25 October 2020
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JobMaker doesn’t cut it but business measures are a boon!

Paul Rickard
8 October 2020

Would you go and hire a new staff member if you were to receive a wage subsidy of 24%?

That is the best-case financial outcome for employers under the Government’s new JobMaker programme, which will see eligible employers get a $200 per week wage subsidy if they hire a young person aged 16 to 29 years, or $100 per week if they are aged from 30 to 35 years.

It is the best case because the minimum wage in Australia for a full time employee is currently $753.80 per week. Add in super of 9.5% and that takes it to over $825 per week. And that’s not counting payroll tax, workers’ compensation insurance, indirect costs of employment and in many cases, an employer paying more than the minimum wage.

Sure, if you really needed a team member, you might go and hire a young person and pick up the subsidy. But if you were sitting on the fence, I don’t think 24%, which is only payable for a maximum period of 1 year, is enough.

Then there are the carve outs.

To be an ‘eligible employer’, the  business cannot be claiming the JobKeeper payment. It must be an “additional job”, which is fair enough, and is demonstrated by an increase in the total headcount and the wages bill compared to a reference period ending 30 September. Bad luck if your business has gone into a hole, or you are still enduring damage from the lockdown.

On the employee side, apart from being young, they need to have been in receipt of Government support for at least one month in the past three months before being hired. This covers the JobSeeker payment, Youth Allowance or Parenting Payment. Because of the Covid-19 crisis, there are some really talented kids on these benefits – but there are also some kids who just aren’t employable.

Interestingly, the Government says that around 450,000 positions will be supported through this program at a cost of $4 billion.  

The JobMaker Hiring Credit programme is one of several initiatives aimed at boosting employment and work readiness. There is a program to support 100,000 new apprentices and trainees, 50,000 higher education short courses, 30,000 additional university places in 2021 and a $1 billion JobTrainer Fund to support 340,700 additional free or low-fee training places for upskilling or re-training.

My issue with JobMaker is not the idea, I just think it is too stingy.  Maybe it will encourage some part time jobs (the minimum is 20 hours per week), but I can’t see employers readily embracing it for full-time positions. I hope I am proved wrong.

Two measures that will be a boon for business and lead to increased investment and new jobs are temporary full expensing (the old new instant asset write-off) and the temporary loss carry-back. These are expected to cost respectively $26.7bn and $4.9bn over 4 years, create around 50,000 jobs by the end of 2021-22 and boost GDP by $10bn in 2021-22.

Businesses with turnover under $5 billion, estimated to be 3.5 million in number and employing 11.5 million workers, will be able to deduct in full the cost of depreciable assets. This also includes the cost of improvements to existing depreciable assets.

There is no cap on the deduction and it will apply to assets purchased after 6 October 2020 and until 30 June 2022.

This should provide a major boost to the economy as businesses upgrade technology, purchase new equipment and invest in other productive assets. The cash flow boost from the immediate deduction will be welcomed by businesses – but that’s also the catch, this measure only works for businesses that are making a profit and paying tax.

The temporary loss carry back allows companies that were profitable, and are now doing it tough, to get a tax refund from the ATO. Losses incurred in 2019-20, 2020-21 and 2021-22 (effectively post Covid) can be carried back against profits made in or after 2018-19 (pre-Covid). If eligible, businesses may elect to receive a tax refund when they lodge their 2020-21 and 2021-22 tax returns.

Two caveats apply. Firstly, the company’s turnover must be less than $5 billion and secondly, it only applies to companies – partnerships and sole traders aren’t eligible.

The measure can be combined with temporary full expensing, making an investment in productive assets more achievable. The Government has provided the following example:

On 1 July 2021, Bogong Builders Pty Ltd purchases a truck mounted concrete pump for $1 million , exclusive of GST. The company’s taxable income for 2021-22 was $600,000 before the purchase. Without temporary full expensing, the company would claim a tax deduction for the first year’s depreciation of around $300,000, resulting in a taxable profit of $300,000 and a tax bill of $90,000 (30% of $300,000).

With temporary full expensing, the company will deduct the full cost of the asset of $1 million, resulting in a tax loss of $400,000. Under the temporary loss carry-back, Bogong Builders offsets this tax loss against profits in 2018-19, resulting in a tax refund of $120,000 (30% of $400,000). 

The two measures in combination have delivered a tax refund of $120,000 rather than a tax bill of $90,000. Without this boost to cash flow, the company may not have been able to purchase the truck.

That’s why these measures will create investment and boost jobs. They are a boon for business. Hopefully, JobMaker will also play its part.

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