Budget 2021 – What Does It Hold for SMEs?

Budget 2021 is centered around securing Australia’s economic revival. While businesses dependent on the opening up of the international borders will still face challenges, this budget has provisions that will benefit other small companies. It is also expected to support business investments as well as household expenditure.

With a major focus on funding the digitisation of businesses and continuing with some provisions from the previous year’s budget, more businesses are likely to move towards a digital economy. In fact, a survey conducted by Xero reported 26% of small business owners saying they intended to further digitise their business if the provisions were implemented.

The three major announcements for SMEs in this budget are:

1. The Digital Economy Strategy will be funded with $1.2 billion.
2. The Low and Middle Income Tax Offset (LMITO) will be extended for FY 2021-22, the Instant Asset Write-off provisions will be extended till June 2023, and the Loss Carry-back provision will be extended till FY 2022-23.
3. The time companies spend on ensuring compliance with regulations will be reduced by using technology with the Deregulation Agenda.

The digital boost

Since 2020, many SMEs have been moving towards digitising their business as trade restrictions were imposed worldwide. To continue this trend of delivering productivity benefits, budget 2021 includes various benefits as part of the Digital Economy strategy, such as:

• Digitization support to SMEs worth $12.7 million – additional funding to be provided for the Digital Solutions program by the Australian Small Business Advisory Service (ASBAS) to provide advice to small businesses to help them go digital.
• E-invoicing support worth $15.3 million – the Treasury expects e-invoicing to deliver up to $28.2 billion in profits over the next decade, and the government will fund it.
• Funding for cybersecurity, safety, and trust worth $55.1 million – investments will be made in the security infrastructure to boost businesses’ confidence in digital systems.
• AI network support worth $53.8 million – investments will be made in a network of four new Artificial Intelligence Centers, which will be directed by CSIRO Data 61, which will have the potential to boost productivity through the encouraged use of transformative AI technologies.

Another one of Xero’s reports highlighted the benefits of the growing digitisation of businesses. The report enunciated that small businesses that had five or more apps integrated with their Xero accounts had fewer job losses during the peak of April 2020 (14.8% y/y compared to 18.4% with no apps). These businesses have also made a stronger recovery (-1.8% y/y in December 2020 compared to -5.1% y/y with no apps).

Cutting red tape

Budget 2021 includes a plan to reduce red tape across various industries and small businesses worth $134.6 million over four years. Some non-industry-specific initiatives are:

• Funding worth $10 million for Modern Awards Pay database – the project aims at making it easier for small businesses to pay their staff correctly.
• Funding worth $11 million for the mutual recognition of state-based licenses – the project aims to fortify the adoption of the Automatic Mutual Recognition for occupational licenses. It has the potential to bring in economic activity worth $2.4 billion over the next ten years.
• Funding worth $10 million of the digitisation of business documentation – the initiative will enable the execution of electronic documentation, which could potentially bring benefits worth up to $400 million per annum to small businesses.

In addition to this, this year’s budget also includes provisions for skill enhancement and apprenticeships.

Skill-building and apprenticeship funding

Funding will be provided for the following initiatives:

• Funding worth $500 million for the JobTrainer program – the States matched funding-based initiative will now be extended up to December 2022. It will be supporting 163,000 places over and above the 100,000 places already being taken up. The initiative is to fund free or very low-cost education programs in fields such as IT, aged-care, and childcare for youths between the ages of 17 and 24, and the unemployed.
• Funding worth $2.7 billion to boost Apprenticeship Commencements – it is expected to provide support to another 100,000 trainees and apprentices in addition to the 170,000 that are already being supported. The project is now also expanded to include more programs and opportunities for women.

Tax benefits to boost investment and expenditure

The top three provisions from last year’s budget that have been extended are:

1. LMITO – the Low and Middle Income Tax Offset provision has been extended for FY 2021-22, which is expected to provide $7.8 billion to 10.2 million Australians. The provision might make it possible to boost household spending.
2. Instant Asset write-off – the provision will be continued till 30 June 2023 for depreciable assets for businesses with an annual turnover under $5 billion.
3. Loss carry-back provision – the provision will be continued for businesses that have an annual turnover of less than $5 billion, for tax paid previously on the prior year’s profits.

These provisions are approximated to provide a tax relief worth $20.7 billion.

Accounting platforms such as MYOB, XERO or Netsuite can help you make use of these provisions to their full potential in a hassle-free manner with their easy-to-use software. The software is designed to take care of all your financial accounting needs, including keeping track of your accounts receivable and easing your EOFY tax worries! With various plans available, you can choose the one that best fits your budget and business requirements and let digitization make your work easier and faster.

Other announcements

Kate Carnell, in her last week as small-business ombudsman, had recommended government procurement as a priority for the office this year. The budget addresses this key factor for SMEs by including some new funding plans which will help SMEs win government contracts. These contracts, wherein the federal government bids millions of dollars each year, were otherwise reserved for the largest companies on the other end of town.

Apart from this, the government will also be spending $2.6 million on a four-year plan to boost the participation of SMEs in Commonwealth procurement. Increasing the communication of available procurement opportunities to the SME suppliers is one of the five ways in which this initiative will be implemented.

The government also plans to scan the available procurement in order to identify the most common pain areas of the SMEs so that it can better help the business understand aspects like working with government buyers, working in big project environments, and accessing supply chains. It will also mandate the use of Dynamic Sourcing for Panels to enhance the use of panel arrangements.

And lastly, the Department of Industry, Science, Energy and Resources will be undertaking a trial of the direct engagement approach with the SMEs and provide contracts worth $200,000.

Conclusion

The budget is primarily focused on restoring the economic state of Australia and boost the year-on-year growth of all businesses, but more so of the small-to-medium business enterprises. Those businesses functioning primarily on international trade may continue to face challenges since the opening of international borders is still unpredictable. However, this budget brings relief and good news to all the other small and medium business owners in the form of multiple concessions, tax benefits, employment initiatives, and other projects that aim to support substantial business investments and household spending.