The theme of the Federal Government’s 2012/13 budget, announced last night, was restraint. In order to turn a $47.7bn deficit from 2010/11 into a $1.5bn surplus next year and beyond, the Government was forced to put forward a fiscally restrained and short-term budget.
The result was a budget focused on cost cutting and support for lower income earners.
Struggling small businesses were served up three new reforms aimed at reducing tax liabilities: the loss carry-back scheme, allowing small businesses to claims losses of up to $1m against tax paid in the two years previous; a raise of $5500 to the instant asset write-off threshold, bringing it to $6500; and the introduction of the $5000 motor vehicle immediate write-off.
Small businesses are now also able to write off other assets excluding buildings in a single depreciation pool at a rate of 30 per cent, 15 per cent in the first year.
However, the Government’s promised 1 percent cut to the company tax rate did not appear. The Government initially forecast a drop to 29 percent despite the Henry Tax review recommending a company tax rate of 25 percent.
Treasurer Wayne Swan cited opposition from the Coalition and the Greens, vowing to fight on for a decrease in the next Federal Budget. Scrapping the cut delivered $4.6 billion of the government’s $34 billion in savings.
But small business owners in the IT industry said tax cut or not, the Government had not done enough to look after businesses on the wrong side of the two-speed economy.
Channel Dynamics co-director Cam Wayland said he had seen nothing in the budget that would drive real growth. He told CRN Labor had focused on its traditional voter base and not much else.
“Low income earners aren’t huge customers of IT equipment,” he said. “The industry as a whole didn’t see anything positive for investing in the future and driving to be a more competitive environment. This is a mums and dads budget, it’s not for business.”
Wayland said the Government’s budget was a clear play at winning back disaffected voters, despite business needing stimulus to support growth in the overall economy.
“You’ve got to make it easier for small businesses to have confidence, hire people and spend money. It’s all very good carrying forward losses, but not everybody’s making a loss. If you’re making a profit, there’s nothing to stimulate business confidence.”
“Some of the cuts had to happen, but it’s about investing in Australia to build businesses. It is one of the industries that can improve productivity, and we need to invest in something more than just vote-buying.”
Solutions provider TechFlare Solutions supports a staff base of around 20 in several offices across Australia. It is an example of one of the small businesses the Government is targeting with its loss carry-back and instant write-off reforms. But managing director Geoff Olds doesn’t see the benefit to his business.
“If they really wanted to help small businesses, they’d look at stimulus measure, areas businesses can grow,” he said. “Virtual marketing is an example; that’s the first thing you do when you want to grow your business. Anything in that space where there could be write-offs or grants so businesses can legitimately grow.”
“I’d like to see the Government starting at the front of businesses rather than behind. I’m more interested in what happens at the start of the business year: it’s about growing your business and you don’t do that at the end of the financial year, you do that aggressively on July 1.“
Olds views the 2012/13 budget as short-sighted and tricky accounting.
“Small businesses don’t take in a huge amount of money. If the Government said for the first $50,000 you make, we’re not going to tax you, as a small business that means something,” he said. “Then small business owners will say ‘now I can afford to make a profit up to this rate, and it means the money will be in my back’.”
“The write-offs assume that businesses have money to spend on assets. If I look at my clients across a number of sectors, and say I want you to upgrade your network, a lot are pushing back because they are on the wrong side of the two-speed economy.”
Systems integrator Data#3 boss John Grant sits on the same side of the fence. He says he understands why the Government chose a fiscally restrained budget, but fears it is out of touch with small business.
“Bankruptcies are up 40 percent year on year, we’ve got businesses in many sectors under an enormous amount of stress,” he said. “I don’t think the Government realises how many business are struggling.”
Data#3 caters to government and medium to large enterprise clients. In February it reported a fall in net profit of almost 10 percent for the first half of 2012, blaming a market shift away from hardware and towards software and managed services. Grant predicts it is a trend that will continue at least until the next financial year.
He said despite the budget meeting his ‘“overarching expectations”, the Government lacked the foresight to provide much needed investment to stimulate business.
“The loss carry-back scheme is a creative initiative. It could keep those losing money going for longer, but you also need to stimulate business investment, you can’t cut yourself out of this. The write-offs are minor in the scheme of things,” he said.
“The budget sets a tone - short term fiscal and not much else. The investment is short term. This sort of budget does not stimulate strategic expenditure.”
Effect on IT spending
In terms of what the budget means for IT spending, IDC analyst Trevor Clarke told CRN it was largely in line with expectations.
“Whilst not a huge boon for ICT, there are many projects in the budget that will drive ICT investment,” he said.
“I would have liked to see a more coordinated big data approach considering the amount of data-related initiatives and also additional funding for high performance computing, which can provide significant boosts to the economy directly and from follow through benefits in many industries. But overall, it is a reasonable outcome for ICT.”
TechFlare's Olds is keeping his fingers crossed for a more small business-friendly budget in 2013.
“Every year small business hopes for something exciting, but the challenge is there’s so many small businesses, and so many that fail, so the Government just puts it in the too hard basket and targets something else.”