Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast brought to you by CPA Australia.
Elinor Kasapidis:
Hello and welcome to this special Federal Budget edition of With Interest. I'm Elinor Kasapidis, Chief of Policy, Standards and External Affairs at CPA Australia, speaking from our podcast studio in Melbourne.
Joining me to discuss last night's budget announcement from Canberra is Gavan Ord, our business, investment and international lead. Good morning and welcome to With Interest, Gavan.
Gavan Ord:
Good morning, Elinor.
Elinor Kasapidis:
Treasurer Jim Chalmers delivered his fourth budget in just three years at Parliament House in Canberra last night. It's the budget that was probably never meant to be, were it not for Cyclone Alfred wreaking havoc on parts of southeast Queensland and northern New South Wales a couple of weeks ago. With Prime Minister Anthony Albanese set to call a federal election in the coming days, this was naturally touted as a pre-election budget. But in the end, it was fairly light of new detail, but with a surprise or two. Gavan, what were your thoughts as you were reading through the budget papers in last night's lock-up? And after a few more hours to gather your thoughts, did this feel like a budget they weren't expecting to hand down a few weeks ago?
Gavan Ord:
Yeah, look, I've been doing budgets now for over a quarter of a century. And the first thing I usually go to is something called budget paper number two, which is where all the announcements are. That's usually 250, 300 pages. It was around 80 last night. I've never been to a budget with so few announcements.
So clearly, they actually didn't really want to deliver this budget. They really weren't prepared for it. Also, if you look at some of the budget line items, they've got billions of dollars stashed away for announcements they're going to make post-budget but before the election.
So I was really surprised at the lack of detail. I was really surprised that they didn't talk about some of the things that could have been so easy to talk about, like the instant asset write-off. And really, we describe it as a, this is not an agenda-setting budget. There's no agenda to it. It's just like something they had to do. So in that sense, it was surprising, the lack of detail. A little bit disappointing that we didn't see more in this budget.
Elinor Kasapidis:
I can imagine many of the Treasury teams were running around pulling things together. But I guess in terms of what this signals for the election, given that this budget was a little thin, there's clearly no reform, there are some additional spending initiatives.
Over the next few weeks, it'll be interesting to see sort of what does come out in terms of policy and proposals. But let's turn to the budget that we do have today and what it means for most Australians.
What did you see in the budget, Gavan, to address cost of living pressures and what caught the headlines?
Gavan Ord:
Well, what's capturing the headlines at the moment is the income tax cut. So it's a modest tax cut in the words of the Treasurer. But that actually begins 1 July 2026. So it's not an immediate cost of living relief. So it's delayed by a year. And it's only $5 a week for someone earning more than $45,000 a year. So that's the price of a cheap coffee these days. So it's not really going to do that much for people. The other one is the energy bill relief. They've extended energy bill relief, which is $75 a quarter until the end of the year. There was something around the maximum possible fee on a prescription, goes to $25 or $31. So they've done a few things.
But in a sense, you can say that they were deliberately modest, that the Treasurer didn't want to overspend, didn't want to add to inflationary pressures. So I think that was in his mind. But if you're hoping for real cost-of-living relief, the budget really doesn't deliver that. And if you're a small business operator who is also suffering from very high energy-costs, insurance costs, wages costs, this is not a budget which is going to excite you either in terms of reducing those cost pressures.
Elinor Kasapidis:
And you're right. In terms of what was listed are not actually solutions to the underlying problems. So with tax cuts, bracket creep was likely to absorb those benefits probably by July 1st, 2026 at these rates. And it doesn't tackle that inflationary environment or even with the energy bills, the underlying challenges of the energy transition and how that's impacting prices. There's not really a clear policy response to that. And similarly with PBS, just the challenges with accessing affordable health care and the overall costs.
So what are your views in terms of reform or an actual indication that this government is turning its mind to the fundamental issues that are driving the need for these kinds of budget initiatives?
Gavan Ord:
There's no indication that this government is looking at deeper reform. And the Treasurer's been quite clear that their approach is incremental rather than big, deep reform. So there's nothing in this budget that indicates a reform agenda. Like I said before, there's really no agenda in this budget beyond getting through to the election and giving some space to make some more announcements. So in that sense, we're definitely disappointed. We think budgets are a chance for the government to set their priorities and reform priorities. And really, their priorities were not really aligned to what I think the nation needs to do.
Elinor Kasapidis:
And on that, the budget was very thin for business. Again, any growth incentives? You mentioned the lack of an instant asset write-off continuing. Any thoughts on that?
Gavan Ord:
There's really very little in terms of business. Yes, the $75 a quarter energy rebate applies to small businesses as well. And also, a lot of small business operators are unincorporated. So they'll also get the benefit of the income tax cut from 1 July 2026. But apart from that, there's very little for business. There's a few minor announcements around franchising and Buy Australia campaigns. But really, if I'm a small business operator, I'll be going, where am I? I've been ignored in this budget. That's our interpretation. We read the budget papers, cover to back and back again. And it was just really hard to pull out something for them from this budget.
With the only exception that there is money still set aside for future announcements. So, fingers crossed, and we always remain optimistic that there may be some future announcements for small business in the coming weeks. Just on the instant asset write-off. It's hard to understand why the government didn't take this opportunity to announce something on the instant asset write-off. Maybe there's something coming up. But we're just very hard to fathom politically why they actually didn't mention the instant asset write-off in the budget papers. It's quite disappointing and disconcerting that they would even think that's a good thing, not to mention the instant asset write-off.
Elinor Kasapidis:
And for the millions of Australian small businesses and business owners, it's a real challenge at the moment. As our 16th annual Asia-Pacific small business survey that we launched in Canberra on Monday is showing. One of the key takeouts is that there are limited growth opportunities and Australian small businesses are struggling to keep pace with their Asia-Pacific counterparts, particularly in terms of technology adoption and growth initiatives. So, again, there was nothing in this budget on to boost innovation?
Gavan Ord:
No, no, there wasn't. The government released a small business statement and in it, it spoke about what they've done over the course of their term in government. And they spoke about $60 million over the course of their term in government to try and boost technology adoption. That's $60 million over, what, three years they've been in power. And compare that to Singapore. In the Singapore budget in February, they announced $150 million just to support small business adopt artificial intelligence.
So, Australian economy is four or five times larger than Singapore, but we've only been able to give $60 million over three years to small business to help with technology in general. Singapore is giving $150 million just for artificial intelligence. And that's on top of all the other suite of digital support policies they're giving. So, they're lagging behind and there's nothing trying to pull up Australian small businesses from this government or from the previous government, to be fair.
Elinor Kasapidis:
And when you look at the budget, it's also a challenge because we start to see these increasing structural deficits being built into the government's finances, which makes it even harder over time to move and create incentives that will boost growth. And ultimately, growth will boost the tax base, which then will actually close that deficit. So, in terms of the approach that we're taking, on the flip side, we have made comment as well around regulation, government service delivery. And I note there was a bit of money put aside for ASIC and to support some of this director ID work, as well as ongoing funding of the ATO and Tax Practitioners Board. So, what are some of the signals being sent to the business community about the continuance of those sorts of projects?
Gavan Ord:
So, just on the ATO, so there's a billion dollars set aside to extend and expand ATO enforcement. So, this is not new money. This is new money, but to existing programs.
So, there's a billion dollars extended to ATO enforcement activities around the tax avoidance task force, shadow economy, and superannuation payments.
That's expected to raise $3.2 billion over the next few years. There's money for the ATO to do that. There's money for the TPB to do more compliance activity on tax agents. So, there's quite a bit of money for the TPB. That's actually expected to raise $50 million over the course of the forward estimates over the next four years.
So, there's definitely a focus on government around improving compliance, and that's come through in other areas as well, the franchising code, the vocational sector. In terms of ASIC, they've got $200 million plus to help stabilize their business registry system and to connect it to digital ID, which is good. It should have happened before, but it's good. And those sort of improvements to technology, particularly the business registry allows, should allow businesses and their advisors to better interact with the government. But the systems at ASIC run are still quite old and clunky. And at some point, we're going to have to look to modernize those systems.
Elinor, you're involved in the modernizing business registers. What did you think about the $200 million for ASIC to stabilize their business registers?
Elinor Kasapidis:
It's a very niche interest, but I think for me, the modernizing business registers project was a fundamental initiative that would connect so many systems across federal government with the potential then to expand it through the states. And so while I understand why the government pulled back on the progression of that, the fact that $200 million today to take one of the first steps, which was to link director identification numbers to the company register, which was planned over, I think, three years ago. It shows the level of focus, I guess, and the ability for government to improve its service.
It's always contingent on funding. So I think, good on ASIC, we need this, but it's only the first step. And I can see many more before we can actually deliver that integrated view. Similarly, you know, what is the definition of small business? How do you regulate partnerships when the legislation is at the states? I think that electrician scheme, where you can have portable licenses is a good start to the thinking. But piecemeal initiatives like this don't fix the overall, which is, you know, a director of a company is connected to a register. People can see it. They can look at those relationships in a really transparent manner.
These are the sorts of things we need to see from government to improve how they structure what they need from business. And it reduces regulatory costs, compliance burdens, and lets taxpayers and businesses get on with things. So really, I think there's that regulation piece, but also the government needs to make sure it delivers services in the best possible way.
Gavan Ord:
That's right. They need to make it as easy as possible for business and their advisors to interact with the government and technology is really important to that.
Elinor Kasapidis:
And so when we look, we've talked what is and isn't in the business space. There are a few other budget details. We've got the $500 million put aside for the decisions taken but not yet announced. So we'll see what comes out of that in the coming weeks. Some infrastructure investments, healthcare with the Medicare piece. And Cyclone Alfred, we've got some additional natural disaster and infrastructure spending. And Gavan, I know that for a while now you've been talking about the challenges of our climate and natural disaster responses and how we actually plan for that in a more holistic way. How do you see this response of upping funding for response spending rather than necessarily being proactive? Do you have any thoughts on that?
Gavan Ord:
That's a really good question. There’s a contingency of $1.2 billion over the next four years to pay for things out of Cyclone Alfred and future natural disasters because there will be future natural disasters.
What we've called for for a long time is a structured program so that when there is a disaster that its support for small businesses can be rolled out. So small businesses know that if there's a natural disaster, this is the support they will get.
We've called for that for quite some time. What we often see is a natural disaster comes along and the public service rushes to create something. And that means not only designing the program, but building the systems to deliver the program. And that's not a good way to work. We are going to have future disasters and we do need a well-designed, i think we called it break-glass in case of emergency response, which is there ready to go when the next disaster happens. And that can be scaled up and scaled down depending on the severity of the disaster. And it just provides that certainty. It's a bit like the instant asset write-off. Business just wants certainty. They want to know that this is what will be provided in a disaster. And we just need to move more towards that rather than this ad hoc approach that we get every time a big disaster happens.
Elinor Kasapidis:
That's a really great insight. So it would be nice to see perhaps some of that money used to establish proactive frameworks and clear policy responses that businesses and individuals can rely on, as opposed to just reactive initiatives when disaster hits.
Gavan Ord:
Can I ask you, Elinor, a question? I mean, you've been covering budgets for a while as well. What was your reaction to the budget papers? I know you weren't in the lockup, but what was your reaction when you started to look at the budget papers?
Elinor Kasapidis:
I had the same response as you. Oh, it's 93 pages. Like I'm used to opening it up and I start wading through the hundreds of pages of fascinating detail. I don't envy the government or Treasury because, you know, this wasn't a budget that was expected to happen. So I do have some sympathy. For me, I guess it's just indicative of the lack of long-term policy thinking and reform intention. And I'm certainly not the only person to be calling this out. As I mentioned before, I think it's just, it's good that this budget is supporting people who are impacted in a targeted way on things like inflation and cost of living.
But really, we need the government to fix the underlying challenges. And so, for example, if government spending is part of the inflation problem, we didn't necessarily see a pullback of that in this budget. Or if energy costs are the challenge, what in our policy or what in our budget could we see that will actually fundamentally shift the market so that people are not impacted? And that's the sort of thinking we really want to see from visionary leaders. And it's difficult to be positive when you're looking at very piecemeal, reactive initiatives that are building structural deficits in. So my view is, is that I would like to see fiscal discipline. I'd like to see that we're actually tackling the hard problems. And that might mean that there is an additional part of that that requires extra spending. But the idea is, is that spending should improve productivity. It should grow the economy. It should increase tax revenue, but without raising the rates or anything like that. And these are not initiatives that I see going anyway to dealing with those issues.
Gavan Ord:
I agree. And when you look at the deficits, there's forecast deficits for the next decade. We don't mind a deficit every now and again. Its, the budget should be balanced over the economic cycle. But next 10 years of deficits, that starts to really concern me. And it really calls into, yeah, those structural issues, things like tax reform. We just can't keep going on as we are, relying on income, personal income taxes and corporate income taxes to cover what is a growing structural deficit, as you said.
Elinor Kasapidis:
And I think, election’s coming up, we expect some announcements from the US on the 2nd of April. There are headwinds that we are entering. And so therefore, let's follow the campaign. Let's look at policy development and look at how Australia does need to respond to changes in the global political and economic situation. Any final comments or thoughts from you, Gavan, as we bring this special federal budget edition of With Interest to a close?
Gavan Ord:
I think we need to keep our eyes and ears open over the coming days. I think we will see more announcements from the government that they didn't include in the budget papers, whether because of lack of time or they're doing it for political reasons, not sure. So there will be more, and they've set aside quite a lot of money for future announcements. So one thing about this budget is not the end. Usually the budget is a big, big day. This is really, I think, just another day before the next day and the next day and the next day. So we're going to see more. I think it's also important to have a look at what the opposition say in their budget and reply speech, just to see what they will focus on if they were to form government. So I think this is a much smaller budget that we expect and hoped for, but there will be other things coming up. And I think people should be looking at both sides of politics or both major sides of politics sorry, and what they say over the next few weeks before the actual election.
Elinor Kasapidis:
Thank you, Gavan, our seasoned budget analyst. Thank you, Gavan, for sharing your thoughts with us. Check the show notes for a link to the CPA Australia website where you can see our expert budget analysis.
With Interest is a weekly podcast, so look out for our episodes and don't forget to subscribe to CPA Australia podcasts on your favourite podcast app. From all of us here at CPA Australia, thank you for listening.
Garreth Hanley:
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