What the mid-year economic outlook means for business
As is now standard practice for our Federal Government, the Federal Treasurer has released the Mid-Year Economic and Fiscal Outlook (MYEFO) for 2012-2013.
It won’t come as any great surprise to SME owners that the economy, whilst not going backwards, is certainly not moving forwards as swiftly as the Treasurer would like. As a result we are now faced with falling tax revenue and weakening overseas trading conditions that continue to hamper the Government’s insistence on delivering a budget surplus for 2012/2013.
The natural consequence of deteriorating conditions would be to let the budget fall into deficit and then naturally return to surplus as conditions improve over the economic cycle. The other option, and the one the treasurer has opted for, is to intervene with mid-budget cycle changes to Government policy to reign in the expenditure side of the budget and seek to sure up its revenue base where possible. In fact, $16.4 billion in savings measures have been announced in order to keep the budget in surplus.
Let’s take a look at the key changes the MYEFO announcement will have on small business in Australia over the foreseeable future.
PAYG Income Tax
The arrangements used by the Government to collect company tax are being reformed to ensure that large companies will be required to pay their PAYG income tax installments on a monthly basis on their monthly BAS forms. This change alone will save $8 billion over the next four years.
Note, that this measure doesn’t actually raise taxes, it just brings forward the timing of when they need to be paid. Whilst this change does not directly impact on small business, the hit to cashflow on large businesses may well flow on to reduced demand for their goods and services.
The other potential consequence, as large companies pay out their income tax obligations earlier, is that small business may see an increase in the time it takes to receive payment from large companies. Cashflow is critical to a healthy economy and the Government has decided that large companies cashflows are healthy enough to cope with this change in collection policy. Let’s hope that small businesses do not suffer as a result.
Fringe Benefits Changes
Up until now employees have been able to take advantage of in-house fringe benefits by salary sacrificing them and saving on their personal income taxes. This concession is being removed which means the employees are now out of pocket for these expenses.
One such example where this law will apply is the supply of concert/sporting tickets to employees of sponsors of such events. Now employees will need to pay full price for such items, and in turn potentially providing pressure on employers to fund unaffordable wage increases.
ATO Compliance Activity
As part of the budget tightening process the Government will be allocating an extra $390 million to compliance activities. The Government papers specifically refer to a clamp down on outstanding income tax return lodgments and small businesses with outstanding long-term debts.
If you do have any concerns or unresolved matters with the ATO this is a great reminder to seek out your accountant to get all of your taxation affairs in order.
Always a soft target, the cost of visas to enter Australia will increase for certain non-residents entering Australia. This may have some impact on small businesses that rely on heavy tourism traffic to generate income as it deters foreign visitors, or at the very least, leaves them with less money to spend upon arrival.
The annual levy imposed by the ATO on Australia’s 400,000 self managed superannuation funds will increase by 35 percent to $259.00 per tax yea
Changes in the area of “lost” superannuation will allow the Government to claim back more of the massive amount of money currently sitting in these lost superannuation accounts. An easy target with a big result for the Government means that any superannuation you may potentially have sitting in a lost fund will end up back in the Federal coffers. Check with the ATO now to see if you have any lost super funds before its too late!
Baby Bonus Cuts
The baby bonus granted to parents having second and subsequent children will be reduced from $5,000 to $3,000 from 1 July next year for those entitled to this scheme. Whilst seen as a necessary budget saving, this will have an impact on larger families and how they choose to spend their disposable income. The flow on effect in working class suburbs to small business will be reduced disposable income spent at the local shopping centers.
With interest rates having already fallen in recent months, it is to be hoped that these budget cuts will provide greater scope to the Reserve Bank to reduce interest rates as the Government further tightens the fiscal reigns.
Clearly the previous federal budget was far too optimistic in its estimates and the current labour Governments one-track mind on delivering a budget surplus has meant that these steps were an unfortunate reality, just waiting to happen. Lets just hope that the areas targeted for budgetary savings don’t hamper the economic recovery against already difficult overseas trading conditions.