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Business priorities for the 2016-17 Federal Budget

Federal Budget priorities for Australian business Ai Group’s annual survey of Federal Budget priorities reveals that Australia’s high company tax rate is the key concern for businesses across the manufacturing, services and construction industries in 2016. Respondents also ranked balancing the Federal Budget and personal income tax reform as key reform priorities that should be addressed in this year’s Budget (see Chart 1). This is a similar outcome to their Federal Budget concerns in 2015.

Specifically, in this year’s Federal Budget, Australian businesses wish to see:

1. Reduced company tax rate -­ 26% of businesses rank this as their top priority;;

2. Federal Budget balanced in the next five years -­ 18% of businesses rank this as their top priority;; and

3. Reduced/reformed personal income tax -­ 14% of businesses rank this as their top priority.

Also, of the respondents, 14% view increasing government spending on infrastructure as a top priority.

Reducing the company tax rate, balancing the Federal Budget and reforming income tax also featured prominently as a second priority for businesses, with 16%, 20% and 22% of businesses respectively ranking these items as the second highest priorities.

Other policy areas highlighted as a priority by smaller numbers of businesses in this year’s survey included reforming the Goods and Services Tax (GST), reforming superannuation arrangements, reforming industrial relations and boosting expenditure on education.

This is in line with Ai Group’s 2016-­17 Budget Submission handed to the Federal Government earlier this year, which called for a budget that encourages targeting tax measures to boost businesses and improve the resilience of the tax base, ensuring the Budget is on a convincing path to fiscal sustainability and increasing investment in rigorously assessed infrastructure projects.

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Chart 1: Top Two Business Priorities for the 2016-17 Federal Budget

Detailed findings Tax Reform

• Reducing the company tax rate is considered the most vital reform for the upcoming Federal Budget this year, with 26% of businesses nominating this their top priority and another 16% nominating this their second highest priority (Chart 1 and Table 1). Reducing the company tax rate is particularly urgent for construction and services businesses, with 38% of construction businesses and 35% of services businesses nominating this as their single highest priority.

• Businesses also pointed to the importance of reducing or reforming personal income tax, with 36% of businesses nominating this as one of their top two priorities for 2016 (14% as their first and 22% as their second priority). This was a particular priority for manufacturers, with 17% nominating such tax reform as their top priority.

• Continuing the theme of tax reform, several businesses nominated broader tax reform beyond company and personal income tax rates as their highest priority, including increased allowances for depreciation of plant and equipment, changes to the GST, payroll and superannuation taxation.

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Towards a Balanced Budget • Businesses remain concerned about the Federal Budget deficit, with 18% nominating balancing the

Federal Budget over the next five years as their top priority and 20% nominating this as their second highest priority. Construction businesses in particular are keen to achieve Federal Budget balance, with 29% nominating this as a top budget priority.

• Businesses also commented on the need to change government expenditure, with an increased focus on efficiency (less waste).

Infrastructure

• Increasing spending on infrastructure ranked fourth as the top priority for business for the 2016-­17 Federal Budget, with 14% of businesses naming this their first priority and 12% listing this as their second highest priority.

• Infrastructure spending is a particular priority for services and construction businesses with 21% and 19% respectively nominating this as the highest priority. This reflects the desire to see a stronger and more certain forward pipeline of major engineering construction projects, but also the growing requirement to improve infrastructure (e.g. in transport and telecommunications) in urban and regional areas to promote greater business productivity.

• Businesses highlighted that a more efficient infrastructure planning and delivery processes by government would be beneficial, including a reduction in the time taken for government to move large infrastructure projects from the planning stage to implementation and delivery.

Training, R&D and Innovation

• 13% of businesses highlighted maintaining/increasing spending and training and apprentices as their top priority for the upcoming Budget and 13% nominated this as their second highest priority. Training expenditure is especially valued by manufacturers, with 22% listing this as their most important budget priority. This highlights the awareness among manufacturers for improved training and upskilling of workers in the manufacturing industry to improve their productivity and compete in an increasingly competitive landscape.

• 6% of businesses nominated maintaining/increasing incentives for industry R&D and innovation as their top priority, however significantly more businesses (13%) nominated this area of expenditure as their second highest priority.

• Among other areas of expenditure noted by businesses, funding for business innovation, education and assistance for small and regional businesses were all flagged as budget priorities.

Other Priorities

Businesses from the services industries nominated several other issues as their most important priorities. Among their suggestions were:

• Reforming the GST;; • Reforming superannuation taxes;; • Boosting expenditure on general education;; and • Reforming industrial relations legislation.

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Table 1: Business Priorities for the 2016-17 Federal Budget % of businesses that ranked each budget measure as their single highest priority

% Reduce the

company tax rate

Bring the Budget back into balance over the next five years

Reduce / reform personal income tax

Increase spending on infrastructur

e

Increase spending on training and apprentices

Maintain / increase incentives for industry R&D and innovation

Other

Manufacturing 19 18 17 8 22 6 0

Services 35 15 10 21 2 8 7

Construction 38 29 10 19 0 0 0

Small (<20 employees)

26 16 14 12 15 7 3

Medium (20-­100 employees)

24 16 15 13 15 5 4

Large (>100 employees) 31 17 14 17 7 3 0

All Respondents 26 18 14 14 13 6 3

Chart 2: Percentage of businesses ranking items as a first priority, by industry

Some differences in priority were evident across businesses of different sizes:

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• Larger businesses showed a higher preference for reducing the company tax rate, with 31% nominating this as their highest priority. They also ranked increased government spending on infrastructure higher, with 17% nominating this item as their highest priority.

• Medium sized businesses and small businesses showed a higher preference for increasing government spending on training and apprentices, with 15% of both groups nominating this as their highest priority (compared to only 7% for large businesses). Medium and small businesses also showed a slightly higher preference for maintaining/increasing incentives for industry R&D and innovation, with 7% of small businesses and 5% of medium sized businesses nominating the measures as the highest priority (compared to 3% for large businesses). This highlights the relatively higher importance placed on funding for training and innovation by the medium and small business sector in Australia.

Chart 3: Percentage of businesses ranking items as a first priority, by size (employee numbers)

Comparison to previous years Comparing the opinions of businesses over recent years indicates that reducing the company tax rate has remained the highest priority for all businesses for the past three years. Businesses continue to see a reduction in company tax rates as key to improving their performance and competitiveness. This reflects the growing gap between Australian company tax rates and those in comparable international jurisdictions, with many competitor economies offering substantially lower company tax rates and/or lowering their company tax rates over time (for example, in the UK and Ireland and throughout Asia).

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In 2016, fewer businesses nominated spending on infrastructure as their highest priority, with this measure slipping in 2016 to be the fourth highest (in terms of the highest priority). In previous years, infrastructure spending has featured more prominently as the most important budget priority.

Bringing the Federal Budget back to surplus has continued to be a top priority for businesses, moving from third place in the previous years, to second place in 2016 (in terms of the highest priority). This indicates that businesses remain concerned with improving Australia’s budgetary position and cutting inefficient expenditure.

Chart 4: Percentage of businesses ranking items as a first priority, comparison of 2014, 2015 and 2016 surveys

*This item was included as an option in the 2016 survey but was not included in the 2014 and 2015 surveys.

Appendix: Survey question and respondents In early March 2016, 236 Australian businesses responded to this survey question:

The Federal Budget for 2016-­17 will be announced in May. Please rank the following objectives in order of their importance to your business (1 = most important objective and 6 = least important):

• Bring the Federal Budget back into balance over the next five years;; • Reduce/reform personal income tax;; • Reduce company tax rate for all businesses;; • Maintain/increase financial incentives for industry R&D and innovation;; • Increase Government spending on training and apprentices;; • Increase Government spending on infrastructure (e.g. on telecommunications and transport links).

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Table 4: Ai Group survey respondents, March 2016 No. of respondents % of total respondents

Manufacturing 129 8.9%

Services 86 54.7%

Construction 21 36.4% Small (<20 employees) 128 54.2%

Medium (20-­100 employees) 29 12.3%

Large (>100 employees) 79 33.5% New South Wales 63 26.7%

Victoria 94 39.8%

Queensland 43 18.2%

Rest of Australia 36 15.2% Total 236 100%

Ai Group Economics and Research Team Julie Toth Chief Economist (03) 9867 0124 David Richardson Senior Economist (02) 9466 5456 Jesse Oliver Economist (03) 9867 0231 Colleen Dowling Senior Research Coordinator (part-­time) (03) 9867 0251 Elle Spyropoulos Research Assistant (part-­time) (03) 9867 0108