By Tim Reed
It’s been the buzz word for months. The “small business package” has been at the forefront of political discussion, headlining every news outlet since its announcement in May 2015. And rightly so. For the first time in a decade, the Government prioritized small businesses by putting them at the heart of government policy.
The centerpiece of the policy was a $20,000 tax break that allowed businesses with annual turnover under $2 million to claim immediate tax deductions for as many sub- $20,000 purchases as they choose until June 30, 2017. It feels like “back to a better future” could be the motto of the Liberal government. The announcement signified a reversal from last year, when the Government reduced the instant tax deduction for assets costing up to $6,000 to a lower limit of $1,000.
As a result, the spotlight is now on this important group. But three months since the announcement, has it received the anticipated reception? Has it got small business owners spending; subsequently stimulating investment; bringing forward planned hires and driving an increase in productivity and business confidence?
Over the last three months, we monitored the finances of a group of 30,000 MYOB customers to understand if there had been any changes year on year, since the introduction of the instant tax break. The results indicate some reservation. At the end of June 2015, these businesses showed no increase in spending. In fact, MYOB in-house data revealed that the net outflow of our customers between May and June 2015 was 40 percent less than that of May and June in 2014.
So, why has this happened and what impact does it have on the success of the policy?
Firstly, we saw an immediate jump in business confidence. The National Australia Bank monthly business survey for June revealed that business confidence rose from 8 to 10 points in June 2015, its highest level since September 2013. If this policy did nothing other than deliver a much-needed shot in the arm to business confidence, it is a win.
Secondly, quality feedback indicates that many SMEs do intend to utilise the $20,000, but rather than be trigger happy, they also thinking strategically about the right time to purchase items and taking into consideration their current cash flow. This demonstrates the maturity of small business owners, as well as the success of the policy to help SMEs grow and thrive.
The Government now has an opportunity to lop a particularly nasty piece of red tape for small businesses – the requirement for coding GST-free transactions into one of eight categories. If we took a simpler approach, as they do in New Zealand, it would more than halve the time it takes small business to complete GST reporting, and slash the $13.7 billion time cost to business that we estimate.
The federal Budget presented an opportunity for the Government to remove many obscure federal taxes to create an environment more attractive and conducive to doing business. Our small business operators are saying ‘bring it on’ when it comes to tax reform, and we’re right there with them. If our small business sector is to flourish, we can’t shy away from taxation reform.
With the taxation review well underway, we’re hopeful the Government will lead the way in creating a simpler, more effective taxation system. The current system is stifling business and must change.
Looking forward, we’re hopeful businesses utilise the positive changes in the Budget. It’s a great time for business owners to look to the future and assess opportunities to invest in products and services that will impact their business trajectory.
As the saying goes, you’ve got to spend money to make money, and though there is always more work to be done for our small businesses, the introduction of the $20,000 instant tax break could make a decision to invest more compelling than ever before.
Tim Reed is the CEO of MYOB, and also sits on the advisory panel for Business Council of Australia.