2020 Federal Budget: All about recovery
COVID-19 has shifted not only the Australian economy but our society as a whole. As we find ourselves in the middle of a once-in-90-years recession and a once-in-100-years pandemic, never before has a Federal Budget been more relevant to our everyday life than this one.
In an effort to boost economic activity, Tax measures have been a major feature. Consistent with recent budgets, there were a number of measures around infrastructure spending and stimulating innovation and job growth, however this hasn’t necessarily translated into business grants and assistance.
A Return to the Innovation Nation
Late last week Prime Minister Scott Morrison flagged that fresh changes to the government’s controversial plan to cut $1.8 billion from the research and development tax incentive were coming and the budget did not disappoint.
The current regime which provides a 43.5% refundable tax offset to companies with an aggregated turnover of less than $20 million and a 38.5% non-refundable tax offset to larger companies will continue to apply to 2019/20 and 2020/21 financial years, creating much needed certainty.
An extra $2 billion will be provided in research and development incentives from 1 July 2022. For small claimants with a turnover less than $20 million, the Government will increase the refundable R&D tax offset to 18.5 percentage points above the claimant’s company tax rate, and the cap on refunds will be removed.
Non-refundable offset rates are also set to increase for companies with an aggregated turnover above $20.0 million through a two tier intensity measure that will provide greater certainty for R&D investment while still rewarding companies that commit a greater proportion of their business expenditure to R&D.
In line with innovation support, the government will also provide $459 million extra funding to the CSIRO, $1 billion in extra research funding for universities and $1.9 billion in new funding to support low emissions and renewable technologies.
Made In Australia… Again!
As part of the $1.5 billion Modern Manufacturing Strategy, the government has unveiled a suite of programs to help Australian manufacturers scale-up, become more competitive and resilient and create jobs. Funding will support manufacturers in six priority areas: resources technology and critical minerals processing; food and beverage manufacturing; medical products; clean energy and recycling; defence industry; and space industry.
The majority of this investment will be delivered through the $1.3 billion Modern Manufacturing Initiative, which will see the Government strategically invest in projects that help manufacturers to scale up and create jobs.
The Strategy will also address the competitiveness of individual manufacturers in the priority sectors, with a $52.8 million expansion of the Manufacturing Modernisation Fund. A new $107.2 million Supply Chain Resilience Initiative will support projects that address an identified supply chain vulnerability.
Earlier in the year – in response to the pandemic – the Federal government committed around $50 million to the EMDG scheme on top of funds already committed through the budget. In addition to this the Government will simplify and reorient the EMDG Scheme to more effectively support export-ready small and medium enterprises.
For further information about the recent changes to the EMDG scheme see our article here.
The Government has also established a $500.0 million COVID-19 Export Capital Facility (the Facility) to provide loans of between $250,000 and $50.0 million for previously profitable export and tourism businesses that are unable to obtain commercial finance.
Support for Women
COVID-19 has left women economically disadvantaged through unemployment (Job losses for women have been at nearly five times the rate as for men), underemployment, lowered incomes, less secure work and greater household and family demands. Part of the Government’s response to this will be to provide $231.0 million through its Second Women’s Economic Security Package.
The package includes $47.9 million to increase grants for the Women’s Leadership and Development Program and $35.9 million to support women-founded start-ups under the Boosting Female Founders Initiative and to provide access to expert mentoring and advice for women entrepreneurs. Women in STEM will also benefit from $25.1 million to establish a Women in STEM Industry Cadetship program and $14.5 million to extend existing initiatives that support girls and women to gain STEM skills and capabilities.
Whilst these measures won’t do a lot to reduce the significant impact the pandemic has had on women, they will provide welcome opportunities for women entrepreneurs and women in STEM.
Additional Victorian Support?
State-based grants such as the Business Support Grants are generally considered taxable income by the Commonwealth. Given the exceptional circumstances Victorian businesses face, the Government will make the Victorian Government’s business support grants for small and medium business non-assessable, non-exempt income for tax purposes.
Tax Benefits for Business
The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired for their business until 30 June 2022.
Losses incurred to June 2022 will also be able to be offset against prior profits made in or after the 2018-19 financial year generating a refundable tax offset in the year in which the loss is made.
Businesses will also be encouraged to retrain or re-skill employees who are moved to a different role in the business, as they will no longer have to pay Fringe Benefits Tax (FBT) on this. And those with an aggregated annual turnover between $10 million and $50 million, will also have access to up to 10 tax concessions including an exemption from FBT on a number of items.
The Government will provide $4.0 billion over three years from 2020-21 to accelerate employment growth through a hiring credit. Eligible employers who can demonstrate that the new employee will increase overall employee headcount and payroll will receive up to $10,400 if they hire an eligible employee aged 30 to 35 years.
Supporting Regional Australia
The Government will provide $552.9 million over four years to support a number of regional initiatives. This includes $207.7 million to support construction of community infrastructure through Round 5 of the Building Better Regions Fund (BBRF) and $28.1 million for round 6 of the Stronger Communities programme which provides funding of between $2,500 and $20,000 for small capital projects that deliver social benefits for local communities.
$51.0 million will go towards assisting regions heavily reliant on international tourism by stimulating tourism business recovery and tourism job retention and creation in regional Australia. This funding will support tourism businesses to grow their markets and diversify into new products until the international tourism market recovers.
Recycling will get a $250 million boost for better infrastructure, in an attempt to address more than 600,000 tonnes of waste ending up in landfill while at the same time creating 10,000 jobs.
The government will also deliver $1.9 billion in new funding to support low emissions and renewable technologies by continuing to fund the Australian Renewable Energy Agency (ARENA), expanding the investment mandate of the Clean Energy Finance Corporation.
After delivering a surplus budget in 2019, the Government has delivered the biggest budget deficit in modern Australian history as the government tries to kickstart the economy.
The focus has been primarily about income tax cuts for businesses and individuals and general business support through government assistance programs. Apart from changes to the R&D Tax Incentive and the Export Market Development Grant alongside significant investment in Manufacturing, there are no other notable changes tor additions to business grants.