Tax changes announced in the Federal Budget this month will help to grow the nation’s scale in manufacturing and have been welcomed and applauded by the Australian Advanced Manufacturing Council.
About 870,000 small businesses will have their tax rate reduced from July 1 after Treasurer Scott Morrison announced a 1 percentage point tax cut to 27.5 per cent, and said the threshold for small businesses able to access it will be increased to turnover of $10 million, from $2 million.
“In order for Australian companies to compete globally, they must increasingly achieve scale, keep pace in their process technologies, and supply higher value products,” said Jennifer Conley, Executive Director of the Australian Advanced Manufacturing Council. “These tax changes support that growth.”
The changes should be “truly applauded,” Ms Conley said. “Lowering the corporate tax rate over time is a positive support for the ambition of many of our small businesses to become medium-sized – and even large-sized.”
The AAMC had asked for a change in the definition of small business to revenue of $20 million to better reflect the reality and pressures of global competition for advanced manufacturing SMEs
“We’re delighted they have met us half-way,” Ms Conley said.
Ensuring these entities gain full and reasonable benefit from ATO allowances for small business will support their growth and continued viability into the future, she said.
The changes are the first part of a 10-year “enterprise tax plan” to bolster opportunities for small to medium-sized businesses. By 2020, more than half of all employees of companies in Australia will be in companies paying a lower tax rate of 27.5 per cent, Morrison said.
A combination of annual changes to tax rates and threshold turnover levels will bring all companies progressively closer to a universal 25 percent company tax rate by 2026-27. Over the first four years of this program (to 2019-20), the lower tax rate will deliver an estimated $2.650bn in tax savings while increasing the ‘small business’ thresholds will deliver a further $2.180bn.
While Australia’s advanced manufacturers are achieving great things in the face of intense global competition, the conditions are tough. Revising the threshold to better reflect the reality of viability for a small business will allow Australian companies to operate on a more level playing field vis-à-vis their overseas competitors, Ms Conley said.
With significant technological shifts occurring in manufacturing, companies must keep pace globally to compete. Commercial applications for artificial intelligence and machine learning are expanding, robotics is entering a new phase, and significant advances are occurring in nanotechnology, 3D printing, genetics, biotechnology, chemistry and materials science.
Treasurer Morrison also outlined a plan to broaden access to the lower 27.5 per cent tax rate to larger companies with a turnover of up to $100m by 2019-20, with the higher threshold phased in over the next four years.
In innovation, the Budget also confirmed measures previously announced in the National Innovation and Science Agenda late last year, and built on them as follows:
- $18.8mn over 4 years for the Digital Transformation Office to create a Digital Marketplace for SMEs involved in delivering government services.
- Establishing Data61 (formerly National ICT Australia plus CSIRO’s digital research unit) to address cybersecurity, blockchains and digital supply chains.
- Facilitate crowd-sourced funding schemes.
- Changes to bankruptcy and insolvency laws and access to claiming losses on tax.
Reduced holding period from three years to 12 months for angel investors to access the 10-year capital gains exemption.
The Growth Centre program continues as before.
There was no change to the R&D program at this stage.
For defence, the Budget confirms a commitment to securing “an advanced defence manufacturing industry here in Australia to drive high tech jobs in the decades to come”, and confirms funding for defence as outlined in the Defence White Paper and Defence Industry Policy Statement. Defence funding will grow to 2 percent of GDP by 2020-21.