Federal Budget 2022


24th March, 2022

Federal Budget 2022: 6 areas of interest for business owners

With the annual Budget due to be handed down next week, we take a look at what businesses can expect to get from the announcements.

In the final days before we hear from Treasurer Josh Frydenberg regarding this year’s Federal Budget announcements, there’s an increasing amount of discussion happening around fuel excises and cash handouts, but what’s likely to be in it for businesses?

It’s a question many business operators are beginning to wonder, with Frydenberg having stated earlier this year that the era of COVID stimulus was drawing to a close, despite ongoing calls for more support from both industry bodies and advisors.

A few weeks ago, the Master Builders Association (MBA) held its annual Leaders Summit, which featured a pre-recorded message from Prime Minister Scott Morrison, giving us perhaps our best insight into the shape of the announcements to date.

In his speech directed to the construction industry, Morrison defined the major trends the Australian economy has faced in recent years.

“Interrupted supply chains, the changing workforce with labor shortages and changing skills needs, the digitalisation of our economy, the decarbonisation of our economy – and that was happening before COVID and it’s only been accelerating since then,” he said.

In particular, Morrison was very clear in detailing what he calls the Government’s economic plan, which is covered in five broad “elements”, as follows:

  • Maintaining the Government’s position on low taxes and cutting red tape “so [they] can drive investment”
  • Infrastructure spending and investing in the “skills development our economy needs to grow”
  • Refocusing our approach to energy affordability while also delivering on emissions reductions targets
  • Investing in Australia’s capabilities as a digital economy
    Continuing to redevelop our manufacturing sector, “so we can unlock a new generation of high-wage, high-skill, high-tech jobs”

Keeping in mind this year’s Budget will serve as an unofficial launch of the Liberal Party’s election campaign (the election is tipped to occur in mid-May), we can begin to see how this speech to MBA members, in conjunction with a number of announcements made since, indicate the shape of the announcements to come.

The following article groups recent announcements under each of these stated objectives, with the addition of some recent good news for the tourism sector.

1. Tax cuts, removing red tape and addressing costs to drive business investment

Earlier this year, MYOB’s Business Monitor report noted that the cost of fuel had replaced the impacts of COVID as the chief concern among small business owners for the first time since the pandemic began.

With prices continuing to climb, we expect that trend to remain.

But it’s not the only cost on the way up, with both individuals and businesses faced with having to fork out more for other commodities including food and beverages, as well as increased insurance premiums and a possible rate hike on the cards for the second half of the year.

Furthermore, last year’s Budget included a measure to remove the $450 threshold for superannuation, meaning all casual workers over the age of 18 will be entitled to super regardless of hours worked, representing an additional cost to businesses, which will take effect on 1 July this year. The measure also introduces complexity for employers of workers under the age of 18, who will attract super should they work more than 30 hours in any given week per month.

All told, both the Prime Minister and the Treasurer have been on the front foot regarding easing the costs of living and running a business. Measures to alleviate these pressures are likely to include announcements regarding tax offset lump sum payments, an increase to childcare subsidies and tweaking the calculation of GST and PAYG formulas.

Much-needed cost of living relief flagged

SmartCompany this week reports that Frydenberg confirmed the inclusion of “temporary targeted measures” to tackle increasing costs of living in Australia, which could ease hip pocket pressures for everyday Aussies.

Frydenberg has stopped short of committing to extending the low and middle income tax offset for another year, instead saying there’d be “further measures to support families to meet the cost-of-living pressures, in a targeted and proportionate way”.

This has triggered further discussions around the possibility of one-off payments to low- and middle-income earners, which won’t have a direct impact for business operators, but may help to encourage spending.

Will tax write offs be extended?

Treasurer Frydenberg didn’t rule out the possibility of extending the current Temporary Full Expensing scheme and Instant Asset Write Off when he was reportedly quizzed on the matter, with business groups calling for the measure to become permanent and eligibility criteria extended further.

Temporary Full Expensing currently allows businesses to immediately claim a tax deduction for the full cost of new asset purchases, with no limit on the value of new assets and is available to businesses with an annual turnover less than $5 billion.

Up to $800 small business cashflow support

Reported by The West Australian, the Government is planning to implement $1.85 billion worth of cashflow relief for small businesses and sole traders in the Budget, which will result in an average benefit of $800 delivered throughout the next financial year.

This is expected to be achieved by reducing the rate used to calculate GST installments and quarterly PAYG installments to two percent (a reduction from 10 percent that would have applied under the current formula). The rate has been set at zero for the past two years, and was five percent in FY2019-20.

Unlike a tax incentive, the cashflow support acts as a way to ease the quarterly tax burden, and could result in less tax paid should business performance decline throughout the tax year.

SmartCompany reports this move to cap the GDP ‘uplift’ rate was welcomed by the Tax Institute, with General Manager of Tax Policy and Advocacy Scott Treatt saying an uplift of 10 percent would have been “an unnecessary burden on many small businesses” in the current environment.

If the change does occur, it’s beholden to businesses owners to stay on top of their tax and GST obligations throughout the year as “for some businesses who have recovered [from the pandemic], capping the increase at two percent for installment payments may only defer higher costs until the final payment at the end of the year”, he said.

Draught beer tax excise a win for hospitality

It would appear the Government’s also preparing to cut tax on draught beer as a means to ease pressures on the hospitality sector.

While the size of the cut is yet to be revealed, Sky News reports the move follows lobbying from 20 or more Coalition members who have called for a 50 percent excise, costing the Government $150 million per year in order to reduce the price of a schooner by around 35 cents.

2. Infrastructure and skills spending for economic growth

While Morrison has been keen to flag investment in national infrastructure projects and skills ahead of this year’s Budget announcements, details have been scarce as to the specifics.

What we do know is that the Treasurer announced $15.2 billion in new infrastructure in the 2021-22 Budget. But, with the Government expected to announce a deficit of $67 billion, this year could instead result in a tightening of the purse strings.

Rather, infrastructure and skills announcements may overlap tightly with the remaining three elements of the Prime Minister’s economic plan.

$750 million for NBN to bring regional Australia up to speed

As such, one announcement we did see recently falls in close alignment with the stated need to accelerate Australia’s digital economy, with $750 million earmarked for improving the NBN rollout in regional areas.

According to The Canberra Times, Communications Minister Paul Fletcher said this initiative would help meet the government’s goal of Australia becoming a top ten data and digital economy by 2030.

“By using the latest 4G and 5G wireless technology, this upgrade will extend the coverage range from a tower, and allow higher speed services to everyone served by the tower,” Fletcher said.

“This means more people can be served by NBN fixed wireless; it means higher speed services on the NBN fixed wireless network; and it means higher amounts of data can be used by households and business customers.”

We could well expect to see more announcements along these lines, as well as perhaps to support digital skills, next Tuesday evening.

3. Keeping energy affordable while reducing emissions

“Delivering affordable, reliable energy that you need while at the same time delivering on our emissions reduction targets and net-zero by 2050,” is imperative for the Prime Minister in this year’s Budget, representing a shift towards balancing the needs of our resources-driven economy and the push towards renewable energy.

“And we’re doing that through technology, not taxes that just drives up the cost of everything,” he told the MBA audience three weeks ago.

We’re still yet to see all the details on how the Government intends to strike this balance, but a big part of the discussion remains mired in current cost of living challenges around fuel prices.

As a result, the lowering of the fuel excise has been mooted.

Temporary cuts to fuel excise a possibility

9News gives a full account of how the fuel excise is set, which currently falls in at 44.2 cents per litre.

In an interview with news.com.au, Treasurer Frydenberg made it clear this option was being considered, but ruled out the possibility of a freeze to the automatic indexation of the fuel excise, which comes into force this August.

Regardless of what the Government announces here, the cost of fuel will remain mostly at the whim of market forces, and as a result high prices could accelerate our economy’s shift towards renewables.

$100 million in tax benefits for greener farming

As part of the push to incentivise renewables and reduce emissions, the Government is likely to introduce tax benefits for agriculturalists that generate revenue from selling carbon credits and biodiversity certificates to a total value of $100 million in tax benefits.

In a recent statement, Minister for Industry, Energy and Emissions Reduction Angus Taylor said the idea would encourage farmers to actively participate in the Emissions Reduction Fund.

“The Government is ensuring Australian farmers are rewarded for bringing down emissions,” Taylor said.

$60 million to enhance recycling capability

The Budget announcements are also likely to include an additional $60 million commitment to the Recycling Modernisation Fund, to focus on improving our ability to recycle ‘problematic plastics’ like chip packets and cling film.

According to a recent statement, the funding is intended to increase plastic recycling rates and help keep plastics out of the ocean, by fast-tracking access to advanced and innovative technology.

Prime Minister Scott Morrison said the move “demonstrates our determination to invest in Australian industry, to growing the recycling sector and to creating a stronger economy and stronger future for Australia”.

The Government has a stated target of achieving 70 percent of plastic packaging be either recycled or composted by 2025.

4. Becoming a Top 10 data and digital economy by 2030

The Digital Economy Strategy has been a feature of the Budget since last year, and covers things like investments and incentives to develop digital skills, artificial intelligence and cyber security.

It also includes the streamlining of Government services, including myGov and My Health Record.

In the future, it may even be broadened to include the mandating of e-invoicing, which is currently only mandated for Government agencies, but we’re yet to hear much detail on what to expect from this year’s Budget in this direction.

30% game developer tax offset

We do know that a new digital games tax offset will offer a 30 percent refundable tax offset to Australian digital games developers, with draft legislation and an explanatory memorandum on the incentive available online now.

The offset will be available to businesses that spend $500,000 or more per year on “qualifying Australian development expenditure related to the development of new games, or the expansion of existing eligible games” and will be capped at $20 million per year.

Treasury has already opened consultation into the proposed legislation, which may form only one element for announcements related to the Digital Economy Strategy in next week’s Budget.

5. Mining investments aim to secure manufacturing and supply chains

In his speech to the MBA, Morrison made clear his intent to make Australia more resilient to future change by improving our “sovereign capability” in the area of manufacture and production.

That means improving supply chain resilience through targeted investments which, so far, appear to focus largely on the mining sector.

According to 7News, that means $243 million will be put towards four specific projects in that sector, focusing specifically on critical minerals, such as nickel, magnesium and other rare-earth elements, which are often used in the manufacture of technology such as mobile phones, electric cars and solar panels.

It’s expected the investment will help to create over 3,400 jobs.

Prime Minister Scott Morrison said the new initiatives were critical to expanding the critical minerals sector in Australia.

“These projects are about manufacturing the products and materials Australians need, and the world needs, by making them right here at home,” he said.

“We’re helping grow the local critical minerals processing and clean energy industries and locking in the future of those industries by backing manufacturing projects in Australia.”

The critical minerals projects will form part of the $1.3 billion modern manufacturing initiative, first announced in the 2020 Budget.

6. $60 million cash splash to boost tourism sector

News.com.au recently reported the Prime Minister is returning to his roots in spruiking the tourism sector, with the Budget set to include $60 million in a bid to fast-track the return of international visitors to regional tourism destinations.

In a move likely to be well received by tourism operators and airlines alike, Morrison is poised to announce $45 million in extra cash for Tourism Australia to increase its marketing initiatives and extend its upcoming campaign to feature key regional destinations.

Places to benefit will include the Gold Coast, the NSW North Coast, the Sunshine Coast, the Great Ocean Road, the NSW Hunter, Uluru, the Kimberley and parts of Tasmania.

Another $15 million will go to Tropical North Queensland’s tourism body to promote the Great Barrier Reef.

“Our government is backing Australia’s tourism industry with a $60 million plan to bring back international visitors, especially to the regions that have been hardest hit,” Morrison said in a recent statement.

“As the world reopens, and travellers get out and see the world again, we want to ensure that at the top of every must-see-list is Australia.”

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May Election puts caveat on Budget announcements

With the Federal Election to be announced at any moment and likely to occur in May, many of these announcements could hang in the balance.

The Prime Minister and the Treasurer have taken pains to highlight their economic management as a key factor in that upcoming race, but if the Australian public instead choose to vote in the ALP, we could see many of these budgetary measures dropped or altered before being brought in as legislation.

One thing is certain: this year’s Budget in Reply from the Opposition (scheduled to be handed down on the evening of Thursday, 31 March) will be more closely scrutinised than any other in the past few years.

Join She’s on the Money’s Victoria Devine in unpacking key announcements from this year’s Federal Budget with the help of ASBFEO’s Bruce Billson, MYOB’s Helen Lea and Madebox’s Samantha Finnegan in a webinar scheduled to occur at 3pm AEDT, Thursday 31 March. Hosted by MYOB, you can register to attend the webinar here.