It is my opinion that the small business environment will seek to heat up in the next 12 months as intersecting forces at the domestic and global level play out. In what is looking to be a turbulent 12 months, the end of Covid, a federal election and war in Ukraine will have a significant impact for all business, especially the small business sector.
Covid-19 is on its final legs with vaccination rates and herd immunity insulating the population from serious disruptions. Nonetheless, people are still catching it and disruption is still taking place. As this plays out, the view is that Covid will remain with us for some time to come. From an operational perspective, small business will have to factor the d risk of such disturbances within their businesses and along their supply chains. Contingency planning and scenario development will be the key to mitigating severe disruptions.
Alongside the lingering effects of Covid-19 is a federal election is shaping to be quite dramatic. The federal budget, which was handed down just recently has provided initiatives and incentives for small businesses to take advantage of and is a mix of pandemic stimulation and electioneering. The National Australia Bank’s research and insights teamhas done a great job at distilling these, highlighting the following:
Skills and training boost: businesses with aggregated turnover of up to $50 million will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees.
Technology investment boost: businesses with aggregated turnover of up to $50 million will be able to deduct an additional 20 per cent of expenditure (capped at $100,000) incurred on business expenses and depreciating assets that support digital adoption (e.g. subscriptions to cloud-based services, cyber security systems, portable payment devices).
Varying the GDP uplift factor for tax instalments: GDP uplift factor for PAYG and GST instalments set at 2 per cent for the 2022-23 tax year (compared to 10 per cent that would have applied under statutory formula), subject to legislation being passed in parliament. The 2 per cent uplift rate is capped at $10 million annual aggregated turnover for GST instalments and $50 million for PAYG instalments.
Skills and training: $2.8 billion in funding for an overhauled apprenticeship incentive scheme to grow the number of qualified trades people by subsidising the wages of select apprentices and trainees, providing up to $5,000 payments to new apprentices (in priority sectors) and up to $15,000 in wage subsidies for employers who take them on.
Tourism Support: Around $146.5 million to support the recovery of the Australian tourism sector in response to the pandemic impact, including further assistance for travel agents. Almost half will be rolled out globally as part of a government bid to reignite international tourism after nearly two years of border closures due to COVID-19.
Export Support: $80.0 million over 4 years from 2022-23 to provide additional support for small and medium export businesses to re-establish their presence in overseas markets through the Export Market Development Grants program.
Government Contracts: More help for SMEs to secure Commonwealth contracts. Under proposed changes, Government departments will be required to split up major projects to give smaller contractors a greater chance to compete for work. The Government has also authorised the Department of Defence to undertake limited tenders with SMEs for procurements up to $500,000 from 1 July 2022.
These initiatives look to inject greater stimulation into the small business sector, with targeted schemes such as the tourism and export programs seeking to remove the cobwebs caused by two years of lockdowns. Small business should look to take advantage of these initiatives to grow their business.
And as the federal election looms, there is a high chance Labor could unseat the Coalition as the Prime Minister and Cabinet have been on the receiving end of harsh criticism from forces within as well as outside. A change of parties would have an impact on the many aspects of government; however, the pendulum is not expected to swing too much. While the announcements of policy initiatives have not taken place, do not expect much from Labor as they approach this election form a small-target orientation, having learnt the lesson of the last election under the then opposition leader Bill Shorten.
Additionally, as the pandemic tapers out, the Australian Taxation Office and other branches of government who are owing money will begin to collect back taxes in earnest. With the Federal Government creating a huge deficit courtesy of the stimulus package to ward of the economic effects of the pandemic, the collection of taxes to start the paying down of this will be done with great gusto. We advise small business to be mindful of the tax man knocking at your door.
Lastly, the geopolitical and geoeconomical implications of Russia’s war on Ukraine has seen financial and commodity markets upturned, especially with oil prices rising, and in turn making the petrol price in Australia above $2 per litre for the standard unleaded, the first time ever. The effect has already started to filter through, and along with the inflation concerns that had lingered pre-Ukraine war, price rises will remain. I am expecting this war to run for at least a few more months as there seems no willingness from either party to come to the negotiating table. A cease fire will only happen when one party knows defeat is imminent.
So, we can expect more sanctions and counter sanctions as we go on, with no reprieve in sight as Russia will try and exact revenge on the West, which will result in turbulence in markets to exist. Small business will need to factor in the additional cost of inputs into their operations and seek to understand and mitigate the negative consequence. Expect all petroleum-based products to rise as well as end-users such as logistics companies to pass through costs along their supply chains. The challenge for small business will be how they approach the additional costs and whether to absorb, pass-on and how best to communicate this to the client base.
Our recommendation for small business is to be proactive as way of getting ahead of the curve. The risk is behind caught flatfooted. Small business by their very nature is fragile and susceptible to shocks far greater than medium and large sized companies due to their liabilities in resources and business maturity. Overlaying the factors above against one’s operations should provide a picture of where the risk lies and how to convert them into opportunities.
Written by Dr George Marano, resident mentor at Growth Gen. Check out all our resident mentors on https://www.growthgen.com.au/mentors.