Banking News

SPOTLIGHT - Quantifying the Impact of the 2022/23 Australian Federal Budget

(29 March 2022 – Australia) Australian Federal Government Treasurer, Josh Frydenberg, has handed down the Government’s 2022/23 Budget with a primary focus on increasing input and living costs.

For businesses, particularly those with a defined international trade function, initiatives such as increased funding for the Export Market Development Grants program were warmly welcomed. With essential goods prices such as food and fuel surging higher, the Budget measures included a one-off A$420 cost of living tax offset and a halving of the fuel excise for six months.

The extent of the Budget’s impact on Australian exporters, especially small businesses, is likely to be mixed however according to Infrastructure Partnerships Australia. Absent are fundamental and strategic investments that might have helped secure Australia’s longer-term competitiveness. The Budget acknowledges that global GDP growth is likely to remain sluggish, inflation is breaking higher and supply chain disruptions will persist. The global economic landscape will remain challenging for Australian exporters with the following ten initiatives holding the most benefit for exporters and international trade:

Top international trade initiatives announced in the 2022 Australian Federal Budget

1. Adding A$100 million to expand the Export Market Development Grants (EMDG) program
2. Enhancing the Simplified Trade System with a further A$267m, including A$127m to the Digital Services to Take Farmers to Markets
3. Sponsoring of large agriculture trade events through a A$12 million investment that promotes export-focused agricultural goods and services
4. A$19.5 million over two years to attract global business investment and talented individuals into Australia, and a one-off 30% increase in the Working Holiday Makers initiative
5. A$7.1 billion over 11 years to turn the Northern Territory, North and Central Queensland, and the Pilbara region as regional export hubs
6. A$200 million over five years for the Critical Minerals Accelerator Initiative to support early to mid-stage projects overcome market barriers
7. Investing a further A$480 million to improve NBN infrastructure in regional and remote areas, as well A$3.7 billion to deliver faster rail projects for Brisbane to the Sunshine Coast, and Sydney to Newcastle
8. Extending the ‘patent box’ regime to cover certain low emissions technologies and activities in the agricultural sectors, with benefits such as a concessional income tax rate of 17 percent
9. Investing a further A$2.8 billion to support Australian apprenticeships, and small businesses will receive a bonus 20 per cent deduction for the cost of external training courses from now until the end of the 2023/24 financial year
10. Restarting of indexation of Australia’s baseline level of Official Development Assistance, which will increase to A$4.089 billion, up from A$4.0 billion in 2021-22.

“We welcome the significant A$9 billion increase in funding for infrastructure, lifting total spending to $66 billion over the next four years. We are particularly pleased to see a sensible focus on freight in Victoria and faster rail in NSW and QLD. Our freight sector plays a vital role in keeping Australia’s economy moving, so it is essential we have the infrastructure in place to make rail freight a preferred long-haul mode over the longer term. While we welcome these well-considered rail infrastructure commitments, there is still taxpayer money chasing sub-economic projects in this Budget” stated Infrastructure Partnerships Australia CEO Adrian Dwyer.

The Australian Small Business and Family Enterprise Ombudsman Bruce Billson stated that the Australian Government’s 2022/23 Budget offers welcomed targeted support to Australian small and family businesses. The Budget includes several new, extended and enhanced measures to support the central role of small and family businesses in driving employment and economic growth:

Top small business initiatives announced in the 2022 Australian Federal Budget

1. New tax deductions – Technology Investment Boost and Skills and Training Boost
2. Tax system reform and administrative streamlining for small businesses
3. Targeted assistance for recovery impaired industries
4. A$365 million to support an extra 35,000 new apprentices and trainees
5. Temporary fuel excise relief
6. Changes to procurement guidelines to support SMEs securing Commonwealth contracts
7. A$480 million to significantly upgrade NBN fixed wireless services
8. A$10.4 million to redesign the Payment Times Reporting Portal and Register to improve efficiency and reporting
9. A$8 million allocated to ASBFEO to work with proven service providers to enhance small business capability
10. A$5.6 million to establish a dedicated unit to support small businesses at the Fair Work Commission
11. A$4.6 million to support Beyond Blue’s New Access for Small Business Owners program
12. A$2.1 million to extend the Small Business Debt Helpline program
13. Data collection and reporting
14. Further insolvency reforms

“Tonight’s budget represents a financial and strategic commitment to ensuring small and family businesses are digitally enabled, resilient and have the support, incentives, skills and training needed to be truly competitive” commented Australian Small Business and Family Enterprise Ombudsman Bruce Billson.

“The reduction in the GDP uplift rate used to calculate quarterly PAYG instalments and GST instalments from 10 to 2 percent will smooth cashflow for millions of SMEs. We know from responses to the ScotPac SME Growth Index that cashflow is a constant concern for most small businesses, so budget measures to help SMEs to manage cashflow are welcomed” commented ScotPac CEO Jon Sutton.

“SMEs will also welcome the 20 percent bonus tax deduction for spending on digital assets and training. This targets expenditure that can boost capabilities and productivity, such as laptops, cybersecurity upgrades, e-invoicing and cloud computing courses. And new wage subsidies for apprentices and young people will help those SMEs in sectors facing skills shortages. At a time when the recovery from the COVID-19 pandemic has been stalled by floods, supply chain constraints and rapidly escalating costs, we welcome budget measures to help Australian small businesses bounce back” Sutton added.

Chief Economist Budget Commentary
“The challenging conditions surrounding this budget, such as the recent pandemic, European conflict, inflation cycle and upcoming election, all seem to have influenced the budget. In the detail of the budget you can see some of that context. Cost of living pressures are reflected in tax cuts and fuel excise cuts. There are efforts to improve women’s participation in the labour market and the quality of the roles they take. And there are some measures to help address the climate challenge. We expect the RBA cash rate to reach two percent by the end of 2023, indicating that there are risks that interest costs could end up higher than forecast in the budget” stated ANZ Chief Economist, Richard Yetsenga.

“This is both a pre-election Budget and a new phase in the Government’s fiscal strategy focused on stabilising the debt built up supporting the country during COVID-19. The Treasurer is looking to achieve a stabilisation of debt as a percentage of GDP through economic growth, rather than through spending cuts or raising taxes. The Budget reflects the robust state of the Australian economy and its rapid bounce back after the economic impact of the policies designed to slow the spread of COVID. As expected, falling unemployment and booming tax receipts from strong labour growth and a surge in commodity prices have delivered a A$38.1 billion improvement in the budget bottom-line in 2022/23, which help fund a number of initiatives” stated Commonwealth Bank Chief Economist, Stephen Halmarick.

“Overall, we have no problem with the focus on maintaining the support for economic growth but we see the scope for more structural/productivity enhancing measures to have been included. Further measures that cut red tape, reform taxation and provide greater support for renewable energy would have been welcomed. This budget also does not change expectations for monetary policy, for example the RBA will move soon to moderately increase rates and we expect that process to start by August this year” said NAB Group Chief Economist Alan Oster.

“Concerns spending outlined in the federal budget will create more inflation and make interest rates move higher are very much overstated. The two initiatives that will happen this financial year, the fuel excise and the A$250 payments, that’s only 0.12 percent of GDP, it’s not a big number. Central banks have always stayed away from fiscal policy in terms of its impact on monetary policy. I don’t think that’s going to change the Reserve Bank’s attitude which is one of patience at this stage” commented Westpac Chief Economist, Bill Evans.

“The A$30 billion of new spending measures announced in the 2022-23 Budget have been directed at reducing the short-term cost of living pressures from rising inflation, new investment in regional transport links and increased defence spending. The next government will need to make some important decisions about its budget over the next two years as rising interest rates increase the cost of carrying a high debt burden. In the meantime, Australia’s fiscal policy will continue to support a growing economy” commented Judo Bank Chief Economic Advisor, Warren Hogan, for the group’s Federal Budget Guide.

“Inflationary concerns are real and growing, which raises a question about the timing and the amount of the cost-of-living supports contained in the Budget. The government appears to be adding further support to an economy that is already running hot. This support is likely to bring forward the monetary policy tightening cycle, which will be aiming to take heat out of the economy through higher interest rates” said KPMG Chief Economist, Brendan Rynne.