A panel of accountants, business owners and Xero employees convened the morning after the budget to discuss its implication for the economy and particularly small businesses. Joining us at Xero’s Sydney office were:

“This seems to be a budget for people who spend things, not for people who build, create or design things,” said Xero’s Matthew Prouse. He cited the personal tax cuts and the extension of the $20,000 instant asset write-off, accompanied buy tighter restrictions on R&D tax breaks.

“What will the economy look like in 2024?” asked Matthew. “This budget doesn’t tell us. It just says what the tax rate will be.”

Dr. James Chin Moody, the CEO of Sendle, the delivery service for small businesses, echoed Matthew’s comments.

“This budget was not bold enough to make the kinds of structural changes we need, from the gig economy to developments overseas,” said James. “Five hundred dollars in everyone’s pocket from the tax cuts is fine. But imagine if it that money went into a massive job retraining program.”

In the U.S., it’s estimated some 300,000 truck drivers will need to be retrained over next five years as driverless trucks come online, said James.

“How are we preparing for a future like that in Australia, for industrial dislocation?” he asked. “We do need to encourage innovation. I don’t think Sendle would be here without the R&D tax concession.”

The Xero panel acknowledged the budget contains $24.5 billion in new infrastructure spending, but noted that many of those projects were already planned or underway.

“There may be a knock-on effect for small businesses to obtain new work on these projects, unless the projects were already in place,” said Danny Normington, cofounder and director of Firesoft Consulting. “Overall, this felt like a modest budget, a safe budget that was driven by election considerations.”

Several budget proposals seek to address what’s called the black economy, including businesses that take cash-only payments and fail to report them as revenue. New proposals will extend taxable payments reporting system (TPRS) to security providers and investigation services; road freight transport; and computer system design and related services.

Silver lining

While these sectors may grumble about the compliance burden, there will be a silver lining when they try to sell their business or obtain financing, said Jane Tweedy, managing director of FAQ Business Training.

“We see businesses that are getting ready to sell, and they’ve been doing cash sales only,” said Jane. “And they find their valuation is lower than their actual intake. The savings they’ve pocketed over the years actually hurts them in the end,” said Jane.

“Or they’ll try to get a loan. They’ll say, ‘Well, actually my real sales are much higher.’ And I’ll say ‘The banks aren’t going to give you anything on that.’ Their valuation is too small, and they can’t get the credit they need.”

Another area targeted in the budget was phoenixing. Phoenixing refers to fraudulently transferring assets of an indebted company into a new company to avoid paying creditors. The new company, usually operated by the same director, continues the business under a new structure.

“This is a real problem in construction,” says Jane. “We see a lot of hard-working small businesses that are owed massive debts by a construction company. Then suddenly the company disappears.”

Craig Harris, the COO of Deputy, welcomed the personal tax cuts, even if modest. They will help those who are working multiple jobs. A survey his company commissioned found 30% of workers have more than one job as part-time and casual employment becomes more common.

“For the worker, that means they’re paying a higher tax rate on second and third job,” said Craig. “And for employers, the increase in casual roles means taking on an ever greater number of employees to accomplish the same output.”

“The government needs to do more to to support businesses in taking on new employees and the associated compliance work,” said Craig. “If not, the government may see sectors like hospitality continue to make cash payments to employees.

“It’s much easier to just pay a casual employee $100 and be done with it than go through the rigors of onboarding them officially.”

Trent Innes, MD of Xero, agreed less red tape is needed.

“Paperwork is friction, and that’s one of the things we’re trying to solve with technology. Compliance work is time-consuming and also a bit scary given the consequences of doing it wrong,” said Innes.

“The ATO is definitely on the journey toward streamlined compliance, but there’s a clear objective of making businesses ‘pay their fair share.’

“The ATO needs to help themselves by making it easier. Compliance on small businesses is as heavy as it is on big businesses, which have more staff. Make it easier, and people will do the right thing,” said Innes.