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Federal budget impact on small business

Pain is the buzzword surrounding this budget particularly for small business.

A first term coalition budget following an election year is often draconian, the purse strings tend to become relaxed as elections approach. However, with no election imminent, many of the hard decisions are being made now.

While the government is rightly attempting to put our fiscal position on a sustainable footing its sense of urgency seems to be at the expense of long-term, broader reform to the tax system. Changes to social security for both older Australians and middle income families, the new deficit levy and fuel excise tax increases, along with the scaling back of depreciation instant write-off allowances are all going to hurt small business.

This budget is about ‘sharing the pain’. The idea being that if we all tighten our belts, the camaraderie will help us through this tough period.

Unfortunately the ‘share the pain’ approach misses two important points. Firstly, small and medium-sized enterprises (SMEs) who are the largest employer in Australia have not shared in the spoils for some time.

Direct assistance to SMEs has lagged behind other sectors of the economy. Secondly, while the government should focus on debt and deficits, growing the economy and jobs is equally important. With strong GDP (national income) growth, debt is less of an issue. If small business and its customer base are taxed more heavily, the government may end up reducing employment and economic activity, and ironically the debt burden can become heavier.

Some of the budget measures announced which impact small business include:

  • an increase in the FBT rate from 47% to 49% in line with the introduction of the deficit levy (tax)
  • the pausing of the superannuation guarantee rate at 9.25% for 2014-15 and 2015-16 has been removed and will now increase to 9.5% from 1 July 2014
  • scaling back of the current $6,500 instant asset write-off for depreciating assets to $1,000 from 1 January 2014
  • scratching of the instant initial $5,000 write-off for motor vehicles
  • the fuel excise to rise as biannual indexation by the CPI is re-introduced
  • a cut in the company tax rate to 28.5% for companies with taxable income below $5 million but with the flipside being a 1.5% tax increase on large companies to fund the Paid Parental Leave scheme.

It is clear that the era of entitlement is over and from that perspective, Australia’s 2.3 million SMEs may face a more even playing field. However, as the lion’s share of government largesse in recent years has only indirectly benefited small business, which shoulders the bulk of Australia’s employment growth and cost of doing business, expecting SMEs to ‘share the pain’ is a tough ask.

About the Author

Andrew Graham is National Head of Business Solutions at RSM Bird Cameron,  the largest mid-tier accounting firm in Australia.

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