D Tax Incentive will likely be left untouched,” said Mr Qi.
“This is despite a growing chorus of voices calling on the Government to introduce rules more amenable to agile software development.”
Mr Qi said what he’d like to see, in addition to an extension of the RDTI rules, is a softening of our punitive Employee Share Scheme rules for those workers finding themselves taxed on illiquid shares and options because they somehow failed the requirements for a concession.
Ian Cattanach, Director, Business Advisory echoes Mr Qi’s belief that there’ll be a focus on manufacturing, saying last year’s manufacturing initiatives have had a positive impact.
“The immediate asset-write off and the announcement of various manufacturing traineeships and grants have assisted with recovery and growth in the industry,” said Mr Cattanach.
“I hope we see more of the same to continue to invigorate manufacturing.”
In addition, Mr Cattanach said programs directed at the nationalisation of manufacturing in Australia and the strengthening of supply lines would be welcomed.”
Property and Investment
While we’re expecting the property market to be self-sustained and not get much of a look in, with the current residual housing spike and building boom, it will be interesting to see if the Government continues to provide stimulus here. If so, we will see further increases in cyclical stocks.
Neil Brennan, Director, Business Advisory said given the housing boom, materials are in high demand and the cost of construction is booming.
“There’s an opportunity here to incentivise the manufacture of supplies such as timber and support the construction industry onshore,” said Mr Brennan.
The travel industry also needs further support, given the widespread lockdowns and travel restrictions over the last year crushing the industry.
Adrian Frinsdorf, Director, Wealth Advisory at William Buck said Government support to the industry will benefit stocks like FLT and SYD.
“Travel stocks should edge higher if we see some significant support to the sector. However, substantial improvement won’t be made until the rest of the world starts to emerge and resume
traveling,” said Mr Frinsdorf.
“A cut to red tape around banking is still needed to assist the flow of funds in the economic recovery so any measures that support this will see a continued run in the banking sector.”
For commentary from one of our key spokespeople both pre or post hand-down, please contact Danielle Shaw, Group PR and Communications Advisor.
PR and Communications Advisor – National
Ph: 0477 010 730 or 02 8263 4000