2016 has already proven to be a tumultuous time for Australian business. High profile and large Australian companies have collapsed with corporate debt loads and the vagaries of the global economy being blamed. The tax affairs of global corporations, wealthy individuals and multi nationals have become a political issue, and are now routinely the subject of breathless media coverage. Little wonder then that the Turnbull Government is arguing that the 2016 federal budget will focus on driving jobs and growth, whilst steering the Australian economy away from the traditional mining investment towards a stronger more diversified “new economy” centred on intensive service sectors.
Corporate Tax rates
Whilst shareholders will probably welcome reductions in corporate tax rates, CEOs and leaders running mid-sized businesses typically plan based on demand for products and services rather than corporate tax ratios. Therefore tinkering around the edges of corporate tax rates is unlikely to transform competitive market reality for most Australian CEOs within mid-market or big end of town. Arguably direct government programs to support the recently signed free trade agreements are far more likely to yield revenue growth for Australian businesses. It’s hard to imagine business leaders suddenly revising their client demand forecasts upwards and hiring decisions after the budget.
Recently announced innovation measures and infrastructure projects are welcome, and could have a subtle but positive influence over multi-year business investments. The reality however, is that the major outcomes of these types of government interventions can be quite limited to specific regions and industry sectors, with larger firms most likely to be in a position to quickly adapt. Undoubtedly investment in new skills and capabilities centred on the “new economy” are likely to be at the top of the shopping list for most businesses.
Changes to superannuation tax concessions were a clear attempt by Scott Morrison to inject some fairness back into the budget, particularly for woman. These changes will see workers earning less than $37,000 exempted from paying more tax on their superannuation than they are on their income. The federal government will also introduce a Low Income Superannuation Tax Offset from 1 July 2017 which will allow individuals earning up to $37,000 to receive a refund into their superannuation account of the tax paid on their concessional contributions, up to a cap of $500.This will assist around 2 million low income women to build their superannuation savings and encourage others to re-enter the workforce.
Delivering efficiency & innovation across the Public Sector
This budget sees a notional $18.8m allocated to further reducing duplication and improve efficiency across government. One wonders whether the Government’s commitment to the Digital Transformation Office will go any way to truly delivering better government services for Australians. Another key consideration is the government’s commitment to strengthening cyber security with the allocation of $2.7 million for a “Cyber Ambassador” and $10 million for a public education campaigns unintended consequences of releasing malicious web links.
A focus on transport & infrastructure
The Government has committed $50 billion in infrastructure investment between 2013-14 and 2019-20 for transport and infrastructure. Clearly the Federal Government’s Asset Recycling Initiative is recycling more than assets, with the federal government restating earlier commitments, allocating $2.19 billion to New South Wales and $2.4 billion for Victoria. This funding is clearly designed to reduce criticism of government funded infrastructure programs, using the argument that travel times impact economic productivity, and infrastructure improvements generate wealth for property owners in nearby areas. No doubt some of the more creative funding models being discussed will help preserve government credit ratings, despite long term government debt funding costs being at historic lows.
Organisations that intend to leverage the Government’s infrastructure programs will need to think differently about how they justify return on investment, and how they package and fund their own projects.
A focus on business improvement rather than red tape reduction
Every budget in recent history has also promised changes to regulatory environments to reduce red-tape and the elimination of government waste. Reducing red-tape is a laudable goal but as always, the devil is in the detail. A change to any regulatory environment creates a ripple effect through an organisation, even when it is a reduction in that burden. Work practices and organisational cultures need to be redesigned, people retrained. Business practices and ways of working that previously worked smoothly under the old economy will need to change to support Australia’s new economy.
Click here to download Grant Thornton’s Federal Tax Review