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Back In Black - Are Small Business Owners Celebrating After This Week's Budget?

The Team - Thursday, May 13, 2010
The Main Budget Issue

The main deliverable from this budget is a return to surplus in 3 years instead of the forecast 6 years.

However, this budgeted result is dependent on the strength of our trading partners - something over which the Government has no control - and the belief that the new resources rent tax will deliver a whopping increase in revenue within 3 years, without reducing economic activity by causing the miners to head elsewhere.

Responsible Economic Management or Luck?

As no one was expecting much in the way of handouts from Tuesday's budget, apart from all the usual interest groups who feel compelled to put out a press release following the annual budget, no-one was particularly surprised or disappointed.

The main message the Government wants to spread is its claim to responsible economic management. And it is now removing the stimulatory measures which pump-primed the economy during the GFC (and which may have protected Australia from the kind of economic basket case much of Europe has become) and reducing the budget deficit so that Australia is forecast to be back in the black within 3 years

Forget about smokes, $8 extra take home pay and all the marginal issues, the main game is the elimination of the current budget deficit of $57bn within 3 years instead of the 6 years previously forecast.

Although the economic cards may have fallen in Australia's favour, whether this is due to the stimulus package or largely because we are a resource based economy with a strong banking sector, many commentators believe that the Government's inability to transact basic business (insulation, school building program) without reeking havoc will not be easily forgotten of forgiven.

So what's in it for small business?

Directly, not very much:

- Company tax for small businesses will reduce from 30% to 28% from the 2012/13 tax year
- Also in that year, there will be some accelerated depreciation benefits, the main one being the ability to write-off assets under $5000 in one hit. This is not a cash benefit as such, but has a cash flow timing advantage.

Employment Costs Will Increase

Commencing on 1 July 2013, superannuation contributions are to gradually increase from the current level of 9% to 12%. Meanwhile wages are expected to grow by 3.75% in the 2010/11 year and 4% in the following year. The theory is that employees wear the cost of the increased super contributions in lower wage increases. In the real world, where small business is competing for quality employees, the cost of employment will go up.

In addition, unemployment rates are forecast to be around 5% in the coming 3 years which means a tight labour market for most small businesses

Of course, the health of the small business sector is largely in the hands of big business and small business owners rely on big business continuing to grow, invest, employ and spend.

Finding and retaining qualified staff remains a major problem for many small businesses. The proposed investment in training and apprenticeships is welcome but any benefits are likely to take several years to percolate down to you as a small business owner.

Still Waiting For the Government to Provide Real Small Business Assistance

Overall not much direct help for you in this budget.  As a small business owner we're sure you that you have never expected much from any government. Your business fortunes rise and fall based on your strategic insight and your ability to provide quality goods and services at the right price to a willing market. And you have to be expert at all aspects of running a small business in order to succeed!

There are some niche businesses which stand to benefit. These include training, primary health care, renewable energy and education and if you can see some tactical advantage in aligning your business with the potential winners from this budget then there may be some long term gains to be made.

The best any of us can hope for is that successive Governments will get out of the way and allow us to continue to do what we do best with a minimum of red tape and interference.

We would welcome your comments below on how the current economic climate and the budget initiatives may affect your business.

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