Tax cuts and incentives for the nation’s 2 million small businesses form the centrepiece of Treasurer Joe Hockey’s second budget, which it hopes will help boost subdued economic growth.
The key measures include a 1.5 percentage point tax cut for the 96 per cent of companies with less than $2 million in turnover and allowing them to immediately write off assets worth up to $20,000.
Hockey hopes the moves will be enough to get small businesses, which he describes as the engine room of the economy, spending, and hiring.
“We are focusing on giving Australian small business the chance to have a go,” he said.
“This is where the jobs and innovation are going to come from over the next decade.”
With the mining boom over, economists including Reserve Bank governor, Glenn Stevens, say businesses need to step up their investment plans if the economy is to get back towards its long term average growth rates.
The package means small businesses can claim a tax deduction for the full value of assets worth up to $20,000 in a single year, rather than over five years as had been the case.
The National Retail Association (NRA) welcomed a range of measures in the Federal Budget that will prompt an instant spending spree and give businesses a much needed confidence boost.
NRA CEO, Trevor Evans, predicted the instant write off of business purchases up to $20,000 would spur an instant jump in spending, which would flow, quickly through the retail sector and the wider economy.
Evans also welcomed the previously announced tax cuts for small businesses, and the Treasurer’s decision to remove Fringe Benefits Tax from portable electronic devices used in employment.
“It’s great to see small business front and centre of a Budget,” Evans said.
“This Budget hits almost all the right notes in terms of boosting consumer and business confidence. This was always going to be the critical test of the Abbott Government’s second Budget.
“Retail is one of the largest employers in the Australian economy, and the measures announced tonight will give retail business owners greater confidence to hire additional workers and to generate prosperity in the economy.”
Small business groups said the increased asset writedown threshold would allow companies to fully write off the value of assets like kitchen equipment and cars.
“It actually puts some quite significant assets into the mix and I think that’s a really good thing for small business,” Chris Ridd, of small business focused accounting software group, Xero, said.
CommSec economist, Craig James, said the changes should be a boon for hardware retailers, telecommunications providers, and office supply businesses, while Restaurant and Catering Australia said the hospitality industry would be a significant benefactor from the Budget.
The Government will also cut the company tax rate for incorporated small businesses from 30 per cent to 28.5 per cent and will provide a five per cent tax discount for unincorporated businesses, up to a $1000 cap.
It’s also making it easier for entrepreneurs to crowd source funds and allowing start ups to immediately deduct professional costs associated with setting up a new business.
Meanwhile, start ups will be able to offer employees shares in their company, without subjecting them to taxes prematurely.
Anna McPhee, CEO ANRA, said the Small Business Package announced in the Federal Budget will support more than 122,000 retail businesses across Australia.
“The state of the broader retail sector depends of the health of small businesses and the Small Business Package will remove unnecessary red tape and regulation and lift small business capability to invest and grow.
“It’s now up to the Federal Government to work with the Senate to pass the Budget to ensure consumer confidence and household activity is not adversely affected,” said McPhee.
As a sector which employs more than 1.25 million Australians and contributes around 4.5 per cent to GDP, ANRA supports Budget measures that will foster a more sustainable and efficient use of resources, productivity improvement, increased workforce participation, and an overall higher rate of economic growth.