The Turnbull government has opted for a traditional big-spending pre-election budget handed down at 7:30pm on Tuesday 3rd May. According to Crikey, this budget blows out deficit, and Australia won’t return to surplus until at least 2020-21. In 2019-20 the budget will still sit at $6 billion in deficit — around the same amount last year’s budget forecast for 2018-19.
But the upside is small and medium-sized businesses have come out on top, receiving extended company tax breaks and a surprise extra tax cut.
On the flipside, large multinationals are facing a crackdown. The budget is certainly skewed to small and medium-sized businesses in 2016.
What you need to know as a small to medium-sized business owner
According to ABC, small to medium-sized business will receive a pre-election tax cut - company tax rates will drop to 27.5 per cent from July 1 this year. That’s a further 1 percentage point reduction for small businesses with annual turnover less than $2 million, which already had a 1.5 percentage point tax cut last year. The threshold for the 27.5 per cent tax rate is planned to rise from $10 million to $25 million on July 1 2017, to $50 million in 2018-19 and $100 million in 2019-20.
25 per cent corporate tax within 10 years
In a second stage, the Government plans to keep raising the maximum turnover threshold for the 27.5 per cent corporate tax rate until all businesses are included in 2023-24. By 2026-27 the Government intends to lower the corporate tax rate to 25 per cent for all businesses (ABC).
All small businesses with a turnover of less than $10 million will also be eligible for the instant tax write-off for equipment purchases of up to $20,000 made next financial year.
According to the ABC, these tax cuts and other measures will cost the Government $5.3 billion in lost revenue over the next four years, but Treasury claims company tax cuts will boost Australia's economic growth over the long term by approximately 1 percentage point.
Conversely, the Government is cracking down on multinational companies evading tax. According to Crikey, ‘there will be a 40% tax on diverted profits. The government is strengthening transfer pricing rules and will raise the penalty for multinationals with global revenues over $1 billion for failing to adhere to tax disclosure obligations from $4500 to $450,000. Some $679 million has also been given to the ATO to establish a “Tax Avoidance Taskforce”’.
But according to Business News Australia, founding director and chairman of StartupAUS Peter Bradd offers criticism of the 2016 budget, describing it as a missed opportunity to advance the startup agenda in the country. He said that tax cuts are not the only answer to a flourishing Australia.
"The budget address contained a lot of rhetoric around jobs and growth," he says.
"The reality is, both jobs and growth and our national economic advantage won't come from savings or these tax cuts alone, it will come from innovative business practices within existing businesses and startups.”
He added the budget does not address this question.
As part of this year's budget, we additionally list winners and losers via Crikey.
Winner: Public hospitals receive an extra $2.9 billion in 2017-2018
Loser: According to New Matilda, Scott Morrison’s 2016 budget strips $1.4 billion from higher education funding, leaving universities facing renewed uncertainty.
Winner: Anyone earning between $80,000 and $87,000 will receive a tax cut following a middle income tax bracket raised from $80,000 to $87,000
Loser: Anyone earning less than $80,000, receives no tax cut.
Winner: Commercial broadcasters score $163.6 in reduced licencing fees.
Loser: The ABC loses approximately $5 million per year over the next four years.
There will be GST on online purchases; shopping on Amazon loses its tax-free appeal.
Negative gearing, which many people claim is at least partially responsible for Australia’s inflated housing prices, stays.
All in all, small businesses have come out on top in the Turnbull government’s first budget with tax cuts and extended company tax breaks.