Budget 2020-21: Key issues for directors

The federal government's 2020-21 Budget aims to acts as a circuit-breaker for business investment and job creation.

Where in previous years the federal government’s key budget objective was a return to surplus, the goal in this year’s budget — and those of the foreseeable future — is to bring down the unemployment rate.

The government won’t try to return to surplus until the unemployment rate is “comfortably” below six per cent, Treasurer Josh Frydenberg said on budget night, suggesting the economy will receive ongoing fiscal stimulus for several years to come.

Training and wages subsidies

• Support for 340,700 extra training places
• Wage subsidies for hires of the unemployed and apprentices

Training will receive a boost with the establishment of a $1b JobTrainer Fund, supporting up to 340,700 additional free or low-fee training places.

Funded 50/50 by the Commonwealth and states, the program will “ensure the vocational education and training (VET) system can play a critical role in supporting Australia’s future growth and prosperity”, says the government.

Additionally, as part of its JobMaker program, the government is providing 12-month hiring credit for unemployed workers taken on or before 6 October next year. Employees aged 16 to 29 will attract a credit of $200 a week, while those aged between 30 and 35 will attract a $100 credit.

Around 450,000 positions for young Australians will be supported through the JobMaker Hiring Credit at a cost of $4b.

The package also includes a further $1.5b to expand the wage incentive to increase hiring of apprentices. Any business or group that employs an apprentice or trainee after 5 October 2020 can qualify for a subsidy of 50 per cent of the wages paid to the apprentice or trainee until the end of September next year — up to a maximum of $7000 per quarter. The subsidy is paid in arrears and capped at 100,000 places.

More generous asset write-offs

• Instant write-off of the full value of an asset purchase

In an attempt to improve business cashflow and bring forward new investment to support the economy, the government will allow more generous asset write-offs for business. Businesses with a turnover of less than $5b will be able to deduct the full cost of eligible capital assets acquired from 7.30pm on 6 October (budget night) and used or installed by 30 June 2022.

For small and medium-sized businesses with annual turnover of less than $50m, full expensing also applies to second-hand assets.

Innes Willox, chief executive of the national employer association Australian Industry Group, said the move will provide a critical boost to investment, productivity and job creation.

“Without this measure the anticipated fall in non-mining business investment of 14.5 per cent in 2020-21 would be much greater and the measure is a significant factor in the anticipated rise of 7.5 per cent in non-mining business investment in the 2021-22 year,” he said.

More deductible business losses

• Deduction of business losses against previous profits, not just future profits

The government will permit businesses to offset tax losses against previously paid tax. It’s a significant reversal of the status quo, which usually requires companies to return to profit before they can access their tax losses.

Companies with a turnover of less than $5b can carry back tax losses from the 2019-20, 2020-21 or 2021-22 financial years to offset previously taxed profits in 2018-19 or later. The government says the temporary loss carry back will be available to about one million companies that employ up to 8.8 million workers.

Deloitte expects the business losses provision to work with the new asset write-off provision because, previously, companies that would otherwise have had tax losses they were carrying forward would be less likely to respond to that investment incentive.

Research & development subsidies

• $2b more for R&D, with an increased tax incentive refund rate and a higher refund cap

After a period of uncertainty, the government has backed off on most of the controversial amendments to the Research and Development Tax Incentive (RDTI), with revised changes now proposed from next July.

R&D investment in Australia has declined over the past five years, so the government is allocating an extra $2b to the RDTI to try to reverse the trend.

From 1 July 2021, businesses with a turnover of less than $20m will benefit from an increase in the refundable R&D tax offset rate to the company tax rate, plus 18.5 per cent — up from 13.5 per cent. Also, the $4m cap on annual cash refunds will be abolished.

Larger businesses will also receive higher refunds of the company tax rate and 8.5 or 16.5 per cent, depending on how much the company spends. The R&D expenditure threshold increased from $100m to $150m per annum.

The changes are essentially the same as those that were cancelled in last year’s budget and, according to law firm Clayton Utz, they offer “much-needed clarity and certainty”.

Infrastructure

• New and accelerated road, rail and broadband projects

The government says it has committed to investing an additional $14b in new and accelerated infrastructure projects over the next four years, in the budget and as part of its earlier COVID-19 response.

Spending will “kickstart our economic recovery by providing important stimulus for the economy while delivering the infrastructure Australians need now to address congestion in our cities and save lives on regional roads”.

Along with road and rail projects, the government is committing $4.5b to the National Broadband Network for ultra-fast broadband services, $250 million to accelerate electricity transmission links and $2b for new projects under the National Water Infrastructure Development Fund.

State and local governments will receive an extra $3b for “shovel-ready projects”, including $2b for small-scale road safety projects and $1b for the Local Roads and Community Infrastructure Program.

EY calculates the new infrastructure spending at $10b but says the infrastructure spend — including direct spend and capital grants to state governments — as a proportion of GDP is about half that seen in the FY10 budget.

Manufacturing

• Focus on translating research into commercial outcomes and bringing new products to market

Six key sectors have been earmarked for support under the $1.5b Modern Manufacturing Strategy: resources technology and critical minerals processing; food and beverages; medical products; recycling and clean energy; defence; and space.

The five-year strategy will focus on investment in projects aimed at building long-term business collaboration at scale, translating research into commercial outcomes and bringing new products to market, and integrating local firms to deliver products and services into global value chains. The Australian Chamber of Commerce and Industry said the strategy recognises the need to scale up our first-class research into industries that are competitive on the world stage.

The government is also spending $107.2m to identify and address critical supply chain vulnerabilities after they were exposed by the COVID-19 pandemic.

Key governance initiatives

Christian Gergis GAICD, head of policy at the AICD, and policy adviser Laura Bacon break down the budget implications for boards.

Virtual AGMs and electronic execution

In an important step towards the modernisation of Australia’s ageing corporations law framework, the government has committed to making permanent the temporary COVID-19 reforms that allow companies to hold virtual AGMs and execute documents electronically. In doing so, it has gone further than its recent announcements to conduct a public consultation. This move will be applauded by stakeholders, including the AICD, which has seen real efficiency and participation dividends from the COVID-19 experience and pushed for the temporary reforms to be made permanent.

Digital Directors training package

The government has unveiled a new Digital Business Plan, investing $796.5m over four years, to further drive Australia’s progress towards becoming a leading digital economy by 2030 and to improve productivity, income growth and jobs through supporting the adoption of digital technologies by Australian businesses.

It has also committed funding for a Digital Directors training package to address identified skills gaps at the board level. Essential elements of the Digital Business Plan:

• Another $419.9m to enable the full implementation of the Modernising Business Registers program (providing infrastructure for the new Director Identification Number regime commencing in 2021), allowing businesses to quickly view, update and maintain their business registry data in one location
• Funding of $3m over four years from 2020-21 to develop a Digital Readiness Assessment tool to help businesses self-assess their digital maturity and support leaders of Australian organisations in improving their digital literacy and decision-making
• Another $2.5m in 2020-21 to support an industry-led Digital Skills Finder Platform enabling Australian workers and small to medium enterprises to easily find digital skills training courses for reskilling and upskilling in digital literacy.

The Digital Business Plan measure builds on the objectives of Australia’s Cyber Security Strategy 2020 announced in August. The government will invest an additional $201.5m to deliver a number of initiatives, such as enhancing law enforcement agencies’ capabilities to combat cybercrime (including through improved coordination across the states and territories), support for industry and academia to develop innovative approaches to lifting cybersecurity skills and long-term workforce planning, as well as improving cybersecurity resilience of SMEs.

Superannuation

The budget outlines a further set of reforms for the superannuation sector aimed at increasing trustee accountability by strengthening their obligations to ensure trustees act only in the best financial interests of members. The government will also require super funds to provide “better information regarding how they manage and spend members’ money” in advance of annual members’ meetings.

The AICD looks forward to seeing more detail on the proposed reforms in what is the latest government step in addressing perceived governance weaknesses in the sector.