The most disappointing aspect of the Federal Budget is the abandoning of the promised cut to company tax.
The Government is blaming the Coalition and the Greens for opposing the plan and saying “it’s not our fault”.
The company tax cut was being funded by money from the mining tax which the Government will now use to buy votes with generous handouts to families.
The company tax cut isn’t completely off the agenda. But the Government has basically challenged its business tax forum to come up with suggestions on how a company tax cut could be funded and they’ll look at it. Doesn’t sound promising.
But it’s not all bad for small business.
They are allowing companies to carry back in tax losses incurred next financial year and offset them against tax paid on this financial year’s profits. The argument is that it allows small business to invest big now and then, if depreciation puts them into a loss next year, then can claw back this years tax to help cash flow.
But this scheme has a limited life of the next two years so talk to your accountant if you want to take advantage of it.
Two things to keep in mind… the claw is limited to a $1 million loss (so clawing back $300,000 in tax) and you can’t claw back more tax than you’d paid previously.
Also, from July 1, small business will be able to immediately write off any eligible business investment up the value of $6500.
Remember the write-off is based on individual items and not the total value so you could invest in 20 items each valued under $6500 if you want.
If any individual item is valued over $6500 then it can be depreciated in a single pool at 30 per cent with 15 percent in the first year.
The Budget is also positive about the business climate we’ll operate in over the next year.
Despite the Budget forecasting a further deterioration in Europe and further stagnation in America it sees China maintaining its economic growth and underpinning our commodities boom.
The Budget predicts economic growth over next financial year at 3.25 per cent, inflation also at 3.25 per cent, unemployment 5.25 per cent and wages growth 3.5 per cent.
While the patchwork economy will continue, generally Australia has a pretty healthy business climate when compared with the rest of the world.
The Treasurer also very bluntly challenges the Reserve Bank to make further deep cut in interest rates because the Government has done the right thing in cutting expenditure and being responsible economic managers.
The Reserve Bank will wait for the Government to prove that it will get all the budget measures passed through the parliament before it does anything but most economists are forecasting between 0.5 per cent and 0.75 per cent cuts before the end of the year.
Naturally it will depend on the banks on how much of this will be passed through to customers.
The Budget is assuming the Australian dollar will stay around $US1.03 for the foreseeable future. So there isn’t expected to be any relief for those companies suffering now.
Retailers are finding it hard to make a buck because of import prices falling while the competitiveness of non resource exporters has been hit by the high value of the currency.
And finally, to put a smile on your face, the Tax Office will cut back 1000 staff.
Other budget-related articles: