Budget Underpins Robust Asset Finance Demand as Competition Intensifies
(26 October 2020 – Australia) The Australian Government 2020-21 Budget measures are expected to firmly prop up equipment finance demand in the face of COVID-19 enforced shut downs. The 2020-21 Budget committed extensive crisis response and recovery support, bringing the Government's overall support to A$507 billion, including A$257 billion in direct economic support.
The COVID-19 pandemic has had a profound impact on Australia’s economy with the impacts of coronavirus to continue to be felt for years to come. The global economic outlook remains highly uncertain, with many countries experiencing their worst downturns since the Great Depression with the once-in-a-generation shock requiring an unprecedented level of support across the economy.
The Australian Government’s initial response to the COVID-19 pandemic provided A$299 billion in overall support. The unprecedented stimulus measures were designed to support Australian households and businesses through an exceptionally difficult period through the JobKeeper Payment and Boosting Cash Flow for Employers, in addition to supporting those in need with the Coronavirus Supplement and A$750 payments to those on certain income support.
To support new investment and increase business cash flow, the Government is providing a temporary tax incentive which will be available to 3.5 million businesses (99 percent of enterprises) that employ 11.5 million staff. The incentive will apply to A$200 billion worth of investment, including 80 percent of investment in depreciable assets by non-mining enterprises. Small businesses (with aggregated annual turnover of less than A$10 million) can deduct the balance of their simplified depreciation pool at the end of the income year until 30 June 2022.
Until the end of the 2021/22 financial year, businesses with turnover up to A$5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. The cost of improvements to existing eligible depreciable assets made during this period can also be fully deducted. The Government will also allow companies with turnover up to A$5 billion to offset losses against previous profits on which tax has been paid, to generate a refund. Loss carry-back will be available to around 1 million corporates that hire 8.8 million employees. Losses incurred up to 2021 22 can be carried back against profits made in or after 2018 19. Eligible companies may elect to receive a tax refund when they lodge their 2020 21 and 2021 22 tax returns.
Accounting professionals have issued a warning to SMEs seeking to take up the government’s expanded instant asset write-off offer, noting that the underlying economic benefits of each purchase must carefully be considered before new assets are acquired.
Since the onset of the COVID-19 pandemic in Q1 2020, the Government has also committed to invest an additional A$14 billion in new and accelerated infrastructure projects through to 2024, supporting a further 40,000 jobs during their construction.
“The Budget is focused on creating jobs, rebuilding the economy and securing Australia’s future” commented Treasurer Josh Frydenberg.
“Our research indicates buoyant equipment finance demand leading into the crisis but it remains to be seen how well that will hold up as we conduct our next round of research capturing 2021 forecasts, in addition to just how bullish small businesses in particular will remain as some stimulus measures are wound back through early next year” commented East & Partners Head of Markets Analysis, Martin Smith.
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