While SMEs may find relief with some of the tax incentives offered by the Federal Budget 2020, it’s slim pickings when it comes to funding for government projects in Victoria.
The Federal Budget 2020 is being called the Jobs Budget. It provides incentives to businesses to spend and employ more, so as to drive a return to economic growth and a reduction in unemployment.
This is good news to Victorian businesses as many struggle to survive under lockdown.
There are many ways to read the Federal Budget 2020. And there are probably twice as many opinions on what its merits and drawbacks mean for ordinary Australians and businesses struggling under Covid restrictions.
Rather than regurgitate data you may already understand and have a view about, this article from Mia focuses on two questions:
What does this budget and the broader policies that support it, mean for small and medium businesses in Victoria?
How will the Federal Budget 2020 funds flow to the states to provide businesses with the opportunities to win business with the Victorian Government?
What now for SMEs in Victoria?
There are two areas of the budget that Mia recommends businesses in Victoria focus on.
Invest in your capability
With a pandemic causing disruption to cash flows and business models it can be hard to think in terms of spending. For a sizeable portion of the small and medium business landscape in Victoria, it will simply not be tenable.
However, the Federal Government has included the ability for businesses to write-off 100% of asset spends. To quote the Federal Budget website:
“From 7:30pm (AEDT) on 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. The cost of improvements to existing eligible depreciable assets made during this period can also be fully deducted.”
This means the cost of new tools, technology, vehicles and machinery can be written off in a single year without the need for depreciating the asset over three to five years. Writing off assets against already meagre revenues under Covid 19, will reduce your exposure come tax time.
And while we are talking about tax, there is more good news for businesses:
“Losses incurred up to 2021‑22 can be carried back against profits made in or after 2018‑19. Eligible companies may elect to receive a tax refund when they lodge their 2020‑21 and 2021‑22 tax returns.”
Just as important as reducing taxes, businesses can take advantage of both incentives to build capability. Whether it is buying assets or engaging services you need but could not afford before these tax incentives, there is now the opportunity to build out your capability ready for a post-Covid bounce.
Invest in your capacity
Businesses will also receive assistance in employing new staff aged between 16 and 35 years:
“The JobMaker Hiring Credit is a key part of the Government’s JobMaker Plan to boost Australia’s economic recovery. The JobMaker Hiring Credit is estimated to support around 450,000 positions for young people.”
The program enables employers to claim $200 or $100, depending on the employee’s age, each week for each new hire. The JobMaker Hiring Credit is an incentive for businesses to hire young people currently on JobSeeker.
if you were putting off hiring the resources you need for current business or have plans for a post-Covid bounce, then these incentives will help boost your capacity to take on more contracts.
What now for SMEs to win Victorian Government business?
While the Federal Budget 2020 focused on providing incentives to businesses in general, it was lacklustre in providing funds to boost Victoria’s government spending and opportunities for Victorian businesses to gain government contracts.
The interest in where Victorian small and medium businesses may win government business now shifts to the Victorian State Budget, likely to be handed down sometime in the next few weeks by the Treasurer, the Hon. Mr. Tim Pallas, MP.
However, before we give up on the Federal Budget completely, I should mention two meagre offerings.
$7.5B will be provided to the states to boost Infrastructure. But, as reported in The Age, Melbourne, on 5 October:
“Just 15 per cent of transport infrastructure funding announced by the Morrison government before Tuesday’s budget will go to Victoria, the state hardest hit by the pandemic and which has 26 per cent of Australia’s population.”
For businesses in Victoria this equates to an infrastructure fund injection of a little over $1B. This is roughly half of what New South Wales will get from this budget.
For a state currently delivering the $70B Big Build this does not sound like much. With all these major projects in Victoria, businesses associated with infrastructure are probably heavily booked for work at the moment. However, at this point in the lockdown, Victorian businesses focused on infrastructure will appreciate whatever they can get.
If you are a Victorian infrastructure small or medium business, watch out for road and rail projects focused on improving road safety and rail infrastructure, around regional centres. Apart from this regional focus there is little expansion in this industry sector from the Federal Government.
Some additional federal assistance has been provided to home buyers – both first time buyers and buyer/builders of new homes. The expansion of the loan deposit scheme and grants to new home buyers now includes apartments as well as houses. This funding could drive some extra demand in housing construction and property development. The deadline on grants for houses bought or started, is by the end of 2020. The effect then could be sooner than expected for businesses based on housing and property development in general.
Pundits reviewing the Federal Budget 2020 have expressed disappointment in the lack of focus on social housing. This was seen as an easy win for the Federal Government to boost work for businesses that could switch from residential construction to multiple, medium level projects driven by a regional social housing initiative.
With the Federal Government having missed this opportunity, it will be up to the Victorian State Government to see if they pick up the opportunity to use social housing as an economic recovering strategy and declare funds for an expanded social housing initiative.
The Victorian Budget 2020 will be handed down soon and Mia will be assessing where the funds from the Federal Budget and from revenue raised by the state will be spent. Look out for a similar article to this one for guidance the opportunities for winning government business in Victoria.