FEDERAL BUDGET 2011: Budget a mixed affair for small business, unlikely to lift confidence: COSBOA

Last night’s budget has drawn a mixed response from Australian SMEs, with some positive elements, but plenty of room for improvement according to business groups.

Peter Strong, executive director of the Council of Small Business Organisations of Australia, says while there was a lot of good elements in the budget, it was a “little bit here, and a little bit there.”

“This budget won’t increase confidence,” Strong told SmartCompany.

“And that’s something we can fix with a strategy that has a look at the small business sector, the way it’s working, what we can do for it, how to remove red tape,” he says.

On the budget, Strong says a crackdown on rorting in the independent contracting field is “worrying” and “over-the-top”, arguing it is going after the whole rather than focusing on the few who do the wrong thing.

Under the plans, businesses in the building and construction industries must report to the Australian Taxation Office annually on payments made to contractors, along with their Australian Business Number.

He is also concerned that the budget did not reduce red tape for small business, and calls for greater information on the pay-as-you-go changes.

Strong was pleased with the Government’s focus on skills and jobs, particularly bringing in skilled migrants to work in the regions.

But the decision to scrap the Entrepreneurs’ Tax Offset, flagged before the budget, in favour of a $5,000 tax deduction for new car purchases by small businesses, has drawn a cautious response from Strong.

While the tax offset was said to be difficult to manage and not well used, Strong says for many people on low incomes, it was a welcomed initiative.

“Some of the people only claimed $500, but if you’re on $35,000, $500 is a lot of money,” he says.

On the other hand, Strong says the $5,000 to help purchase a new car is a good measure if you have the money and desire to buy one, as well as welcome news for the auto industry.

But Commonwealth Bank of Australia economist James McIntyre has welcomed the extension of the asset write-off to motor vehicles, saying it would help small business to upgrade their vehicles as petrol prices trend higher.

McIntyre also welcomed moves to bring forward by one year the cut in the company tax rate to 29%, saying it was a “big boost to investment, jobs and cashflow” for small business.

He also says changes to PAYG instalments will “deliver an extra $700 million into cashflow for small businesses which will again help them to deal with some of the pressures the sector is facing in the ‘patchwork’ economy.”

Larger business bodies, meanwhile, have also delivered a mixed scoreboard for the budget by praising the skills focus but calling for a greater attention to the losers in this multi-speed economy.

The Australian Chamber of Commerce and Industry says the budget gets the “short-term thumbs up, but whether it works in the mid- to longer-term on either the productivity side or the return to surplus depends heavily on good fortune and hope.”

While ACCI chief Peter Anderson has welcomed the investment in workforce skills, skilled migration and workforce participation, and the extra depreciation on capital purchase of new vehicles, he said the changes in fringe benefits on motor vehicles could be counter-productive.

“There is no relief on business costs, red tape or compliance,” Anderson said after the budget was announced.

The Australian Industry Group agrees the skills and infrastructure measures are worthwhile, adding to the productivity capacity of the economy in the medium-term.

“While there was a welcome focus on fundamentals, more could have been done to offset the risks to the economy due to the impact of the strong dollar on sectors such as manufacturing, tourism and education, which are on the wrong side of the resource boom,” AIG said.

“While the economy is forecast to grow strongly at the aggregate level, this is masking widespread weakness and uncertainty across major sectors and giving rise to a lopsided economy,” it said.

“It is disappointing, despite the frequent acknowledgement of the problem, that little has been done by way of programs to address the lopsided nature of the economy by investing in innovation, business capability development and exporters.”