Budget overview: What it means to your business
Tuesday, 13 May 2008
Last Updated: Wednesday, 14 May 2008
James Thomson
Booming business tax receipts have helped Treasurer Wayne Swan deliver a budget surplus for 2008-09 of $21.7 billion or a massive 1.8% of GDP. That business has boosted the surplus is a bit ironic, given that Swan has provided nothing new for business in his first budget. In fact, he has actually slashed a string of popular business assistance programs, including the $700 million Commercial Ready program.
“The cuts in this budget are broad, they are wide and they will not be popular,” Swan says. There is no doubt small businesses all over Australia will agree.
Swan was always going to need to balance a complex set of problems in this year’s budget. Inflation is rising, but the interest rates rises used by the RBA to fight it are hurting families. Business tax receipts are soaring thanks to the resources boom, yet recent financial turmoil is likely to slow global growth. Australia’s creaking infrastructure badly needs more investment and productivity is falling, yet Treasury expects economic growth to fall 2.75% in 2008-09.
Swan has responded by playing it safe. There are essentially three main planks to this budget. The Government has delivered on its pre-election commitments, chief of which were personal income tax cuts, more money for family assistance and improving housing affordability. It has squirrelled away more than $40 billion for three nation-building funds dedicated to infrastructure, education and health.
And finally, it has ripped through government departments and delivered more than $33.3 billion of savings over four years and about $7 billion of savings in 2008-09. It’s not spectacular, it’s not going to win votes, but it should keep the economy on course. “There are no rabbits out of the hat here,” Swan says.
Clearly, it could be argued that Swan’s approach is prudent and that by making these cuts he has prepared the economy for a difficult period. But what will irk the business community is why they had to bear the brunt of Swan’s great savings while individuals get the big rewards in the form of $46.7 billion of tax cuts over the next four years, which will cut the tax paid by a worker on $80,000 a year by $21.15 per week from July 1.
Most of the biggest revenue savings for the governments will come directly out of businesses’ pockets. Consider these measures:
The removal of an exemption around crude oil tax excise will hit oil and resources companies to the tune of $2.5 billion over the next four years. A change to depreciation treatment of computer software will cost.
Changes to rules around depreciation of computer software will cost business $1.3 billion over the next four years.
Tightening of fringe benefits tax laws so that laptops and tools of trade used for personal use will no longer by exempt from FBT. In addition, an FBT exemption that allows employees with an employer-issued meal card to buy meals out of their pre-tax income will cost businesses will aos be removed. These FBT changes will cost businesses and their employees $1.4 billion over the next four years.
On top of this, business had to wear the biggest surprise cut of the budget – the cancellation of the Commercial Ready program, which helps small and medium businesses innovate and commercialise new technology. The cutting of this program will save the government $707.2 million over the next four years, but the axing of Commercial Ready – and a slew of smaller programs, including innovation and nanotechnology programs – will do nothing to endear Labor to SMEs.
Indeed, the section of Wayne Swan’s budget speech entitled “supporting business” runs for just five sentences and mentions two initiatives: a sharp reduction in withholding tax that will help foreign investors but do little for Australian businesses and a much-vaunted investment of $251 million in Enterprise Connect Innovation Centres, which are basically the previous government’s Productivity Centres under a different name.
But many business groups will take solace in the fact that Swan has invested a lot of the government’s tax windfall from the resources boom in much-needed nation building. The centrepiece is the Building Australia fund, which will be seeded with $20 billion and used to fund key infrastructure projects. In addition, the government will also invest 422.3 billion in land transport infrastructure from 2009-10 to 2013-14 under AusLink 2.
The budget also allocates $10 billion for a new Health and Hospitals Fund and $11 billion in the new Education Investment Fund to finance long-term projects in these areas.
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A big boost for research funding will also be welcomed by business groups. There’s $326 million over four years to fund four-year Future Fellowships valued at up to $140,000 a year for 1000 of Australia’s top mid-career researchers and $209 million over four years for double the number of Australian Postgraduate Awards for PhD or Masters students.
The government has also made good on its pledge to invest $1.9 billion over six years on new training places and set aside $20 million to streamline the 457 visa process.
The budget papers also emphasise the fact that the Rudd government has spend $1.7 million to fund its small business advisory council. But that little goodie, like most of the positive initiatives announced by Swan are simply election promises made good.
If business was looking for a new, dynamic direction from this budget, it will be disappointed. Wayne Swan has made the priorities of his budget very clear. “In framing this budget, foremost in our considerations are the Australian who work hard, pay their taxes and demand little more than a fair go.”
He is, of course, referring to those “working families” that Labor loves so much. But the thousands of SMEs who fit this description will be wondering why they have been left out.
Related stories:
>> Small business forgotten
>> See Briefing for all the federal budget coverage.
See also:
Budget 2008: slowing growth
Business Assistance – Almost $1 billion of business programs slashed
Belt tightening to hit ICT business
The Hip Pocket: Swan spends up on tax cuts
Comment: Small business forgotten: Thomson
Budget overview: what it means to your business
Dollars to flow to green business
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Questions remain despite budget pain: Economy roundup