What business needs from Budget 2024

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast brought to you by CPA Australia.

Simon Downes:
Hello and welcome to With Interest, I'm Simon Downs. Each year, CPA Australia makes recommendations to the governments on the priorities that we think should be addressed in the upcoming federal budget, and we are approaching budget season. So today's episode looks at what we think business needs from the government to thrive in 2024 and beyond. Accountants are at the forefront of supporting Australian businesses, especially small businesses and sole traders, who often feel the greatest impact from any government intervention, be it good or bad. So our pre-budget submission includes about 40 specific recommendations, and here with me to discuss some of the most important of them is our Senior Manager of Business and Investment Policy here at CPA Australia, Gavan Ord. Hello, Gavan.

Gavan Ord:
Hello, Simon. Hello to all our listeners, and welcome to 2024.

Simon Downes:
That's right, and budget season is approaching. So let's get into the detail of the submission, and why don't we start with the main topic on everybody's lips, the stage three tax cuts. The government, as we know, has received plenty of criticism for U-turning on the cuts that it had repeatedly promised, but others argue that the new proposed changes are more reasonable at this time given the cost of living and that they prioritise those on lower incomes. So just as a very quick summary, the proposed changes will reduce the 19% tax rate to 16%, reduce the 32.5% tax rate to 30%. They will increase the threshold above which the 37% tax rate applies from $120,000 to $135,000, and increase the threshold above which the 45% tax rate applies from $180,000 to $190,000. Gavan, I know you're going to have plenty to say on what's happened in the last few weeks. What's in our submission? What are we saying about the proposed tax cuts?

Gavan Ord:
Well, first of all, we actually support the government providing additional assistance to lower income earners. These are a tough time for many people and they are feeling cost of living pressures, and those are definitely felt most by those on lower income. So we do support more being provided to lower income earners, but we also support the delivery of the legislated stage three income tax cuts. It's a bit of a moot point because today in the media talking about the opposition agreeing to the government's proposal, but we still think the government should deliver on the stage three tax cuts. And we have to remember, these are part of a three stage process to reduce taxes for all taxpayers. This is just the final stage of three stages. And also that this is also refunding us as taxpayers for taxes we've paid, additional taxes we've paid because the government doesn't index our personal tax rates. Essentially, this is an in-part refund for the extra taxes we paid over the last few years because the government just doesn't index the taxes we pay with our increases in average salary.

Simon Downes:
And it perhaps came as somewhat of a surprise that the opposition looks set to endorse the back flip. Are we surprised by that, Gavan, or is this politics?

Gavan Ord:
I think it's politics. I think the government's put the opposition into situation where, if they're against it, they're against providing lower income people with extra support. So I think they sort of trapped the opposition into supporting it. But the issue we have is that, as you said in your question, this has been promised by the government before the election that they would deliver this. It won't change. It's never ever-changing. Read my lips, no new taxes, that sort of stuff. And now they're doing this change. What trust do we have that this government can actually deliver on real tax reform? This is not real tax reform. How do we trust this government or any future government to deliver tax reform which we so desperately need?

Simon Downes:
Yeah, well, let's just touch on tax reforms more broadly. Obviously, a federal budget submission allows us to make some of our longstanding points in this area. We recommend that discussions on GST, stamp duty, payroll tax reform of state and territory governments need to happen. What do you want to say on that, Gavan?

Gavan Ord:
Well, like I said, they need to happen. Our productivity growth is at very low levels. Our economy is not growing as fast as what it could and should do and a major impediment to our growth is our tax system. And also it has to be remembered that the sustainability of our tax system is under threat. We rely too much on personal income taxes, corporate tax. As the population ages, the number of people actually paying income tax reduces, and at the same time the number of people taking money from the system through welfare and healthcare costs increases. So there's a long-term issue about the sustainability of our tax system and we really need to start addressing that not only to try and improve productivity in the economy, but also to try and make the tax base sustainable for the future. We're really concerned about the long-term viability of our tax system.

Simon Downes:
Let's move on to some of the other areas of the submission in a moment, but just quickly on inflation, Gavan. Some people have suggested that the proposed tax cuts, which I read are set to benefit more than 11 million people, will have an effect on the economy and risk further inflation. And certainly there are some key economists who have questioned whether the cuts would be a bit inflationary, but what are your thoughts?

Gavan Ord:
So I think the government needs to be careful in what it does in this budget. They don't want to add to inflationary pressure. That goes against what the Reserve Bank is doing. If it does add to inflationary pressure, then the risk is the Reserve Bank will increase interest rates. If you go back to some of the commentary around the stage three tax cuts, the original stage three tax cuts that they were inflationary but it's forgotten that the stage three tax cuts were law and therefore Treasury and the Reserve Bank were already factoring in those into their inflation forecasts, which actually showed that inflation would've been on the way down even with the stage three tax cuts. Now, we don't know yet whether these changes will actually add to inflation pressure, but the original tax cuts were not looking like they were adding to inflationary pressure.

Simon Downes:
And the whole point, of course, is that any cost of living relief measures should be about reducing inflation.

Gavan Ord:
That's right. At least not against what the Reserve Bank is trying to do. So government can actually add to inflationary pressure by spending too much. They just need to be very conscious that whatever they do doesn't unnecessarily add to inflationary pressure.

Simon Downes:
Let's move on and talk about our submission on skills and worker shortages. And we know that there is a labour shortage, but what is being done by government and what do we think should be done?

Gavan Ord:
So government's pursuing two key strategies. The one that's getting the most publicity is skilled migration, and the other one is offering things like fee free TAFE places in areas of shortage. So there's two strategies. The shorter term, which is to bring people in. The longer term is to increase the supply of skilled people into the workforce. So that's what we're doing and I think both strategies are correct, but I think on the education side or we think on the education side, the government could do more to encourage people to undertake university studies in areas of shortage like accounting. And that could be, for example, reducing the cost of courses to study accounting. There's a long-term shortage in accounting and it looks like that shortage will persist and we think the government should be doing more to encourage people to study courses like accounting at university, not just trade type roles which are done at TAFE.

Simon Downes:
So just to be clear, are accountants and finance professionals more broadly included in the skilled migrant intake?

Gavan Ord:
At the moment, they are. There's no guarantee that governments will continue that in the long term. They make decisions year to year and one year they could take it out and the next year they could bring it in. So, as I said, there's a long-term shortage in the area. All the data points of that shortage are continuing, so we think accountants should remain on that skilled migration list because we, Australia, needs more accountants.

Simon Downes:
Well, what is being done by way of sponsored pathways currently? Is there any more that could be done in this area?

Gavan Ord:
So at the moment there's two pathways. There's skilled migration and the sponsored pathways, the employer sponsored or state government sponsored. We think it should shift to basically all being on a merit-based assessment rather than sponsored pathway. Merit-based assessments, you go through, we look at their skills, and we give points and the more skills you have, the more points you get, and the more likely you should be to come to Australia.

Simon Downes:
You know lots of business people. This is your world. You live and breathe this stuff every day. How are businesses managing, given the labour shortages and the frustrations around trying to address it?

Gavan Ord:
This is a really good question and businesses are adapting in different ways, and everyone would see it where your local restaurants or cafes are closing early because they don't have the staff, or they're reducing the size of the menu because they've got less people in the kitchen to be able to cook everything on the menu. So businesses are, some are reducing their hours, some, are reducing their product offering. In the accounting space, we're seeing more and more practitioners offshore worked to different countries where there are people with the skills, but we're also seeing accountants refuse work from client, or particularly new clients. So it really is impacting the growth of many businesses and also some of them, obviously, larger businesses, are offering more to get people they need, and that's leading to increased wage pressures in smaller businesses to try and keep the staff. So until we can get the supply of staff back to what it should be, employers will continue to experience these problems and they'll continue to have to adapt their businesses in different ways, and that means potentially continued less services for consumers.

Simon Downes:
That's really interesting and I wonder whether there are signs of this labour shortage all around us and maybe some people may not realise. I would use an example whereby your local restaurant or your favourite coffee shop is no longer opening for breakfast, for example. It is now just opening in the evenings. That's a clear sign of this. But is this a consequence as well of, are we still coming back to reality from the COVID period? Are there any other issues affecting this labour shortage and what we're seeing?

Gavan Ord:
COVID is still playing in the background, but I think this was a shortage before. This is not something that was COVID that drove it. It's just COVID added to the problem. So in the accounting space, the enrollments in accounting are on the decline, but the demand for work from accountants is still on the increase. There's just a gap and it's growing, and that's why we're not just saying bring in skilled migrants. The government needs to also try and work with us, CPA Australia, and others to try and encourage more people to study accounting and also other areas of shortage.

Simon Downes:
And so we know that labour shortages are a big issue and we hear a lot around how households are struggling with cost of living pressures. But small businesses too are really struggling with basic cost pressures, be it fuel, food, whatever it is. What's it like at the moment going from the people you talk to?

Gavan Ord:
Cost pressures are the number one issue for business, particularly small business. We've done a survey. We're releasing the results of that survey very soon. It is by far the biggest issue businesses are facing and by a long way. It really is something where it's not just about cost of living pressures for households. Governments also need to look at, how can they reduce the cost of living pressures on business as well in this budget?

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Simon Downes:
Let's move on to some of the other interesting topics that come through in the submission and looking ahead slightly to maybe what's happening this year. One of the interesting findings from some of the research we've done is that younger Australians, we're really keen and really focused on encouraging young entrepreneurs to start their own businesses. And we know from research that young people that have a lot of digital skills have a lot of dynamism that really has an impact helping the economy to flourish. So tell us about the research on this, Gavan, and what recommendations it's led us to.

Gavan Ord:
So we've been doing an annual Asia Pacific Small Business Survey now for 15 or 16 years, and the one thing it clearly shows us is that younger business owners, so those under 40, are much more likely to be running businesses that are growing, much more likely to be running businesses that are innovating, exporting, using technology. That's been the trend over the life of the survey, 15, 16 years. And that's led us to looking at asking government the question, what can we do to encourage more younger Australians to start their own business or buy an existing business? I think the Small Business Ombudsman talks about only 8% of business owners are under 40 in Australia, and that number's down from 15% at the turn of the century. So there's been a steady increase in the age profiles of small business owners, and in Australia what we're seeing is many small businesses are just not growing, particularly in comparison to their counterparts in Asia. If you translate that through to the economy, that impacts economic growth, it impacts job growth, and it impacts innovation and exporting. So the more the governments can do to encourage younger Australians to start their own business or buy a business and remove the disincentives, the better it'll be for us as a nation, better it'll be for the economy, better it'll be for jobs.

Simon Downes:
And a lot of young people may actually be picking up some useful business skills by doing the things that they enjoy doing, and us as parents may be pulling our hair out that they spend all of their time doing, but it could actually be beneficial for them.

Gavan Ord:
Yeah, I mean, it is counterintuitive as a parent myself seeing my kids spending all their time on computer games, but the kids that are trying to be the Instagram influencer or the YouTube, they're actually picking up business skills. They're thinking about, how do I reach my customer base? What do my customers want? Then they're looking at contracts from sponsors and agreements with platforms. So they're picking up valuable business skills, which hopefully they see that and they start to think later on when they mature a bit, "Oh, maybe being a YouTuber is not my thing, but you know what? I can go and buy that business down the road and run that and do it better and build up a social media profile." So yeah, don't just discourage your kids from becoming a YouTuber because they are picking up other skills which could translate into business success in the future.

Simon Downes:
Australia's short fall of labour extends to the not-for-profit sector too, and there's been a huge decline in the number of people volunteering in recent years. No doubt this will have an effect on the ability of the not-for-profit sector to access professional advice. An example might be a local sports club that's run by volunteers, may not have the funds or resources to get their books looked at professionally. That sounds like a problem, Gavan. What are your thoughts on it?

Gavan Ord:
Well, it is a problem because we rely on those local, not-for-profits to deliver many community services. And if they're struggling to find volunteers, then it becomes less able to deliver those services. What we think is on that space is that we need to help some of those charities and not-for-profits build their capability to deliver their services. Part of that is through encouraging them to seek professional advice. That professional advice could be used to maybe improve how they run their organisation. It could be used to help them access new sources of funds, new donors, apply for grants, and it could be used to restructure or structure how they attract volunteers. The other thing they need to look at is the IT or the digital skills of not-for-profits. There could be efficiencies in delivery of services if those not-for-profits and charities become more digitally savvy. These are very small enterprises, and the more that government could help build those IT digital skills, the more likely these smaller not-for-profits and charities can at least be successful or deliver what the community needs.

Simon Downes:
One of the other key recommendations in this year's pre-budget submission is around climate change and the impact that it's having on businesses. Australia's overarching 43% reduction in greenhouse gas emissions needs a pathway for businesses too. What's being done to assist businesses, Gavan, and what should be done better?

Gavan Ord:
There's a few things that are out there to assist businesses. One of them at the moment is the Small Business Energy Incentive, which started 1 July, but really started when the legislation passed in November, and finishes on 30 June. That's to try to encourage businesses to invest in energy efficient plant and equipment, but it's not really a good policy. It's a very short policy. So what's needed is more longer term policies which encourage businesses to find a more energy efficient plant. What's also needed is to increase the supply of people with the skills in renewable energy. There's no use encouraging businesses to spend millions on plant equipment when there's not the electricians to install it. So you need those base skills. The other thing more broadly is we've got this 43% target, which you mentioned, but that target hasn't been broken down into, ‘what's the target for industry X? What's the target for industry Y?’. And then from there, businesses can start to see, how can they contribute to that this 43% target? Government starts to need to drill down from this headline target to what actually is by industry, and then particularly larger businesses can then think, "Okay, to achieve that target, we'll do this and this and this." I think that's really what's missing in the equation at the moment. We need to move from the headline down to something that's just more granular, more understandable to the business community.

Simon Downes:
Yes. And I wonder, well, I'm sure that it's creating a good amount of anxiety amongst a lot of business owners and managers who are looking on and uncertain about what this all specifically means for them. Is that what you're hearing?

Gavan Ord:
I'll start off by saying they're looking to reduce their emissions. Many sign up to net-zero themselves, so they do want to do it, but they're uncertain of when the government wants to achieve these targets by. They're uncertain of what policies the government will be introducing and when. They're uncertain of how long those policies will be in place for. They're uncertain about whether the skills exist to help achieve those targets. So the more the government could start to provide more detail beyond its headline, the more that business can feel comfortable around trying to deliver their reductions in greenhouse gas emissions.

Simon Downes:
Thanks very much, Gavan, for running us through the key themes from this year's federal budget submission. You can see a link in the show notes to the pre-budget submission from CPA Australia, for those who'd like to read it in more detail. So until next time, thank you for listening and we'll speak to you soon.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode and we hope you can join us again for another episode of With Interest.