Private Capital Industry Analysis

Developing Australia’s sustainability and reducing the cost of living

This year’s Federal Budget focuses on the provision of cost-of-living relief through a $14.6 billion cost-of-living plan, investment in Medicare and the care economy, broadening opportunity for disadvantaged Australians and growing the economy. It delivers a modest surplus, which is encouraging given the challenging global context that projects weakened global growth over the next two years. Consultation with stakeholders has informed the Government’s approach to this Budget, including in areas like migration reform and net-zero investments, which were key areas of focus in the Council’s pre-Budget submission.

Most significantly for the Council’s members are the Budget’s measures designed to strengthen Australia’s economy and make it more secure. These relate to:   

  • Supporting small and medium sized businesses and start-ups
  • Investing in the net-zero economy
  • Growing industries of the future and
  • Investing in people and skills

The Council was on the ground in Canberra tonight for the Federal Budget lock-up. Our analysis on each of these pillars and their relevance to the private capital industry is contained below.

While the Budget does not contain major taxation reforms, it does signify the Government’s intention to introduce a global and domestic minimum tax of 15 per cent, which will apply to multinationals with annual global revenue of approximately $1.2 billion or more. Targeted consultation with stakeholders on this measure will be required to avoid unintended consequences for Australian businesses with overseas operations.

This is a Budget that seeks to balance cost of living pressures, particularly for those facing deep disadvantage, with investing in productivity enhancing initiatives. For our members, the latter potentially provides opportunities, especially in energy transition, digitalisation and National Reconstruction Fund priorities.

The Council will work with the Government and our members in support of policy settings that empower private capital to contribute to a growing, productive economy.

KEY MEASURES TO STRENGTHEN AUSTRALIA’S ECONOMY

Supporting Small and Medium Sized Business and Start-ups

The Budget commits $431.9 million over four years (and $79.2 million per year ongoing) to deliver enhanced support for small and medium-sized businesses (SMEs) and start-ups by:

  • establishing the Industry Growth Program to support Australian SMEs and startups to commercialise their ideas and grow their operations, particularly those operating in the priority areas of the National Reconstruction Fund; and 
  • continuing the Single Business Service, supporting SMEs to engage with all levels of government.

There are a range of targeted tax relief measures contained within the Budget to support SMEs and start-ups.

Energy Bill Relief:

  • $3 billion energy bill relief for eligible households and small businesses (benefiting around 1 million small businesses with a $500 deduction from power bills over the next financial year)

Asset write-offs:

  • $290 million in cash flow support through the $20,000 instant asset write-off for small businesses with aggregated annual turnover of less than $10 million
  • eligible businesses will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024

Efficient energy tax breaks

  • A new tax break for small business to reduce energy costs
  • Small and medium businesses with aggregated annual turnover of less than $50 million will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy (e.g. energy efficient fridges, electric heating or cooling systems)

Cashflow relief

  • Doctors around the country will have the opportunity to expand patient access and improve local services through a $220 million grant program.

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  • The Government will provide approximately 2.1 million eligible small businesses with cashflow relief by halving the increase in their quarterly tax instalments for GST and income tax in 2023-24.
  • Instalments will only increase by 6 per cent instead of 12 per cent, to better reflect the economic conditions in the market. This will apply to small businesses and individuals with up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG.

Investing in the Net-Zero Economy

To support a transition to sustainable financing, this Budget commits to:

  • establishing an Australian Government green bond program;
  • co-funding development of a sustainable finance taxonomy with industry; and
  • resourcing ASIC to target greenwashing in financial markets.

To date, the Government has invested heavily in developing Australia’s status as a renewable energy superpower.

New measures contained within this Budget to support this vision include:

  • $4 billion for the Government’s renewable energy superpower plan;
  • $2 billion to help Australia become a world-leading hydrogen producer;
  • $1.3 billion to support 170,000 energy-saving home upgrades; and
  • $83.2 million to establish a Net Zero Authority to promote positive economic transformation as Australia’s economy pivots to a net-zero emissions future.

The Budget also supports the establishment of the Capacity Investment Scheme to underwrite $10 billion worth of new investment in clean energy.

These new investments bring the Government’s total investment in developing Australia’s renewable energy capability to more than $40 billion.

Growing Industries of the Future

The Budget contains $500 million to modernise and grow Australia’s industrial capabilities. Including:

  • $101.2 million over five years to support the development of critical technologies industries (for example, Australia’s AI and quantum capabilities)
  • $61.4 million over four years to establish the National Reconstruction Fund Corporation and
  • $14.8 million over four years to establish the Powering Australia Industry Growth Centre to develop advanced technology and skills as part of the Government’s Australia Made Battery Plan.

Investing in People and Skllls

This Budget supports quality training and addressing Australia’s skills needs through a $3.7 billion investment in a revamped five-year National Skills Agreement with the states and territories.

The Budget focuses on prioritising the right skills in our migration system by developing a comprehensive Migration Strategy whose measures will include:

  • Allocating around 70 per cent of places in the 2023-24 permanent Migration Program to skilled migrant
  • Providing an extra two years of post-study work rights to Temporary Graduate visa holders with select degrees to improve the pipeline of skilled labour in key sectors and
  • Increasing the Temporary Skilled Migration Income Threshold to $70,000 to ensure skilled migration settings are better targeted.

OTHER KEY MEASURES

Foreign Investment

The Government will exempt passive or low risk interfunding transactions from mandatory notification requirements and fees under the Foreign Acquisitions and Takeovers Act 1975. This change will apply from when the amendments are legislated.

The interfunding exemption will mean qualifying investments will not require prior approval or be subject to fees. Interfunding transactions will remain reviewable national security actions under the Foreign Acquisitions and Takeovers Act 1975.

Taxation

The Budget signifies the Government’s intention to introduce a global and domestic minimum tax of 15 per cent, which will apply to multi-nationals with annual global revenue of approximately $1.2 billion or more. This has been devised to be consistent with the OECD’s Pillar Two global minimum tax rate which will commence from 2024.

The scope of the general anti-avoidance rule for income tax (Part IVA of the Income Tax Assessment Act 1936) will be expanded to include:

  • Schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents
  • Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax

This measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.

Build to Rent Developments

New rules will apply to eligible new build-to-rent projects, where construction commences after the release of the budget and will:

  • Increase the rate for the capital works tax deduction (depreciation) to four per cent a year
  • Reduce the final withholding tax rate on eligible fund payments from managed investment trust investments from 30 per cent to 15 per cent from 1 July 2024

The changes will only apply to projects consisting of 50 or more dwellings that will be made available for rent to the public, and they must be owned by the same landlord for 10 years before they are able to be sold.

Patent Boxes

Three patent box measures announced by the former Government will not proceed. These included a patent box regime for Australian medical and biotechnology patents along with a patent box regime for both the agricultural and low-emissions innovations sectors.

 

The Council will continue to analyse the Budget announcements in the coming days. In the meantime, if you have any questions, please reach out to Emma Dowsett or Robyn Tolhurst in our Policy team at [email protected].