2021 Federal Budget: The Pandemic Budget

Treasurer Josh Frydenberg tonight handed down his third, and possibly his most important, Federal budget. Dubbed the “Pandemic Budget”, this budget seeks to sustain the economy through these uncertain times.

From a business perspective, the emphasis of this budget is very much on recovery and continued efforts to boost economic activity and drive down unemployment to below pre-pandemic levels. To achieve this, tax measures have featured heavily. Consistent with recent budgets, there are a number of measures around infrastructure spending and stimulating the economy and job growth, however this hasn’t necessarily translated into new or significant business grants and assistance.

Innovation

In the October 2020 Federal Budget, the government delivered a major backflip with respect to the R&D Tax Incentive, scrapping proposed changes to clawback spending on the program and instead making the program more generous. This highlighted the government’s dependence on the R&D Tax Incentive as its key driver for innovation.

The reducing support for R&D and innovation over previous years, has led to Australia becoming an importer of new technology rather than an exporter, which is particularly problematic during and in the aftermath of a pandemic. We are therefore pleased to see the introduction of a patent box tax regime that will provide tax concessions for Australian medical and biotechnology innovations. This initiative has been in the pipeline for a long time and will now come to fruition.

The regime will encourage innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, rather than the regular tax rate of 25%-30%, from 1 July 2022. Whilst the patent box will initially apply to income derived from Australian medical and biotechnology patents, the Government has flagged that it could be extended to the clean energy sector.

The Government will also establish a $54.2 million Global Science and Technology Diplomacy Fund to support strategically important science and technology collaborations with global partners.

Tax Benefits for Business

The Government will extend the full expensing measures introduced in the 2020-21 budget. Businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired for their business until 30 June 2023. The 12 month extension will provide eligible businesses with additional time to access the incentive.

Taxpayers will also be able to self assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.

The government will also allocate $18.8 million for a Digital Games Tax Offset to provide a 30% refundable tax offset for qualifying Australian digital games expenditure.

The Government will extend the temporary loss carry back provisions introduced in the previous budget. Losses incurred to June 2023 will 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.

Digital Economy Strategy

The Government will provide $1.2 billion for the Digital Economy Strategy, to support Australia to be a leading digital economy and society by 2030.

This includes enhancing Artificial Intelligence (AI) capability through $53.8 million to create a National AI Centre and four AI and Digital Capability Centres, $33.7 million to provide grants to businesses to work with the Government to develop AI based solutions to solve national challenges and $12 million to deliver co funded grants to support community and business driven projects that build AI capabilities in regional areas.

The government will also invest in emerging aviation technologies through the $32.6 million Emerging Aviation Technology Partnerships program. $43.8 million will be allocated to expand the Cyber Security Skills Partnership Innovation Fund and $22.6 million will be used to establish the Next Generation Emerging Technologies Graduates Program to provide up to 234 scholarships in emerging technologies areas.

Support for the Regions

The Government will provide $348 million to support a number of regional initiatives. This includes $256.5 million to support construction of community infrastructure through Round 6 of the Building Better Regions Fund and $84.8 million for the Regional Connectivity Program to support the delivery of reliable, affordable and innovative digital services and technologies in regional and remote Australia. $6.1 million will also go towards establishing the Rebuilding Regional Communities program to assist community organisations and small enterprises in regional Australia to recover from the impacts of COVID 19.

Agriculture, tourism and drought affected areas will see a continuation of most existing support programs.

Environmental Measures

The Government will provide $11 million to further stimulate and incentivise recycling behaviours among Australian businesses and communities which includes: $5.9 million to conduct a further grant round of the National Product Stewardship Investment Fund

$59.8 million will also be provided to deliver grants in partnership with states and territories through a Food Waste for Healthy Soils Fund to enhance existing organic waste and processing infrastructure and make better use of this resource.

From an energy perspective, the Government will provide $50 million to establish an early stage seed capital financing function within the Australian Renewable Energy Agency. $1.6 billion will also go towards to incentivise private investment in priority technologies, which includes $1.2 billion to create a technology co investment facility that supports the development of regional hydrogen hubs, carbon capture, use and storage technologies, very low-cost soil carbon measurement and new agricultural feed technologies.

Support for Women

In its third Women’s Economic Security Package, the Government has provided $1.8 billion to improve women’s workforce participation and economic security. The package includes $1.7 billion to improve the affordability of childcare for low and middle income earners.

The remaining funds include $42.4 million to establish the Boosting the Next Generation of Women in STEM Program by co funding scholarships for women in STEM in partnership with industry and $38.3 million to increase grants for the Women’s Leadership and Development Program. $2.6 million will also go towards expanding the Career Revive program to support more medium to large regional businesses attract and retain women returning to work after a career break.

Brewers and Distillers

The Government will increase the support available to brewers and distillers by aligning the excise refund scheme for alcohol manufacturers with the wine equalisation tax producer rebate. Eligible brewers and distillers will be able to receive a full remission of any excise they pay per financial year.

In conclusion

As expected, the Government has delivered another large budget deficit as it continues its effort to support economic recovery. The focus has been primarily about income tax cuts for businesses and individuals and general business support through government assistance program but there were no major changes or additions to business grants.

Our Grants Extract from the Budget Papers is accessible to GrantGuru subscribers here.