Budget 2010 Doesn't go Far Enough for Small Business

Budget time is done and dusted with the winners and losers all voicing their opinions.  From a federal perspective with the Governments pre budget announcements on the Henry Review, the 2010 Budget had no real surprises.

The Government has announced increased spending in health, infrastructure, education and training. This additional spending has been funded mainly from the introduction of a Resource Super Profits Tax (RSPT), and the 25% increase in tobacco excise.

The Government acknowledges that the Resource Sector underpins the strength of the Australian economy, with the RSPT expected to fund the reduction in the corporate tax rate and the spending proposed in this Budget. What it fails to acknowledge is the impact of the RSPT on the competitiveness of our Resources Sector versus countries such as Canada, USA, South Africa and Brazil.

Since the announcement, the mining executives in the Resources sector have announced they will be deferring projects, their reviewing their operations in Australia and even more so that potential dividends will also be consequently reduced. With an RSPT of 40% and a corporate tax rate of approximately 28% mining companies face an overall tax rate in the vicinity of 58%, a tax rate which is unacceptable. The Resource Exploration Refundable Tax Offset provides companies with a refund for expenditure on exploration carried out in Australia and will be welcomed by many of the junior explorers.

The Government will also reduce the GST compliance costs for business with the introduction of a variety of GST reforms.   The key components of the plan are:

• restructuring the margin scheme provisions with effect from 1 July 2012. This will clarify and simplify the rules and ensure greater certainty for taxpayers on issues surrounding the use of valuations;
• significantly increasing the threshold above which businesses need to interact with the financial supply provisions from $50,000 to $150,000 of input tax credits with effect from 1 July 2012;
• allowing small businesses accounting for GST on a cash basis to claim input tax credits upfront in relation to hire purchase arrangements. This change will significantly assist those businesses that have been forced into higher cost chattel mortgages following the introduction of the GST

There will be  a reduction in the corporate tax rate to 28% effective for most companies from the year ended 30 June 2015 which will be welcomed, however this saving will be offset by the increase in Superannuation Guarantee to 12%.

From a small business perspective the Capital Allowances will be simplified and streamlined from the 2012-13 income year.  They will also be allowed to immediately write – off assets valued at under $5,000 (this is increased from $1,000 under the present law) from 1 July 2012. This will enable small businesses to immediately write-off many of their assets.  Although really this is purely a timing measure and only accelerates the timing of the deduction and iIt is questionable how many small businesses will benefit from this $5,000 threshold.

The overall aim of the Budget is to return to a surplus in three years. The concern is that it predominantly relies on a booming Resource Sector which has only just recovered from the Global Financial Crisis and now faces the uncertainty of the RSPT.