KPMG Enterprise’s pre-budget survey paints a significantly different picture from our last survey, carried out just ahead of the October 2020 Budget.
The survey of 100 mid-tier business leaders and directors found two-thirds (68 percent) had either used government support through COVID and were ‘emerging with confidence’ or said that new opportunities had emerged as a direct result of the past year’s experience. Less than half responded that COVID-19 or other factors had negatively impacted their business.
Notably, only one-third of respondents expected the ending of JobKeeper to lead to a significant decline in economic activity and higher unemployment – this compared to two-thirds in our last survey. Almost one-half had used JobKeeper.
In encouraging signs for future growth and innovation, one third took advantage of the Instant Asset Write-off and plan to follow suit with the R&D Tax Incentive.
It was positive to see strong support for innovation measures like the early stage investor incentive; innovation tax incentive; software-specific development and collaboration premiums. The government’s e-invoicing program was also largely welcomed, increasing both productivity and efficiency.
Of course, there are still challenges. The biggest, once again, was cost and margin pressures, followed by supply chain problems and recruiting skilled staff. Reduced revenue and demand, and changes to consumer spending were also prominent issues.
At some point the debate will turn to paying back Australia’s COVID-related debts. Our clients favoured moves to raise productivity as the best way to do this with major tax reform also playing a role.
No-one wants tax rises, but if there must be one, then GST was the preferred option. No doubt, this is difficult territory, but it reinforces the view that Australia already has an over-reliance on direct taxes.
The mid-tier sector also favoured the two-tiered company tax-rate system remaining, under which smaller companies pay a lower 25 percent rate – until public finances allowed the higher rate for larger companies to come down.
The debts and the emergence from COVID-19 have seen a significant ramp-up in ATO compliance activity. ATO programs directed at the top 500 and ‘next 5000’ privately-owned groups, as part of its wider Justified Trust tax assurance program aimed at Australian businesses and wealthy family groups, are now in full swing; understandably the survey found 50 percent concerned about this.
I was concerned that nearly half the respondents stated they are well prepared for the additional compliance activity – despite nearly two-thirds saying they do not currently have documented tax risk management frameworks.
These systems are a key part of proper tax governance in the eyes of the ATO and in my view some businesses have a degree of unfounded optimism about their state of readiness.
Finally, there was significant support for ownership succession to take place in family businesses without tax implications.
This is a curious anomaly of the Australian tax system which effectively penalises organised succession planning in family companies while the owner is alive yet there is no tax impact on transfer when they die.
KPMG research has shown that Australia is an outlier and we need to change our approach to give a boost to family-owned enterprises.
Our survey shows Australia’s mid-tier businesses are up for the challenge, but we need to change our approach to give a boost to family-owned enterprises – which comprise
around two-thirds of all businesses – as they emerge from COVID-19.
It is important that the tax system doesn’t make that harder.
