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Budget boost is a confidence catapult for SMEs

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Small and medium businesses will play a critical role in returning the South Australian economy to good health if ambitious growth targets flagged by the State Government in last week’s big-spending budget are to be met.

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That’s the view of BDO Adelaide Business Services Partner David Fechner who says the State Government is putting its money where its mouth is and is now urging consumers and businesses alike to have that same confidence and follow them on the path to recovery.

As part of Tuesday’s Budget announcements, the State Government revealed it is predicting the state economy will shrink by 0.75 per cent in 2020-21 before bouncing back strongly to grow by a healthy 4.25 per cent in 2021-22.

Ambitious Gross State Product forecasts of 3 per cent per year have also been made for 2022-23 and 2023-24 in line with national predictions.

A second round of $10,000 cash grants for small business, an extension of payroll tax relief and funding for public sector apprentices and training positions are among a fresh ‘adrenalin hit’ to keep SA businesses afloat.

It is injecting $4 billion into the SA economic recovery and will leverage another $1 billion in commonwealth, council and business funding to inject $5 billion into the local economy.

Treasurer Rob Lucas said the Reserve Bank of Australia had done all it could to tweak monetary policy.

“The heavy lifting now needs to be done by governments in terms of fiscal policy,” he said.

“Governments cannot be concerned about debts and deficits… if we are going to respond to a global pandemic then that is what we have to do and that is what this budget is seeking to do.”

Among the continued boosts for business include the introduction of an extra six months’ payroll tax waiver for businesses with grouped annual wages under $4 million.

In addition to the existing nine-month waiver, this means eligible businesses won’t have to pay any payroll tax for 15 months – or until July next year. That is expected to assist around 2400 business groups and save them up to $210,000 over 15 months.

The government is also introducing a 12-month payroll tax exemption for wages paid to new apprentices and trainees who begin a relevant contract of training with an employer from today to June 30 next year.

An extra $220 million over four years has been allocated to the Economic and Business Growth Fund, to attract further job-creating investment into South Australia and encourage growth of new and existing industries.

Fechner said the targeted government spending to support small and medium enterprises was welcome.

“I think they are looking to back business to grow jobs and that is really what South Australia needs to be doing,” he said.

“This is what I’m sure the state government would like businesses to be thinking about and certainly the exploration of those opportunities and that competitive advantage is what BDO would like businesses to be thinking about as well.

“We need a government that’s making life easier for business, that improves the cost effectiveness of business in South Australia and gives confidence particularly to our small and medium enterprises to employ and to know that the government is putting more money out there into the economy so hopefully that will lead to increased demand for services and products.”

Coupled with a predicted $3.8 billion hit to SA’s GST revenue from 2019-20 to 2022-23, the additional stimulus spending will blow out state debt.

Budget papers show public sector net debt will blow out from $17.45 billion in 2019-20 to $33.17 billion in 2023-24. This financial year is predicted to be the most damaging to the state’s debt position with public sector debt blowing out by more than $5.5 billion in 2020-21.

However, Fechner said the benefit of pumping money into the economy at the moment far outweighed the burden of additional debt, particularly at a time of record low interest rates.

“The cost of debt at the moment for the state government is ridiculously low so despite the fact that over the period of the four-year estimate the government is talking about nearly doubling debt, their interest cost for the period compared to just six months ago is significantly lower.

“The government is backing business and the economy.

“But can they get that growth in GSP and therefore create that growth in GST collections where they will get an increased payment from the Federal Government to provide for continuing services and to pay that debt back down again?”

BDOs annual State Business Survey was held this month just prior to the budget.

Fechner said the survey showed business confidence was on the rise even before last week’s wide-scale spending announcements.

“The results from our survey in terms of business confidence ahead of the State Budget were very encouraging particularly given everything that business has been through,” he said.

“Business expectation is high and as long as consumer confidence remains up then these significant growth numbers that we’re talking about over the next two to four years are achievable.

“We also have significant commitments from the Commonwealth Government in terms of spend in South Australia for Defence over an extended period of time and again that should provide some more confidence that there will be disposable income in South Australia.”

The State Budget also provided $32.9 million of additional funding for 750 new traineeships and apprenticeships in government agencies and funded projects, as well as providing more TAFE funding.

“Always when we survey business, the ability for companies to attract and retain suitably skilled staff continues to be a challenge,” Fechner said.

“We were very interested this year in the survey to see that 47 per cent of respondents indicated that education from university and TAFE developed graduates with suitable skills, so that’s up from 38 per cent the year before.

“The government’s been throwing a lot of money at TAFE and those results would indicate that they are making some headway there so that’s good to see.”

The $8.9 billion plan to complete the North-South corridor from Tonsley to the River Torrens was unveiled as the jewel in last week’s State Budget.

The 10.5km project will include two tunnels with construction in two stages from 2023 to 2030.

“They’re spending a lot of money and I think they did a pretty good job of identifying projects and really tried quite hard to not have many bad news stories in there given the amount they are looking to spend,” Fechner said.

“There is now certainty around the North-South Corridor – not only that it’s happening but also certainty for businesses along that corridor that they now have some understanding of when their business will be affected or property acquired and when we’ll get past all the interruption from it.”

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