Australia is a ‘small business’ nation. Among Australian businesses, 97.2% are small businesses. They provide great support to the Australian economy by contributing an average 32% of the Gross Domestic Product (GDP) and creating more than five million jobs nationwide. The government’s fiscal and monetary policies, especially through the Federal Budget, are heavily impacting the small business sector in terms of stability.

Other than providing some incentives to help reduce the cost-of-living, this was a bread-and-butter budget that did not target major fiscal reforms. The budget outcome of the current financial year is a $39.5 billion cash deficit, and it is targeted to be around a $44 billion cash deficit during the next financial year (2023/2024). 

By December 2022 it is predicted that the inflation rate will increase by over 7% and the GDP growth rate will be 3.25%.  However, in the following financial year (2023/2024), the prediction is that numbers will decrease with the inflation rate looking to moderate by around 3.5% and GDP growth reducing to 1.5%.

The following are some key measures that directly and indirectly impact small businesses:

• Resourcing for the National Disability Insurance Scheme, Medicare, and medicine: The NDIS is to be funded with an extra $8.8 billion over the next four years and will reach $166.6 billion during the same time span. This funding provides excellent support to the scheme, assists people who are vulnerable, as well as aiding those businesses that care for others through the NDIS.

• Creation of 480,000 Fee-Free TAFE places:  The budget plans to deliver 480,000 TAFE places for community-based vocational education over the next four years. It will provide some breathing space for the current employment shortage suffered by many businesses and will provide a targeted focus on those industries facing severe skills shortages.

• Skilled migrants’ expedition: To solve the skilled labour shortage the government is looking to bring in an additional 35,000 skilled migrants within this financial year and provide funding of $42.2 million to expedite the immigration process in order to assist those businesses facing labour shortages.

In addition to the above initiatives, there will also be:

• $4.7 billion in funding allocated to the childcare industry over the next four years in. order to provide more affordable services for around 1.26 million families.

• Paid parental leave funding will be increased by $531.6 million to better support families.

• Some measures were already introduced but have been acknowledged in the current budget.

The following actions will aid in creating more opportunities for small businesses:

• The government will spend $62.6 million to improve the energy efficiency of small and medium businesses.

• Investment of $15.1 million in small business mental health and financial counselling programs.

• Investment of $7.4 billion to develop regional areas through community programs, sports initiatives, and local infrastructure development.

Despite the above outlined funding programs, this budget paper did not provide certainty regarding a few areas which had been announced previously. These areas include Division 7A reforms, the individual tax residency rule, and the company residency rule. It also did not discuss the SBE instant asset write-off threshold with the current arrangement due on the 30th of June 2023.

Some tax measures have been deferred to allow sufficient time for legislation and implementation in this budget, including the TOFA rules, the SMSF residency rule, the ridesharing and sharing accommodation reporting regimes.  

Fast-rising inflation, fast-rising interest rates, reduced consumer spending, employee shortage, minimum wage increase, higher wage expectations, restrictions on accessing financing and/or servicing loans and other debts, are all significant challenges that small businesses currently face. The government’s objective was to deliver a family-friendly budget with minimal fiscal reforms. Although it has provided some level of assistance to small businesses the budget could not address all the above stated issues.

Article by Vajira Jayasooriaya, BA, PGMD, Mcom, MIPA, MIFA, FTI, Partner Austral Accountants Australia and Chair Economics Small Business Association of Australia