In 2017, Australia’s inward foreign direct investment stock hit $849 billion, thanks to the country’s resilience, strategic location, global trade ties, and sound political landscape. Australia stands head and shoulders above some of its neighbors in terms of GDP, demand for products and services, and growth. Indeed, GDP is expected to grow 2.8% per year between 2019 and 2023, the highest amongst advanced economies.
Recently, Australia has released its 2019 budget. This Budget has a focus on building transparency in taxation, supporting small businesses and job growth. So, what does that mean for Australia’s business environment?
We analyze the features of this year’s Budget, and what the targeted flow of public spending brings to the nation’s economy.
Australia’s budget history vs now
After more than a decade of deficits, the budget returns to surplus in 2019-20. It has been a long road from where this process started when the Government was first elected. In 2013-14, some five years after the Global Financial Crisis, the deficit was still the second highest in Australia’s history. Since then, the Government has made steady progress to repair the budget and chart a responsible path back to surplus.
The total turnaround in the budget balance between 2013-14 and 2019-20 is projected to be $55.5 billion, or 3.4 percent of GDP. The Government’s plan for a stronger economy ensures it can guarantee essential services while returning the budget to surplus. This budget year will see a surplus of $7.1 billion, equal to 0.4 percent of GDP.
Australia is one of the only countries with five different world-leading sectors. These sectors, however, do not shape the country as a whole. The Government’s economic plan and this Budget are building a stronger economy and securing a better future for Australians.
The 2019 Budget will focus on four main factors:
- Returning the budget to surplus
- Delivering more jobs
- Providing lower taxes
- Guaranteeing essential services like schools, hospitals, and roads.
As mentioned, the budget will return to a surplus in the coming years. However, this will not come at a cost of higher taxes. Moreover, the promise of delivering more jobs sees a benefit for companies. As Australian consumer spending will grow due to job security, companies stand to see increases in sales. Also, the Budget sees a decline in tax rates which, in turn, makes Australia a more attractive place to invest in.
Focus on taxes – what reliefs are we talking?
In order to enhance business activity and investment, the Government has announced the threshold for the instant asset write-off will be increased to AU$30,000. Access to the write-off will also be expanded to include both small and medium businesses. These businesses must have an aggregated annual turnover of up to AU$50 million.
Medium businesses (aggregated annual turnover of AU$10 million or more to less than $50 million) will benefit. This benefit will come from the increased $30,000 instant asset write-off. This is a write-off for depreciable assets purchased and first used or installed ready for use. Moreover, this benefit will be eligible from 2 April 2019 to 30 June 2020.
As with the existing instant asset write-off, the threshold is applied on a per asset basis. This allows businesses to benefit from the write-off of multiple depreciable assets. The Government had previously announced on 29 January 2019 an increase in the instant asset write-off threshold. This is a threshold from the historical AU$20,000-25,000 for small businesses (those with an aggregated annual turnover of less than $10 million).
The new tax reliefs promise a bright future for any medium or small business that wishes to incorporate in Australia. By gaining benefits in instant asset write-off, companies can allocate costs differently which will lead to an easier road to investments. These investments can further help your business to thrive and make use of Australia’s world-class sectors.
The Government announced it will provide AU$61 million over three years from 2019-20 to support Australian exporters, comprising of:
- $60 million over three years from 2019-20 to the Export Market Development Grants (EMDG) scheme. This additional funding will support the EMDG scheme in assisting Australian small and medium enterprise exporters to increase exports to new markets. Moreover, gain exposure in international markets, develop brand recognition and form relationships with potential overseas customers
- $1 million in 2019-20 to further promote Australian export industries.
Free trade agreements
Also, the government has made progress on free trade agreements to boost exports. These agreements allow businesses to overcome any import or export tariffs when dealing with specific countries. This will further boost international investment and/or business activity. Progress on the following Free Trade Agreements was acknowledged in the Budget:
- The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) was signed by the Australian and Indonesian governments on 4 March 2019. Over time, the IA-CEPA will provide significantly improved preferential duty arrangements or remove tariffs for 99 percent of Australian goods exports to Indonesia.
- On 26 March 2019, the Australian and Hong Kong governments signed the Australia-Hong Kong Free Trade Agreement (A-HKFTA). Upon ratification, A-HKFTA will ensure that goods exported from Australia continue to be entered into Hong Kong duty-free. Meanwhile, tariffs will be eliminated on imports into Australia from Hong Kong.
One of Australia’s most dominant sectors is the agricultural sector. This sector will see benefits in international trade. These benefits could prove useful for, for example, Latin American countries looking to trade.
The Government announced a package of measures to enhance agricultural exports and trade. This is done through increasing export market access and emerging export opportunities. The measures will provide AU$29.4 million over four years from 2019-20 (and $2.6 million per year ongoing), including:
- $5.1 million over four years from 2019-20 (and $0.2 million per year ongoing) for actions to reduce the impact of non-tariff policies on agricultural and food exports
- $11.4 million over four years from 2019-20 (and $2.4 million per year ongoing) to improve technical market access for horticulture exports
- $6.8 million over four years from 2019-20 to extend the Agricultural Trade and Market Access Cooperation program. This will assist Australian businesses to reduce technical barriers to trade for agricultural exports and secure access to premium markets
- $6.1 million over four years from 2019-20 to extend the Package Assisting Small Exporters program. This measure will support small exporters to overcome barriers in export sector participation.
Reach out to us
The 2019 Budget clearly sees an increase in numerous economic fields. Businesses in Australia stand to benefit from reliefs in taxes and job security. Furthermore, the establishment of free trade agreements and support within the agricultural trade is promising. Companies looking to create trade partnerships within one of the dominant sectors are seeing fewer disadvantages.
However, although Australia is one of the world’s freest economies, it’s important to get the right support for setting up business. We can help make sure your commercial expansion runs as smoothly as possible.
Biz Latin Hub offers customized business solutions in a number of market-entry and back-office services. Our Australia and Latin America teams offer expert support to ensure a smooth process for you and your business.
Contact us today and we’ll help you design a strategy to capitalize on your commercial opportunities.