The 2018 Budget | How Will It Affect Employers?
Another budget, another few weeks spent working out how it will affect you. We are committed to making things easier for employers at JobGetter. We know running a business is time consuming and following along with every aspect of the budget can take all week! So, to save you the trouble, we’ve analysed treasurer Scott Morrison’s 2018 Australian budget and worked out exactly what it means for you.
The economy is expected to grow at 3% over the 2018-19 period. This is slightly more than the 2.75% growth in 2017-18. Although the Mining Boom has all but petered out, it has allowed new industries to pick up the slack. Late 2017 saw growth in non-mining investment and household consumption.
This growth has surpassed expectations with the strong economy bringing in $11 billion more than expected last year. Employers also benefited in this climate and were able to offer 367,000 new jobs in the 2017-18 period.
A Return to Surplus
Aside from the cuts to personal income tax the other oft mentioned aspect of this budget is the long-promised return to surplus. The government has predicted a surplus of $2.2 billion by 2019-20 thanks in part to strong economic growth. Raising the economy further has taken precedence over more active measures to reduce the debt. This will have the effect of reducing the relative size of Australia’s debt which is projected to reach $350 billion by 2018-19.
Mature workers have great skills and experience but often struggle to find employment in their chosen industry. To combat age discrimination and get more mature workers into jobs employers who hire older Australians will receive a $10,000 wage subsidy.
The 2018 budget has the Black Economy in its crosshairs. As of 1 July, paying in cash for goods and services worth over $10,000 will be banned. Instead, payments will have to be made electronically or via cheque.
In order to help fund the other aspects of the budget, a Black Economy Taskforce will be set up. It will focus on reducing incidents of and recovering money lost due to under-reporting income. The government claims that over the next four years, this will bring in $5.3 billion in lost tax.
Phoenix activities will also be more carefully watched and stricter laws will be enforced. A hotline will be established that will allow community members to more easily report phoenix or black economy activity.
This year’s budget saw a few changes to the current PAYG system. From 1 July 2019, businesses won’t be able to make tax deductions for payments to their employees if they haven’t withheld required PAYG.
Similarly, businesses that aren’t withholding PAYG to contractors that don’t provide an ABN won’t be able to make deductions. Although the budget doesn’t make it clear, presumably the payments would become tax deductible again following the business addressing the PAYG and ABN issues.
Focus on Small to Medium Business
In his 2018 budget address, Scott Morrison identified five things that he wanted to focus on to “further strengthen our economy to guarantee the essentials Australians rely on.” If you recruit for or own an SME, you’ll be pleased to hear that the government is thinking of you. The second key focus area for this year’s budget was that the government would “keep backing business to invest and create more jobs.”
Even better, Morrison said he wanted to focus especially on small and medium businesses.
Small, Medium, Global?
Helping SMEs sounds good but what does it mean in practice? One way is that the government is investing $20 million into SME Export Hubs. Historically, small businesses import more than they export. The Coalition wants help them unlock their potential and go global and export Australian products to the world.
Asset Write Offs Extended
One way the 2018 budget plans to tackle this is by extending the $20,000 instant asset write off for eligible small businesses. Originally expected to end 30 June this year, the Coalition has lengthened the programme for an additional 12 months. Businesses with a turnover of less than $10 million will continue to be eligible to deduct assets worth up to $20,000 in full. This assumes the asset is first used or installed and ready for use by 30 June 2019. Businesses should be aware that in-house software and horticultural plants aren’t eligible assets. The scheme has specifically excluded both from future claims.
Depreciation Pools Continued
Simplified depreciation pools will continue to be eligible for instant deductions as long as the balance is less than $20,000. The government will continue the current system where pools will depreciate at 15% for the first year and 30% each year afterwards. If a business chooses to leave the simplified depreciation regime they will be prevented from re-joining the regime for five years.
Corporate Tax On Track
The Ten Year Enterprise Tax plan is still going ahead. The Coalition has shown that the 2018 budget is still focused and committed to reducing the corporate tax rate to 25% for all corporations by 2026-27.
This plan also involves cutting the tax rate of businesses that earn less than $50 million a year to 25.7%. The government has also extended the entity turnover threshold for small businesses. Previously it was $2 million, but is now $10 million. Although the government has recently experienced some difficulty in the House of Representatives, the Ten Year Enterprise Plan seems to be back on track.
Research & Development Gets an Overhaul
The Coalition has rejigged the way that R&D expenses can be claimed.
Businesses that devote less than 2% of their expenses of R&D will only be able to claim a maximum tax offset of 4% above the company tax rate. This is a large step down from the previous 8.5% that was applied as a blanket rule previously.
The big end of R&D town will catch a much better break. Companies that can afford to spend more than 10% of business expenses in research and development can claim up to 12.5% above the company tax rate. Although this could be a great incentive for some businesses, it makes an already-complicated process more so. It could also lead to companies pursuing R&D operations overseas according to some experts.
Other government initiatives to increase R&D involve establishing schemes to help industries cope with the end of car manufacturing in Australia. $47.5 million has been set aside for the Advanced Manufacturing Growth Fund to boost manufacturing.
The 2018 budget is extremely focused on the future of development and research in Australian. The government will support small scale and pilot research to help accelerate research from early stage to advancement commercial opportunities. Additionally, future investment plan for 2030 will be commissioned to guide future innovation and research.
Some are concerned however about the focus on research rather than actual development.
Growing Talent Pool
Some industries are acutely aware of how hard it is to find experienced and skilled workers. Thankfully, the government has pledged an additional $250 million to support apprenticeships and traineeships. The Skilling Australians Fund will be used to help prepare people coming into the workforce.
Veterans are also a group in need of additional assistance. Since 1999, more than 30,000 men and women under 35 years old have come back from serving overseas in the military. You may be shocked to find out that veterans are unemployed at more than five times the national average. These Aussies often have valuable skills and training that can be a benefit to many employers. The 2018 budget has set aside $8.3 million to get more Australian vets into the workforce.
Similarly, $89 million will go towards creating 40,000 Transition to Work places to help support at-risk youths. Preventing these 15-to-21 years olds from falling into the trap of long-term unemployment makes smart business sense. These young people will become part of a larger skilled labour pool. By getting them into work, it changes them from being in need of support to being providers.
What the 2018 Budget Means for Employers
As per usual, the budget has created considerable talking points. The more cynical amongst the Australian media and political pundits are labelling this budget as the Coalition’s last ditch effort to regain momentum before the elections. Kinder reporters have celebrated the tax breaks and the ambitious nature of the budget. Some of the biggest changes in the budget will take several years to fully come into effect.
It’s worth bearing in mind that in order to enact some of the bigger changes that the 2018 budget is trying to bring in, the Coalition will need to win at least two further elections. This precarious situation offers less security than some people would like.
Although gains to businesses are only modest, the 2018 budget offers hope for employers. The support for SME business owners and the assistance given to both younger and older workers will help ensure the strength of the Australian employment economy.