4 May 2016
Federal Budget 2016-17
The 2016-17 Federal Budget was handed down on 3 May 2016 by the Federal Treasurer Scott Morrison MP.
- Expectations for global growth have moderated over the course of 2016 and are lower than at the 2015-16 MYEFO with downside risks increasing. World GDP is forecast to grow 3.1% in 2015, up to 3.25% in 2016 and 3.5% in 2017.
- In Australia, the outlook for the economy is generally positive, with forecast Real GDP growth of 2.5% in 2015-16 and 2016-17, and up to 3.0% in 2017-18.
- The unemployment rate is forecast to be 5.75% in the June Quarter of 2016 before falling to 5.5% by the June quarter of 2017.
- The inflation rate is also expected to remain stable at 1.75% in 2014-15 and then a constant 2.5% out to 2018-19.
- Wages are forecast to grow by 2.25% per year out to the June quarter of 2017.
- Expected taxation revenue has been revised downward by $14.7 billion over the four years to 2018-19. Taxation revenue is now forecast to rise from $382.8 m in 2015-16 up to $468.3m in 2019-20.
- The underlying cash deficit is expected to be $37.1 billion in 2016-17 (2.4% of GDP), and is estimated to go down to $26.1 billion (1.4% of GDP) in 2017-18, and eventually fall to a deficit of $6.0 billion (0.3% of GDP) in 2019-20.
Budget Key Features for Business
- a reduction in the small business company tax rate to 27.5% for all companies with an annual turnover of less than $10 million from 1 July 2016. The small business entity turnover threshold is now $10 million in turnover, up from the current $2 million.
- over the next decade the lower tax rate will be extended to all companies and then progressively reduced to 25 per cent by 1 July 2016. The annual aggregated turnover thresholds for companies facing a tax rate of 27.5 per cent will be:
• $25.0 million in 2017-18;
• $50.0 million in 2018-19;
• $100.0 million in 2019-20;
• $250.0 million in 2020-21;
• $500.0 million in 2021-22;
• $1 billion in 2022-23.
- In 2024-25 the company tax rate will be reduced to 27 per cent and then 1% point each year until it reaches 25% in 2026-27.
- The unincorporated small business tax discount will increase from 5 per cent to 16 per cent over 10 years. The tax discount will increase to 8 per cent on 1 July 2016 and remain constant at 8 per cent for eight years, then increase to 10 per cent in 2024-25, 13 per cent in 2025-26 and reach a permanent discount of 16 per cent in 2026-27. The current cap of $1,000 per individual for each individual for each income year will be retained. Access to the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5.0 million.
- The small business tax concession will be made available to over 90,000 additional business from 1 July 2016, and will include access to:
- the immediate deduction for assets costing less than $20,000 until 30 June 2017;
- simplified trading stock rules, giving businesses the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000;
- the option to account for GST on a cash basis and pay GST installments as calculated by the ATO;
- a simplified method of paying PAYG instalments calculated by the ATO; and
- other tax concessions available to small business, including FBT exemptions and immediate deductibility of professional expenses.
- The current $2.0 million turnover threshold for access to the small business capital gains tax concessions will be retained and access to the unincorporated small business tax discount will be limited to entities with turnover less than $5.0 million.
- $16.3 million over four years to support the activities of the Australian Small Business and Family Enterprise Ombudsman and expand its advocacy function.
- $0.2 million in 2016-17 to promote Australia internationally as a financial technology destination
- $31.7 million in 2016-17 for the Industry Skills Fund to support Australian Business to upskill and reskill their workers.
- $12 million over four years under the National Strategy for International Education.
- $64.6 million worth of initiatives to embrace the digital age and increase engagement with science, technology, engineering and mathematics education.
- $63.7 million for the Australian Trusted Trader program to support exporters in regional Australia.
- A detailed implementation study into the costs and benefits of adopting electronic invoicing.
- $45 million in tax incentives for early-stage investors from 2016-17.
- $50.0 million over four years to the Australian Grape and Wine Authority to promote wine tourism within Australia and Australian wine overseas.
- $39.4 million to open two new overseas consulates – one of which is in China. The new Chinese post will assist Australian business to expand commercial opportunities in the food, agriculture, clean technology and education sectors.
- $1.8 million to expand the FTA portal and Open for Business Website.
ACT-Specific Budget Announcements
- Commonwealth spending is forecast to grow by an average of 1.9 per cent per annum in real terms over the five years to 2019-20. The largest increases in public expenditure will be in: Health (+9.7%), Education and Training (+13.7%) and Social Services (+15.6%).
- $1.4 billion in cuts in federal public service funding by increasing the annual efficiency dividend by 1.5 per cent in 2017-18, 1.0 per cent in 2018-19 and 0.5 per cent in 2019-20.
- Funding cuts of $80 million over four years in the existing departmental funding of the Department of Human Services.
- Under the Asset Recycling Initiative the Commonwealth will provide $67.1 million to the delivery of a light rail line from Canberra CBD to Gungahlin.
The Federal Government has delivered a budget which helps small business but puts off taking some of the hard decisions on structural reform. As 95 per cent of ACT businesses are small, decreasing the small business company tax rate to 27.5 per cent and extending access to the $20,000 instant asset write-off will help generate growth in the local economy.
Funding to support businesses upskill and reskill will help companies continue to transform in order to innovate and seek out new opportunities. Through the Youth Jobs PaTH initiative, businesses will have a role in training young people for jobs of the future and reducing the currently high youth unemployment rate. These initiatives will be supplemented by $64.6 million worth of initiatives for businesses to embrace the digital age and increase engagement with science, technology and mathematics education.
Investing in overseas consulates, including opening a new consulate in China, will assist ACT businesses to export and take advantage of recent free trade agreements, including ChAFTA. Given the ACT’s current focus on Asia, most recently our participation in Australia Week in China, the funding is advantageous.
Canberra Business Chamber welcomes the Budget measures to reduce red tape for businesses and simplify taxation compliance for small business. We also support the focus on stronger multinational tax compliance to ensure a level playing field.
Beyond business-specific measures, the Chamber is disappointed that the Budget does not provide any new funding for infrastructure projects in the ACT with the exception of the previously announced $67 million light rail funding secured under the Asset Recycling Initiative. A boost to strategic capital investment would help offset the negative impacts of extending the efficiency dividends on Commonwealth agencies.
Regrettably the blunt instrument of the efficiency dividend disproportionately impacts the ACT based Commonwealth agencies as well as key national institutions, which have already been reducing their expenditure over a number of years. Canberra Business Chamber will be watching closely to see the overall impact of these measures on employment and business in the ACT.
It is critical that a sustainable path to surplus is created which this budget has not satisfactorily addressed. Bolstering small business is essential but is only one component of much needed economic reform.