Budget stimulus – Is it real?

200x150-MoneyIt was great to see that finally, in the national budget recently handed down by Treasurer Joe Hockey on behalf of the Federal Government that the government has moved the national economic agenda away from pessimism and forward onto a discussion on growth and the need to stimulate demand. It has clearly moved away from it’s almost tunnel visioned focus on austerity.

We watch with amusement when the consumer confidence graph ticked up immediately following these announcements and the politicians, as a consequence, declaring that the worst was suddenly behind us. However, the truth is that the need for economic stimulation and a positive perspective has been desperately required for at least the last 3 years. Regrettably however it seems that those in Canberra can only come to support this conclusion when their own political future hangs in the balance.

Be that as it may, the real question is … “was the much lauded $20K spending/tax deduction for small business real or just a good news story that will blow away without any real impact on the desired stimulus being injected into the economy?”

Unfortunately, in reality, the crisis of confidence is not completely over and the small business leaders we talk to every day take a very simplistic and accurate approach to this type of news. While theoretically the idea of an immediate full tax deduction on capital items purchased in the next 30 days appears attractive the facts are as follows: –

Firstly, any small business still does not want to part with the $20,000 in the first place because they are still not convinced it will, on its own, materially help their profit situation.

Secondly, in a more and more aggressive market place, margins have been hammered over the last 5 years and thus many, if not all small business have lowered prices in order to keep sales up and thus their businesses afloat, ipso facto this is why Joe Hockey and the Treasury keep announcing that tax revenues continue to plummet. So getting a tax deduction for a business that turns over less than $2 million, with little or no profit may mean that they aren’t actually able to claim it, thus receiving a true benefit, because they have not generated enough profit in the first place!

Finally, confidence from business owners as opposed to consumers also requires an adrenalin shot. Spending in the non-mining sector has been heading steadily south since 2008. Mining is now following suit. Consequently many think this gesture is nice however it’s not going to be near enough to convince small and medium size business that the government is now convincingly on their side.

Notwithstanding, let’s be happy that finally we are seriously (we think) looking to a future, and that maybe, as a Nation, we have learned that while austerity if often required to survive, you cannot simply cost cut your way to growth. Let’s hope from the Federal Government (as a whole) that this first shot of positive stimulus will not be their last.  The real crux will be if the whole of the Parliament is able to formulate some plans that they all back, that business can rely on, and finally will outlast the next election.

 

 

Richard is a Director at Condon Associates Group leading the Forensic and Business Turnaround Services . For more information call us on1300 939 129.

 

For Western Sydney Business ACCESS paper, June 2015 issue. Copyright © 2015 FIT Practitioners