In this article, we look at the key take-aways from this year’s Federal Budget for Australia’s small businesses and startups. In addition, readers will discover how dozens of thought leaders responded to this week’s “Let’s Talk…” question, which asked them to weigh-in on the budget – was it a win for businesses, a missed opportunity… both?
Key take-aways from this year’s budget
- The $20,000 instant asset tax write-off scheme is being extended for 12 months to 30 June 2019, to ensure small businesses have additional opportunities to reinvest in their business and replace or upgrade their assets.
- The Research & Development Tax Incentive (RDTI) is being reformed to – in the words of Minister for Jobs and Innovation Michaelia Cash – “ensure that taxpayer support for the R&DTI is fiscally affordable and crack down on R&D tax claims that push the boundaries of the R&DTI”. Specifically, the government will “refocus” the program for larger companies, giving more assistance to those that invest a higher proportion of their spending in R&D. Further, cash refunds will be capped at $4 million per annum for companies wth turnover below $20 million.
- The Skilling Australians Fund will receive an extra $250 million to – in the words of Treasurer Scott Morrison – “deliver business with the people and skills they need to grow their business”.
- New Anti-phoenixing measures are being introduced to – in the words of the Treasurer – ensure “small businesses don’t get ripped off by other businesses who deliberately go bust to avoid paying their bills”.
- Australia’s scientific research infrastructure will receive an additional $1.9 billion over 12 years, to – in the words of Minister Cash –ensure “world-leading researchers and innovative businesses have tools to develop and commercialise first-to-market products and services. She added, “This infrastructure will support the creation of new businesses, generating more employment opportunities. It will also assist in advancing Australia’s traditional industries, improving efficiencies and making them more competitive – essential to our long-term economic prosperity.”
- An SME Export Hubs program will be established, with $20 million in funding over four years. In the words of Minister Cash, the hubs will enable SMEs to “work together and access new export markets and global supply chains”.
- Women’s participation in science, technology, engineering and mathematics (STEM) careers and education will be boosted, with the Government to spend $4.5 million over four years on relevant initiatives. For example, the funding will progress a 10-year plan for women in science and assist Australia’s new Women in STEM Ambassador with promoting STEM in schools and to school-aged girls.
- The Asian Innovation Strategy will be established, with $20 million in funding over four years. In the words of Michaelia Cash, the strategy will “support global opportunities for Australian business, entrepreneurs and researchers in Asia and further abroad, as well as extending the Australia-India Strategic Research Fund to foster collaboration.
- Australia’s capability in Artificial Intelligence (AI) and Machine Learning (ML) will be strengthened to support economic growth and the productivity of businesses, with $29.9 million being spent over four years.
- Mature age Australians will receive $189.7 million worth of support to adapt to the transitioning economy and develop the skills needed to remain in work.
- A black economy package including the introduction of a$10,000 limit for cash payments made to businesses for goods and services from 1 July 2019.
Pros and cons: what are businesses saying?
For this week’s “Let’s Talk…” feature, we asked a lineup of business executives to look at the budgetary measures and identify the key ‘pros’ and ‘cons’ for Australia’s startups and SMEs. Find out what they had to say….
Emma Lo Russo, CEO of Digivizer: “A very disappointing budget for early-growth and small-to-medium-business owners. Very little to incentivise them to invest in their future competitiveness, and very little technology infrastructure to make it easy to compete. Whilst I applaud and welcome full transparency at every level, I worry that the incentive and environment in which to want to invest in our future makes it harder here and much easier and attractive overseas. It feels like lots of policing and putting even more emphasis on proving what you are doing. I believe we will see more companies move and take advantage of the more-supportive countries and innovation environments, those who truly are fuelling their future economic competitiveness.”
Sarah Moran, CEO & Co-Founder at Girl Geek Academy: “The biggest win for me out of Budget 2018 is the $2.4 billion to be invested into Australia’s public technology infrastructure, which includes $4.5 million over four years to boost women’s participation in STEM education and industry. It’s a really coup to see the gender gap being acknowledged at Federal Government level and this is a step in the right direction to creating equality in the classrooms and workplaces, which is so critical for Australia’s economic future.
“A key disappointment for me was the announcement that the ABC’s annual funding will be frozen for three years from July 2019, costing the organisation $84 million. The ABC is a backbone of education in Australia and is where most of us learn about science outside the classroom.”
Brigette Panetta, head of ICOs, Mayfair 101: “It is good to see the Government recognises the importance of evaluating the adoption of blockchain technology for its own services, however it falls well short in terms of investment size and importantly doesn’t adequately support the broader need for Australian businesses to adopt blockchain technology. Given the rapid uptake of blockchain in overseas markets we are concerned Australia will be left behind yet again because of a lack of focus, understanding and investment by the Government. We would like to see more funding and support for Australian businesses to adopt blockchain technology as it represents an opportunity for a more efficient, transparent means of doing business locally and abroad.”
Dr Chris Nave, MD of VC firm Brandon Capital: “The retention of the Research & Development (R&D) tax incentive (RDTI) initiative is a huge win for the biotech sector in Australia. The RDTI plays an absolutely crucial role in making Australia an attractive location for carrying out clinical research, ensuring that Australian patients get access to the latest medical treatments. As a policy, it is doing a significant amount to expand and mature our local biotech sector which has the potential to deliver enormous wealth and health benefits to this country. Rather than taking the politically expedient approach of euthanising the program, we’re glad the government has focussed its efforts on tightening the eligibility so that the program supports those the types of pursuits for which the program was originally intended, like start-ups and biotechs.”
Sam Allert, Managing Director ANZ with Reckon: “Any further tax relief for small businesses is always welcomed, as it means they would have more resources to create jobs, expand, and purchase technology and equipment to boost productivity. The $20,000 instant asset write-off is evidently a worthwhile incentive, so it’s promising to see that the government has extended the initiative. As a next step, it should ideally be enshrined in permanency.
“However, it’s disappointing to see that the government has decided to restructure the R&D Tax Incentive. This will have huge implications on many Australian small businesses that rely heavily on the tax concession to drive research, development and innovation, as well as startups who do not have the capacity to work on projects with a substantial R&D spend above industry peers.
“Along with these changes, the ATO will now be able to publicly disclose those who requested R&D relief and what the relief was for, as well as impose a limit on time extensions to complete R&D registrations and amendments to technical provisions. These changes could jeopardise Australia’s goal of becoming the region’s innovation hub, as more businesses are forced to set up their R&D bases in countries with more supportive government initiatives and funding.”
Peter Gilmore, CFO at Gateway Bank: “For all businesses, the personal tax cuts hold out some promise of a prospective increase in consumer spending, followed by the much-anticipated boost in inflation and the consequent RBA cash rate increases. Of course, the unknown is how much of the personal tax cuts will be spent as opposed to saved. Heavily mortgaged consumers will surely be tempted to prioritise paying down debt.
“There is not much that is specific to the Banking sector, although one con is the delay in the simplification of the TOFA tax regime. The increase in both the ASIC and APRA levies herald further direct and indirect regulatory and compliance costs for the sector, as the fallout from the Banking Royal Commission brings sharp focus on culture and leadership across the industry.”
Adam Joy, CEO of the Australian Lottery and Newsagents Association: “Supporting our small businesses is not only good for Australia’s business owners and the thousands they employ, it is also good for our national economy. Small businesses will be very pleased with the $20,000 instant asset tax write-off extension for another 12 months to June 30, 2019. We also know they will be satisfied with the additional protection provided through an extension of unfair contract terms protections, and the new funding provided to the Australian Financial Complaints Authority will give our small business owners access to free, fast and binding dispute resolution. The Australian Lottery and Newsagents Association is very interested to understand the Government’s investigation into the possibility of taxing digital revenues in Australia, especially those going to foreign multinationals. We look forward to the discussion paper Treasurer Scott Morrison has advised he will release in a few weeks. This is a good budget for confidence, and confidence is contagious.”
Ed Mallett, founder and MD of Employsure: “There isn’t much in the 2018 budget to excite SMEs, which was somewhat underwhelming. Much of what is in the Budget for small business is a continuation of tax cuts introduced in previous years. For example, the extension of the $20,000 instant asset write-off scheme – which is welcomed by the small business community, as it should be – was a policy introduced in 2015. However, small businesses tax breaks are only half of the solution.
“The Budget delivered no new policies to promote growth, make it easier for small business to operate, or to modernise the workplace. The Government are spectating as technology disrupts standard concepts of employment. They seem to be waiting for change to happen rather than encouraging it, leaving Australian business at risk of being tied to an anachronistic regulatory environment, depriving SMEs of the opportunity to thrive globally.
“It is time for Government to start acting and stop spectating just because they are fearful of partisan politics. If the Government neglects modernising policies for the workplace, they’re not motivating people to innovate or grow. If we want to create businesses of global scale, with global reach to solve global problems, we need to create much stronger policies to support Australian SMEs.
“This Budget shows how much small business is talked about but not appropriately backed up. We need more action, and action means making it easier for small business to operate and innovate.”
Mandeep Sodhi, CEO of HashChing: “The Open Banking framework is going to drive a lot of competition in the financial services space. With apathy one of the biggest reasons why customers stay with the big four banks, the ability for customers to easily take their data to another financial institution levels the playing field for smaller banks, non-bank lenders and fin-techs. I’m expecting to see a big upsurge in enquiries through the HashChing platform once the Open Banking framework applies to mortgages.
“Making it harder for Australian businesses to take advantage of the R&D tax incentive is a mistake. It will only serve to stifle innovation, forcing our best and brightest to relocate to countries where innovation is fostered and better-supported by the government, putting plenty of local jobs on the chopping block. If Australia is to truly compete on a global playing field, then the government needs to make a substantial investment into R&D – not make it harder for disruptors to undertake cutting-edge research and development of new products and services.”
Natalie Goldman, CEO of FlexCareers: “This years’ budget isn’t as inclusive to women as expected, but rather it focuses on bigger picture and long term goals in innovation and small business.
“What’s disappointing to see is that women have been left behind in terms of long-term policies and flexible work initiatives. Encouraging flexibility in the workplace is key to greatly gaining more female participation, as increasing numbers of women are not wanting to return to work to a traditional 9-5 position, things are changing in this space, particularly with more millennials returning to work.
“The budget so far doesn’t directly reflect any real investment in future of work for women, and what’s missing is having long-term policies that fit into small and larger businesses to accommodate more flexible working options.
“FlexCareers highly anticipates future comment from Minister for Women, Kellie O’Dwyer on supporting women getting back to work as promised by the Minister in her September sitting of Parliament.”
Nick Byrne, co-founder and CEO of Typehuman: “Regarding the black economy package, the ban on cash payments of greater than $10,000 is an overreach by the government, and is an endorsement for the use of cryptocurrencies. Typehuman supports taxes, but overreaching will always be met with a response, and cryptocurrency offers people said response.”
Chris Gilbert, CEO of Equitise: “Scott Morrison has stated that the Australian Government are ‘supporting the startup business community by reducing tax rates’. What seems to have been forgotten is that most early stage startup businesses do not turn a profit.
“As a startup founder a lower tax rate is not what is important, rather access to funding to fuel and invest into growth. An area of the budget neglected from my point of view is increasing the flow of funds to start-up businesses to enable them to get to a point of break even and thus, being able to realise the benefits of a corporate tax cut.
“In July 2016 the Australian Government introduced botched tax incentives to encourage investing in qualifying early stage innovation companies or ESIC. The tax incentives were meant to provide eligible investors who purchase new shares in an ESIC with a carry forward tax offset and no capital gains between one and 10 years. These incentives have been largely criticised by industry representatives in the Angel investment community regarded as rushed, and poorly executed. As a result, there has been significant confusion over who qualifies and uptake has been woeful.
“This should have been an easy win for the government in the budget and an area where true innovation could have been implemented to foster and grow Australia’s startup sector.”
Mick Spencer, CEO and founder of ONTHEGO: “OTG spends more than one fifth of its top line revenue on R&D every year. The government’s plans to introduce changes to the R&D Tax incentive and cap the cash refund available to companies with an annual turnover of less than $20 million may be a cause of concern for a number of startups with a similar, or higher, commitment to R&D spend like us.
“With the government making it harder for businesses to access the R&D tax break, this will make it harder for disruptors to continue to innovate. Innovators are nimble and fast moving in nature and want support from programs not bureaucracy and red tape to tie them down.
“However, on the flipside, greater transparency around who is claiming the R&D incentive will promote public accountability for those benefiting from taxpayer support, and make sure the funds are really driving Australian innovation forward.”
Peter Cook, CEO of Novatti: “I welcome the government’s focus on increased enforcement focus of financial services companies, however I hope that regulators do not go for easy wins against smaller companies who do not have the financial resources to fund extensive legal and lobbying campaigns”
“Smaller agile and innovative fintech companies can bring great technology and processes to drive great price and service outcomes for consumers. However, we are at risk of over zealous regulators who go for easy wins against smaller companies who do not have the financial might to stand their ground. The regulators would then essentially become an unwitting partner of the banking status quo.”
Philippe Odouard, MD of Xtek: “The way the R&D is treated in this budget is not damaging the SMEs who keep their previous entitlement. The cap of $4m refundable for companies below $20m turnover is fair. It is 20% of R&D which is very high by any standard. The balance above that is still deductible from future tax, but not refundable. The higher level of deduction dependent on intensity is also fair as high R&D intensity is hard to justify to your shareholders and rewarding higher investment in R&D.”
Michael Jankie, CEO, PoweredLocal: “The R&D tax limitations are a terrible idea as they were an ideal incentive. Spending money on Australian research and development to get some of it back provides magnitudes of benefits.
Gareth Gumbley, CEO, Frollo: “We are generally in support of the announcements in the Federal Budget. We are particularly pleased with the confirmation of an Open Banking regime, a system that will make it easier for Australia’s technical innovators to develop products which can securely access a user’s transaction data with their consent.
“That said, we are against the Government announcement of research and development tax limitations. The current system incentivises not only startups, but large companies with impressive budgets, to reinvest into their growth of Australia’s technology sector.
“Australia has been a pioneer in an impressive suite of R&D projects across all industries and it will be detrimental to remove the incentive. Some large organisations which inject funding into our economy may also take their projects into havens with more favourable tax benefits.”
Angus Sedgwick, MD and CEO of The Invoice Market (tim.): “The changes to Anti-Phoenix laws will have the most significant impact on SMEs and will stop them from being cheated by other businesses who don’t have their affairs in order. This not only impacts SMEs, but their employees and suppliers who pay the price of dodgy businesses not paying their invoices.
“Cash flow is one of the biggest determining factors of a business’s success and if they’re not paid in a timely manner, they may go under. This has a ripple effect for the wider economy and we welcome changes that address this issue.
“This has largely been a conservative budget, focusing on households through personal tax cuts and aged care investment but we would have liked to have seen more to help SMEs to grow the economy. This could be done by making the instant asset-write off scheme a permanent feature of the budget.”
Simon te Hennepe , CEO of TRAVLR: “For Australia’s startup space to continue to grow and accelerate we needed better investment and greater innovation from this Federal Budget to offer tangible, financial support to startups. Providing more big picture thinking to the startup space and it’s potential and looking into specific technologies further that benefit consumers and provide growth industries.
“There was also no mention of travel within the Federal Budget which is a major industry, how could one of the countries biggest revenue providers be so overlooked? Further investment in Australia’s startup space and its travel sector is a win win for both growing companies and consumers and it’s definitely a weak spot within this years 2018 Federal Budget. It could have been a real opportunity to show how progressive this leadership is, but it’s a stagnant budget for many startups across the country with little to no further benefits.
“Whilst the allocation of $2.4 billion to tech and science in the 2018 budget is welcomed news – it’s not defined clearly who are the real winners and losers from this allocation of funds. It’s a step in the right direction but is it really enough?”
James Chin Moody, CEO and Co-founder of Sendle: “Small businesses are central to the prosperity and long term success of Australia, and it’s encouraging to see the 2018 budget preparing our country for a future that counterbalances the big end of town with the thriving small business ecosystem. The extension of the $20,000 instant asset write-off and the investment in the $20 million SME export hubs will give this important sector a much needed leg up and help them invest for growth and tap into expansion opportunities overseas.”
Robbie Cooke, CEO of Tyro: “SMEs are the backbone of the Australian economy accounting for 33% of Australia’s GDP, employ over 40% of Australia’s workforce, and pay around 12% of total company tax revenue. For this reason, it’s important SMEs are front and centre of business policy making in Australia. *
“The 2018-19 Budget made some positive advances in this area and overall it was very encouraging to see the Treasurer highlight the importance of the small business community early on in his speech. These comments were backed up by action with numerous SME-friendly initiatives identified within the Budget – from extending the tax write-off to assisting SMEs expanding overseas and exporting, plus maintaining previously announced tax cuts.
“Tyro is a champion of SMEs. With cash flow being one of their greatest challenges, what we would like to see is the payment terms between SMEs and big business as was addressed by the Government in late 2017.”
About “Let’s Talk…”
This exciting new, weekly initiative provides entrepreneurs and industry experts with a forum to share rapid-fire views on a range of issues that matter to start-ups and SMEs. Every Wednesday, we pose a themed question to a line-up of knowledgable industry figures, with a view to picking their brains for valuable insights to share with you, our readers.