Mid-sized businesses are some of the main winners from this year’s budget. Businesses with annual revenue of up to $10 million can now take advantage of instant tax deductions for business purchases up to $20,000. The company tax rate for these businesses has also dropped to 27.5 per cent and there will be a further reduction in the company tax rate to 25 per cent in the longer-term.
Associate Professor Antoine Hermens is the head of the management discipline group at the UTS Business School.
Hermens says the increase to the access threshold for tax concessions is a positive move. “What was $2 million dollars ten or fifteen years ago is $10 million today. So the $10 million figure is more realistic and more inclusive of manufacturing business,” he says.
According to Hermens the reduction in the tax rate makes us more globally competitive and also produces other benefits. “The budget has helped restore a certain degree of confidence among medium-sized businesses. I've spoken so far to three CFOs who support my view. Although some argue this budget could have done so much more. But they're realistic and realise the constraints the Government is working under,” he argues.
However he says the Government could be doing more to support innovation. “Not providing extra funding for research and development to universities is definitely a backward step. Medium-sized businesses are more likely to invest in new technology and there's no incentive for this, other than the $20,000 immediate asset write-off.”
He notes mid-sized businesses would have welcomed a focus on infrastructure investment. “Businesses need a very efficient supply chain. The big problem we have is with our roads, transport and rail. This infrastructure is badly needed to enhance and increase our competitive position.”
Hermens does acknowledge the Reserve Bank’s decision to drop the case rate has been seen by local manufacturers and service businesses as key to stimulating the economy. “All that together is adding to this mild mood of optimism and, generally in the medium-sized business sector, support for this budget.”
The message for CFOs
Hermens says the main message to finance chiefs is that now is the time and the environment for them to increase capital expenditure and invest in new technology.
“Interest rates are at an all-time low and the Australian Dollar is heading in the right direction to make us more globally competitive. What we need now is increased productivity,” says Hermens.
“Increased productivity is only going to come through investment, new technologies and new manufacturing equipment. This is now an ideal opportunity to invest in the future,” he adds.
Key Takeaways
- Mid-market the winners from this year’s budget.
- Interest rate cut prompts lift in business confidence.
- Now’s the time to take advantage of government incentives.
