A review of the major implications for business.

27 January 2022

Mid-year 2021-22 economic and fiscal outlook (MYEFO) and the run up to the 2022 federal budget and election.

Key points:

• The Federal budget is scheduled for 29 March 2022, which means that the federal election must occur before the end of May 2022.

• The largest item in MYEFO is the $15 billion mystery box which is noted as a “decision taken but yet to be announced”.

• Forecasts from the Treasury state that the underlying cash balance is a deficit of $99.2 billion, a $7.4 billion improvement since last year’s budget. This is largely due to $45 billion in income tax receipts from individuals, companies and superannuation funds.

• The underlying cash balance is expected to remain in deficit each year through to 2031-32.

• Unemployment is expected to reduce to 4.35% in 2022-23

  
  
  

Economic overview and analysis

Recovery to gather momentum through 2022 as household consumption and business investment drive the upswing in growth.

• Due to the lockdowns in NSW, ACT and Victoria, economic growth projections have softened for 2021-22.

• Due to both the Federal Government’s instant asset write off, inclusive of businesses to bringing forward investment spending and catch-up expenditure which was unable to be spent during the delta related lockdowns, non-mining investment is set to boom throughout 2022.

• Monetary stimulus through Quantitative Easing (QE) is to be pared back during 2022, however this is dependent on the economy not experiencing another major setback and better than expected employment.

  
  
  

Restructuring Business

Underpinning the forecasted growth and recovery of Australian businesses in 2022 are both the ongoing federal and state stimulus packages maintaining employment, supporting businesses and households; and high levels of vaccinations that support the reopening of the economy.

Another impact of the high levels of government stimulus over the last 12 months has been on the business insolvency levels, which are currently 50% below the long-term pre-covid normalised indicators. In addition, where financial stress has occurred many businesses, organisations and individuals have had difficult dialog with their financial institutions (e.g. banks and landlords) resulting in agreements such as deferrals, waivers and rescheduling of financial obligations.

Small and mEdium enterprises

In response to small and medium enterprises (SMEs) struggling to obtain financial support in a changing operating environment, the Federal Government has extended the SME Loan Recovery Scheme until 30 June 2022. This opens the door for businesses with a turnover of less than $250 million to be able to apply for loans of up to $5 million with a term of 10 years, with a guarantee from the Federal Government for 50% of the loan.

Outlook

As ever since the pandemic began, businesses should be alert and adaptable to change but not alarmed by the potential challenges of the next 12-24 months. There will be some structural headwinds which will affect the wider economy such as:

• Increased borrowing costs as we return to normal interest rate.

• Ongoing labour and supply chain issues impacting input costs, margins and working capital cycles

Action points

• Businesses that have experienced a long-term change in their market or operating environment should be taking proactive steps to adapt their business model

• Corporates and individuals should be modelling the impact of potential increases to borrowing costs and/or input costs, and have appropriate plans in place to respond to these challenges

• Where signs of distress persist, contact Gunderson Briggs for advice.

  
  
  

Corporate Income Tax

The introduction of Government Bills to Parliament would see an extension of the ability for eligible companies to carry back tax losses and benefit from full expensing of eligible asset purchases by to 30 June 2023. This would enable corporate tax entities with an aggregated turnover of less than $5 billion to carry-back losses generated in the 2022-23 income year to offset previously taxed profits in the 2018-19 or later years. In addition, temporary full expensing is proposed to be extended for a further 12 months until 30 June 2023.

The previously announced extension to the temporary treatment of certain state COVID-19 business grants as non-assessible non-exempt (NANE) income has been implemented by the Government. This entails that tax payers that receive funding from eligible state COVID-19 grant programs will not be taxed on receipts up to 30 June 2022, which has been extended from 30 June 2021. An extension has also been applied to certain Commonwealth COVID-19 support programs to be treated as NANE grants.

The MYEFO forecasts an increase in company income tax receipts for 2021-22 of $18 billion (22%) when compared with the 2021-22 Federal Budget.

Funding for ATO compliance program

In order to fund the ATO’s review activity through to 30 June 2023, $111 million has been committed to fund the ATO’s personal income tax and shadow economy compliance programs.

Employee Share Schemes

The removal of cessation of employment as a taxing point will apply to all deferred taxing points occurring from the 1 July following Royal Assent, which is welcome news for employee share scheme participants. This is a change from the prior announcement under which this measure was to only apply to grants made after Royal Assent.