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As expected, the Federal Government announced a surplus in its 2012/13 Budget.  But behind the Budget headlines there were some unexpected surprises for businesses.

The big news for businesses is that the 1% cut to the company tax cut would be abandoned.  The cut was due to start on 1 July 2012 for smaller companies, extending to larger companies the following year.

The cut to the company tax rate would have assisted all businesses, but especially those on the slower lane of the two-speed economy, by reducing taxes and boosting returns.

But all is not lost for businesses.  The Budget does introduce a new change to the business tax system.  One that was recommended by the Government’s Business Tax Working Group.  Allowance will now be made for businesses to carry back losses against taxes paid in previous year.  There are restrictions – the scheme is only available to incorporated companies - but it is a start.  Firms will be able to write back losses of up to $1mn against profits made over the previous two years.  The potential benefit is worth an additional $300k of cash flow to support struggling firms.

But not every business is incorporated.  The tax loss scheme is expected to assist up to 110k businesses a year. 

Thankfully, for other businesses, particularly small businesses and sole traders, the Government has kept the $6,500 instant asset write off for the purchase of business assets.  This benefit for businesses was announced in last year’s Budget, but commences on 1 July.  Additionally, all businesses will also be able to access the $5000 write-off for business vehicles (new and old) from 1 July.  Both of these measures will be particularly helpful for small businesses, as they improve cash flows – the lifeblood of firms.

Whilst not on the “big ticket” radar, there were a number of further enhancements to skills training, which will help boost the availability of skilled workers in the economy, and improve skills standards.  These will help businesses and the economy over time.  For those businesses struggling to locate skilled workers now, the Budget did increase the skilled migrant intake by 5,000 places in 2012/13.

The abandonment of the company tax cut didn’t disappear into the Budget ether.  The funds were redirected to households, in the form of increased income support payments and the schoolkids bonus.  Whilst this might result in a payoff for the government with the electorate, it may also have some indirect benefits for businesses.  The money directed to households is being provided at the lower and middle ends of the income spectrum – where the propensity to consume the additional funds is highest.  If it results in households beginning to spend again, than that could be a benefit for businesses after all.

For further insights into what the Budget means for your business please see CBA’s dedicated Budget website - www.commbank.com.au/federalbudget

James McIntyre, Senior Economist, Commonwealth Bank  www.research.commbank.com.au  http://www.commbank.com.au/futurebusinessindex