With the 2022-23 Budget around the corner, the Government has announced cashflow support and red tape reductions for SMEs.

SME support ¹

Treasury this week has announced cash flow support and red tape reductions for small and medium businesses (SMEs). The initiative forms part of the 2022-23 Budget review as the Government has committed to a package of measures resulting in reduced red tape and boost in cashflow for more than 2.3 million small businesses. The program promises to create further opportunity for SMEs by saving $800 million each year on compliance costs, which will be dedicated to these SMEs to invest, innovate and create more jobs for Australians. The support will be delivered via various channels:

Lowering tax instalments in 2022-23

The GDP uplift rate applicable to PAYG and GST instalments will be set at 2% for the 2022-23 income year – lower than the 10% that would have applied under the statutory formula. This will result in $1.85 billion in additional cash flow support,  which will now flow directly to SMEs that are eligible to use the instalment amount method. 

Aligning instalment payments with financial performance

The Budget includes new technology to automate tax reporting and align instalment payment obligations with financial performance. This technology capability will reduce compliance costs, processing times and support cash flow management for SMEs.

Improved cash flows through an improved pay as you go instalment system

Businesses will be allowed to calculate PAYG instalments based on financial performance from 1 January 2024, which will assist in cash flow management. If financial performance deteriorates, businesses may be eligible for refunds of instalments paid automatically. These new measures will initially support 500,000 businesses with PAYG.

Facilitating pre-filing of payroll tax returns through data sharing

The Government will enable the sharing of single touch payroll data with states and territories on an ongoing basis, to allow for pre-filling of payroll tax returns. This will achieve improved accuracy of data collected, reduce compliance costs and save time for 170,000 businesses that are subject to payroll tax reporting obligations. Implementation is expected by late 2023.

Smarter reporting of taxable payments

Eligible businesses will have the option to report taxable payments and reporting system data via software at the same time as activity statements. This will be on an opt-in basis for businesses and would mean that they will no longer need to invest time and resources into filling out the yearly Taxable Payments Annual Report. Around 190,000 businesses that contract for services such as; building and construction, cleaning, freight, security, investigation, surveillance and IT services are required to fulfil this obligation annually. Implementation is scheduled for 1 January 2024.

Digitalising trust income reporting

Eligible businesses will have the option to report taxable payments and reporting system data via software at the same time as activity statements. This will be on an opt-in basis for businesses and would mean that they will no longer need to invest time and resources into filling out the yearly Taxable Payments Annual Report. Around 190,000 businesses that contract for services such as; building and construction, cleaning, freight, security, investigation, surveillance and IT services are required to fulfil this obligation annually. Implementation is scheduled for 1 January 2024

Monthly Household Spending Indicator – January 2022 ²

Household spending increased 4.3% through the year up to January 2022 when compared to January 2021. The rise was across seven out of nine spending categories, largely driven by spending on recreation and culture up 11.3%, food up 9.7% and clothing and footwear up 9.6%. The reduced COVID-19 restrictions in place meant that households shifted their spending to hospitality and retail venues.

All states and territories, bar the NT that spent a portion of this month in lockdown, recorded increases in household spending. WA and VIC led the shift up 7.1% and 6.0% respectively.

Household spending

Inflationary pressures are beginning to flow directly through to households and their daily spending habits, supported by the 3.5% annual increase in consumer price index reported up to the December 2021 quarter, this is largely due to the rising costs of fuel. We would expect to see household spending somewhat restricted as they are forced to battle the rising cost of living caused by domestic and global economic shifts.

The announcement of the Budget next week will also provide further colour on how this will play out. If Government support is provided directly to households, this could assist in affordability of everyday items and combat the inflationary pressures flowing through to the end consumer. This will also impact the RBA’s rate decisions in the months to come.

Portfolio Management Commentary

The news this week has been fairly consistent with our letter last week. Inflationary pressures continue to persist as the supply chain faces ongoing disruptions due to the recent NSW and QLD floods, the evolving conflict in Ukraine and China’s COVID-19 lockdowns.

A new uptick in COVID-19 cases, suggests we are facing another wave, although with Omicron now circulating freely in the community we expect to see the worst of the workforce and broader economic impacts now behind us. There is always the threat that a new variant may emerge, which could result in some economic and social uncertainty.

Over the past few weeks, we have been able to ramp up face-to-face meetings with both our existing lenders and new prospective lenders, which has been a welcome change. We believe developing strong relationships and meeting regularly with our lenders is a key part to our businesses success and look forward to being able to do so more often as life returns to normal.

1 Cash flow support and red tape reduction to help small business - Treasury

2 ABS – Monthly Household Spending Indicator – January 2022

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