By Ken Matthews, Managing Partner, Matthews Steer.
Federal Treasurer Josh Frydenberg handed down the most important Australian budget since World War II this week, announcing a series of measures designed to get people and businesses spending again through “the largest set of investment incentives any Australian Government has ever provided”.
Among Treasurer Frydenberg’s announcements in Tuesday’s budget was a ‘game changing’ $27-billion-dollar instant asset write off, a loss carry-back provision, backdated income tax cuts, and significant updates to existing government grants and funds.
Here are the highlights as I see them relating to our clients at Matthews Steer...
ASSET WRITE OFF
Under Frydenberg’s temporary $27-billion instant asset write-off program (‘JobMaker Plan – temporary full expensing to support investment and jobs’), businesses will now be able to immediately claim the full cost of assets that are eligible for depreciation, a move the treasurer says will: “unlock investment ... dramatically expand the productive capacity of the nation, and create tens of thousands of jobs”.
LOSS CARRY-BACK PROVISION
Under the governments loss carry- back provision, businesses that have been heavily impacted by COVID-19, incurring losses in the 2020, ‘21 or ‘22 financial years, will be able to claim against taxes paid in the 2019, ‘20 or ‘21 financial years. This means that where normally businesses would have had to be in the black in order to leverage these losses, they now have the opportunity to improve their cashflow in the process of re-establishing their viability.
INCOME TAX CUTS
This week’s budget fast tracked income tax cuts scheduled for 2022 and backdated them to July 1 this year. The cuts see an increase in the 19% and 32.5% tax bracket thresholds and tax relief for lower and middle-income earners of up to $2,745 (singles) and up to $5,490 (dual income families).
These almost across-the-board income tax cuts should kick start consumer spending, and thanks to Job Keeper, I believe people are cashed up and ready to spend and travel. As a result, we could see quite a boost to the economy over the next six months, that has perhaps been underestimated by economic pundits.
The treasurer also made some major announcements this week regarding government grants including the Research and Development (R&D) Tax Incentive, the Manufacturing Modernisation Fund (MMF), and the Export Market Development Grant (EDMG), which will be relevant to a significant number of our clients.
R&D TAX INCENTIVE
The Government has committed an additional $2-billion to the existing R&D Tax Incentive program which will make a refundable R&D tax offset of 18.5% available to businesses whose annual turnover is below $20-million.
Designed to encourage businesses to spend money on research and development, this incentive is going to encourage the entrepreneurship that typifies Victoria, and stimulate a smarter Australia.
MANUFACTURING MODERNISATION FUND
Under the budget, manufacturers may be eligible for a manufacturing modernisation grants of up to $1-million as well as writing off the full cost of any expansion undertaken through the MMF. This is part of a $A1.3B Modern Manufacturing Initiative that targets six key industries: food and beverage manufacturing, recycling and clean energy, medical products, the defence and space industries, and resources technology and critical minerals processing.
EXPORT MARKET DEVELOPMENT GRANTS
Major changes are set to kick in to the EDMG from July 1, 2021, with grants of up to $450k available to applicants to expand into new markets over three years.
Set against the backdrop of declining COVID-19 cases in Melbourne and hope that at some point in the near future we will be able to open up again, I’m excited by what is essentially a jobs budget, and an investment budget.
Normally these programs are updated year-on-year, so this three-year roadmap is unprecedented - much like the times in which we are living.
These measures won’t be tightened in the next six or 12 months, and with the instant asset write off and MMF, manufacturers will be able to plan their next three years of expansion and technological investment with confidence, which is exactly what we need.
In Melbourne we’ve been on hyper- hibernation since this second lockdown but I’m confident that the potential opening up on October 19, in conjunction with this budget, will provide the stimulus businesses need to drive investment and forward momentum, and wake our state from its economic slumber.
GLOBAL ECONOMIC UPDATE
If you'd like a more in-depth analysis of this year's budget, we're delighted to have one of Australia's eminent geopolitical economists, Jonathan Pain, providing an update on the domestic and global economic situation in the wake of COVID-19, and the respective impacts of a Trump or Biden victory in the upcoming US Presidential Election - billed the most significant since Abraham Lincoln's election in 1860 - at our up-coming virtual Global Economic Update. If you would like to register to attend this free event on October 15, click here.
ADVICE ON GOVERNMENT GRANTS
If you are looking for more information about the government grants available to your business, or you need support to complete government grant applications, Matthews Steer’s specialist government grants team is standing by, ready and able to advise you. Contact us via firstname.lastname@example.org or 03 9325 6300.