The 2016 Budget has ticked many boxes for small business and the housing market – but not everyone is satisfied.
When the 2016 Federal Budget was released on 3 May, as always there were some sure-fire winners and losers. But the response from the industry has been a positive one for the most part.
The budget has shown strong support for SMEs, which will clearly benefit as businesses with a turnover of less than $10m will see their tax rate cut to 27.5% from 30%, from 1 July. And the company tax rate will fall to 25% for all businesses over the next decade and provide a boost for the residential construction sector.
High-income earners won’t be so happy, as the government has cut a number of tax concessions for the wealthiest among us who are saving for retirement. Those earning more than $250,000 will pay 30% tax on their superannuation contributions instead of 15%.
However, peer-to-peer lenders will be pleased with the budget’s decisions on superannuation, according to a global peer-to-peer lender.
“The clampdown on contributions and transfers to superannuation will mean lower returns for investors; however, peer-to-business lending is an alternative to low-yielding shares and bank interest,” the CEO of ThinCats Australia, Sunil Aranha, commented.
Aranha says the tax cut measure for businesses will also be a positive for those in the peer-to-peer space, and anticipates the number of lenders on its platform will grow substantially as a result.
“I expect this measure will provide a boost to peer-to-business lending as [business] owners will be seeking to supplement the funds freed up by the tax cut with borrowings to finance more staff and equipment.”
According to Treasurer Scott Morrison, lowering the small business tax rate will benefit 870,000 small businesses employing 3.4 million Australians.
Scottish Pacific’s head of debtor finance Greg Charlwood says this year’s budget will enable SMEs throughout Australia to deliver broader economic growth.
“Having supported SMEs in working capital since 1988, we are pleased to see the benefits for companies with a turnover of $2m being extended to a sensible level of $10m turnover, where we see it will have a greater impact in terms of business investment and boosting job growth and employment,” Charlwood said.
“We support the reduction in the company tax rate for SMEs – dropping from 28.5% to 27.5% for small incorporated businesses with up to $10m turnover – as it should energise SMEs, encourage business investment and drive growth and innovation.”
Charlwood said the tax rate reduction was a welcome initiative, particularly since Scottish Pacific’s latest SME Growth Index indicated a continuing downward trend of SMEs saying they were in positive growth mode (currently 58%).
Peter Strong, CEO of the Council of Small Business Australia, said: “The economy is now in a better position to deal with and take advantage of change.
“The big-ticket item is that the threshold for determining what is considered a small business has been raised to $10m annual turnover. This creates a change immediately for government support actions around tax breaks, instant tax write-offs and other initiatives.”
This higher threshold will give more businesses access to the $20,000 instant tax write-off announced in last year’s budget. There is also another tax decrease for these businesses, which means tax has decreased 2.5% in two years.
“This is a good message to send to businesses who want to grow and employ, or start to export and take advantage of the global economy,” Strong said.
Good news for homebuyers
An industry association has also praised the budget, concluding it is a great win for mortgage holders and those wanting to enter the housing market.
With the Reserve Bank cutting official interest rates to a record low 1.75%, the FBAA’s Peter White said the measures taken in the budget would ensure mortgages and loans remained well within the grasp of working Australians.
“The tax cuts to small and medium-size businesses will go a long way to creating more jobs, while the overall tax package for individuals should help lift the burden on the household budget and relieve pressure on mortgage repayments.”
Graham Wolfe, the Housing Industry Association’s chief executive for industry policy, also agreed that this year’s budget is good news for homebuyers, and the housing industry too. “The budget measures reflect a measured path to budget recovery that should add to the confidence that the home-building industry and its customers need to make home-building and renovating decisions,” Wolfe said.
“When combined with the decision taken today to lower the official cash rate, which has already started to flow through to housing interest rates, the budget will help maintain the residential building industry’s capacity to make a significant contribution to employment and economic activity.
“The budget measures to support new approaches to funding the essential infra-structure that our cities need to grow have the potential to unlock fresh opportunities for homebuyers and improve housing affordability.”
A ‘weak’ budget
Not everyone is pleased with the government’s announcements, and the CEO of a major mortgage franchise has labelled the budget as “somewhat frightening”.
Although Mortgage Choice CEO John Flavell appreciates the incentives offered to small businesses, he says ultimately it is weak in a time when the country needs a “structural overhaul”.
“Small businesses play a very important role in our economy, and they are going to play an enormous role in the future. Whilst it is pleasing to see continued initiatives that encourage small businesses to invest and grow, it is frightening to see the enormous burden the Coalition is placing on the shoulders of these small businesses,” Flavell said.
“That aside, [the] budget could really be considered a clever PR stunt by the Federal Government. No doubt they would consider their benign budget to be ‘election-winning’.
“We need leaders who are bold enough to acknowledge that slicing up the same old pie in different ways is simply not going to cut it anymore,” Flavell said.
“At the end of the day, we need a structural overhaul of our taxation system to promote corporate investment on our shores. We need an environment that encourages Australians to invest in themselves and their future worth in the workplace.”
Flavell said he was also concerned about Australia’s levels of indebtedness that continue to rise, which the budget failed to address.
“Since we fell into the red in 2009, the shortfall between what the government earns and spends has risen to an amazing 21.5% of gross domestic product. This is an inordinately large sum of money – something the government doesn’t seem to care too much about.”
Super changes and leaving negative gearing alone
A great deal of discussion before the budget was released speculated on investors leaving property if negative gearing was touched, but now there might be a reversal after the government’s measures on superannuation arrangements and its decision to leave negative gearing alone.
Commenting on the impact the budget might have on financial services providers, PwC financial services leader Julie Coates said: “The tightening of superannuation concessions and caps on contributions may make other asset classes like property more attractive. So there is a possibility that we could see some capital heading back towards the investor housing sector – but in all honesty it’s really too early to tell.”
At NAB’s post-budget breakfast, economic commentator Robert Gottliebsen said the changes to superannuation might make alternative saving strategies look more appealing, such as negatively geared properties.
“If you haven’t got the money in superannuation [already], then you’re not going to get it in,” Gottliebsen said.
“You’re going to have to adopt a different savings strategy.”
Alice Kase, partner at PwC, agreed with Gottliebsen. “What the government is really telling us is that they’re reinforcing the message that super is not an estate planning tool, and it’s no longer a wealth accumulation tool,” Kase said at the NAB breakfast.
“The big change is the $500,000 lifetime limit … I think we’ll see a redirection of savings mechanisms through the use of trusts and negative gearing.”
Real Estate Institute of Australia president Neville Sanders said the government’s decision to leave negative gearing alone would go a long way towards helping Australia meet its housing supply needs.
“We are pleased that the Treasurer in his budget speech reiterated that the government will not remove or limit negative gearing or change the capital gains tax as this would increase the tax burden on Australians trying to provide a future for their families.
“The boost to infrastructure spending, the extension of small business concessions, modest tax cuts and the retention of the current arrangements for taxation of property investments will help ensure that the property sector remains an important driver of economic growth,” Sanders added.
The budget has shown strong support for SMEs, which will clearly benefit as businesses with a turnover of less than $10m will see their tax rate cut to 27.5% from 30%, from 1 July. And the company tax rate will fall to 25% for all businesses over the next decade and provide a boost for the residential construction sector.
High-income earners won’t be so happy, as the government has cut a number of tax concessions for the wealthiest among us who are saving for retirement. Those earning more than $250,000 will pay 30% tax on their superannuation contributions instead of 15%.
However, peer-to-peer lenders will be pleased with the budget’s decisions on superannuation, according to a global peer-to-peer lender.
“The clampdown on contributions and transfers to superannuation will mean lower returns for investors; however, peer-to-business lending is an alternative to low-yielding shares and bank interest,” the CEO of ThinCats Australia, Sunil Aranha, commented.
Aranha says the tax cut measure for businesses will also be a positive for those in the peer-to-peer space, and anticipates the number of lenders on its platform will grow substantially as a result.
“I expect this measure will provide a boost to peer-to-business lending as [business] owners will be seeking to supplement the funds freed up by the tax cut with borrowings to finance more staff and equipment.”
According to Treasurer Scott Morrison, lowering the small business tax rate will benefit 870,000 small businesses employing 3.4 million Australians.
Scottish Pacific’s head of debtor finance Greg Charlwood says this year’s budget will enable SMEs throughout Australia to deliver broader economic growth.
“Having supported SMEs in working capital since 1988, we are pleased to see the benefits for companies with a turnover of $2m being extended to a sensible level of $10m turnover, where we see it will have a greater impact in terms of business investment and boosting job growth and employment,” Charlwood said.
“We support the reduction in the company tax rate for SMEs – dropping from 28.5% to 27.5% for small incorporated businesses with up to $10m turnover – as it should energise SMEs, encourage business investment and drive growth and innovation.”
Charlwood said the tax rate reduction was a welcome initiative, particularly since Scottish Pacific’s latest SME Growth Index indicated a continuing downward trend of SMEs saying they were in positive growth mode (currently 58%).Peter Strong, CEO of the Council of Small Business Australia, said: “The economy is now in a better position to deal with and take advantage of change.
“The big-ticket item is that the threshold for determining what is considered a small business has been raised to $10m annual turnover. This creates a change immediately for government support actions around tax breaks, instant tax write-offs and other initiatives.”
This higher threshold will give more businesses access to the $20,000 instant tax write-off announced in last year’s budget. There is also another tax decrease for these businesses, which means tax has decreased 2.5% in two years.
“This is a good message to send to businesses who want to grow and employ, or start to export and take advantage of the global economy,” Strong said.
Good news for homebuyers
An industry association has also praised the budget, concluding it is a great win for mortgage holders and those wanting to enter the housing market.
With the Reserve Bank cutting official interest rates to a record low 1.75%, the FBAA’s Peter White said the measures taken in the budget would ensure mortgages and loans remained well within the grasp of working Australians.
“The tax cuts to small and medium-size businesses will go a long way to creating more jobs, while the overall tax package for individuals should help lift the burden on the household budget and relieve pressure on mortgage repayments.”
Graham Wolfe, the Housing Industry Association’s chief executive for industry policy, also agreed that this year’s budget is good news for homebuyers, and the housing industry too. “The budget measures reflect a measured path to budget recovery that should add to the confidence that the home-building industry and its customers need to make home-building and renovating decisions,” Wolfe said.
“When combined with the decision taken today to lower the official cash rate, which has already started to flow through to housing interest rates, the budget will help maintain the residential building industry’s capacity to make a significant contribution to employment and economic activity.
“The budget measures to support new approaches to funding the essential infra-structure that our cities need to grow have the potential to unlock fresh opportunities for homebuyers and improve housing affordability.”
A ‘weak’ budget
Not everyone is pleased with the government’s announcements, and the CEO of a major mortgage franchise has labelled the budget as “somewhat frightening”.
Although Mortgage Choice CEO John Flavell appreciates the incentives offered to small businesses, he says ultimately it is weak in a time when the country needs a “structural overhaul”.
“Small businesses play a very important role in our economy, and they are going to play an enormous role in the future. Whilst it is pleasing to see continued initiatives that encourage small businesses to invest and grow, it is frightening to see the enormous burden the Coalition is placing on the shoulders of these small businesses,” Flavell said.
“That aside, [the] budget could really be considered a clever PR stunt by the Federal Government. No doubt they would consider their benign budget to be ‘election-winning’.
“We need leaders who are bold enough to acknowledge that slicing up the same old pie in different ways is simply not going to cut it anymore,” Flavell said.
“At the end of the day, we need a structural overhaul of our taxation system to promote corporate investment on our shores. We need an environment that encourages Australians to invest in themselves and their future worth in the workplace.”
Flavell said he was also concerned about Australia’s levels of indebtedness that continue to rise, which the budget failed to address.
“Since we fell into the red in 2009, the shortfall between what the government earns and spends has risen to an amazing 21.5% of gross domestic product. This is an inordinately large sum of money – something the government doesn’t seem to care too much about.”
Super changes and leaving negative gearing alone
A great deal of discussion before the budget was released speculated on investors leaving property if negative gearing was touched, but now there might be a reversal after the government’s measures on superannuation arrangements and its decision to leave negative gearing alone.
Commenting on the impact the budget might have on financial services providers, PwC financial services leader Julie Coates said: “The tightening of superannuation concessions and caps on contributions may make other asset classes like property more attractive. So there is a possibility that we could see some capital heading back towards the investor housing sector – but in all honesty it’s really too early to tell.”
At NAB’s post-budget breakfast, economic commentator Robert Gottliebsen said the changes to superannuation might make alternative saving strategies look more appealing, such as negatively geared properties.
“If you haven’t got the money in superannuation [already], then you’re not going to get it in,” Gottliebsen said.
“You’re going to have to adopt a different savings strategy.”
Alice Kase, partner at PwC, agreed with Gottliebsen. “What the government is really telling us is that they’re reinforcing the message that super is not an estate planning tool, and it’s no longer a wealth accumulation tool,” Kase said at the NAB breakfast.
“The big change is the $500,000 lifetime limit … I think we’ll see a redirection of savings mechanisms through the use of trusts and negative gearing.”
Real Estate Institute of Australia president Neville Sanders said the government’s decision to leave negative gearing alone would go a long way towards helping Australia meet its housing supply needs.
“We are pleased that the Treasurer in his budget speech reiterated that the government will not remove or limit negative gearing or change the capital gains tax as this would increase the tax burden on Australians trying to provide a future for their families.
“The boost to infrastructure spending, the extension of small business concessions, modest tax cuts and the retention of the current arrangements for taxation of property investments will help ensure that the property sector remains an important driver of economic growth,” Sanders added.
