Australia is experiencing the highest inflation in 40 years driving higher prices and forcing up interest rates, all as a result of war and escalating the risk of another global recession.
When a new Government delivers its first Budget, it sets the tone for its leadership. Since being elected, Labor has prepared Australians for a “solid and sensible” Budget where its “two-Budget” approach funds Government promises while also claiming to find $22b in savings over four years.
But what does this mean for your business? What do Australian businesses need to watch out for if we’re hurtling into a recession? How do the key spending highlights of the Budget address current and potential economic issues while helping Australian businesses maintain profitability?
Businesses have been impacted more than ever by the effects of climate change; first the bushfires and then flooding. These natural disasters have already come at a huge cost to the economy with $3b set aside in this Budget for natural disaster recovery with future costs to come. There is no escaping the effects the recent floods will have on inflation with fruit and vegetable prices likely to increase by 8 per cent by the end of the year.
In response, the Government has set an emissions target of a 43 per cent reduction in 2030 and net zero for 2050, however, we have not yet received any policies on how these targets will be achieved and who will actually pay for the targets to be realised.
Most mid-sized businesses are in a position where their stakeholders are demanding transparency and disclosure on their Environmental, Social and Governance (ESG) policies. As businesses aim to become carbon neutral and certified as net zero, it means increased requirements and extra costs which must be managed. Businesses are looking to Government to legislate compliance and mandate policies, as well as monetary assistance to cover costs and implementation.
In addition, our economy continues to suffer the effects of talent shortages creating a disconnect between the unemployment rate and the number of available skilled workers. Wages growth is at its lowest point in ten years. We hope the immigration measures to welcome skilled workers from overseas, and the Government’s $1b investment in education to create additional training places boosts employment figures.
Governments have typically turned to taxes to generate revenue in the Budget and this time around, Labor’s proposed Multinational Tax rates to rewrite certain tax laws could potentially recoup close to $1.1b that will make a significant dent in our overall debt. On the flipside, these restrictions on MNEs could deter their investment in Australian business.
The Government spoke about a future of Made in Australia and highlighted the key areas of manufacturing clean energy, medical manufacturing, new technologies, agriculture, and critical minerals. It’s easy to talk about domestic manufacturing but, will the $15b National Reconstruction Fund have enough funds and clear direction for Australia to become more independent?
This is the fourth Budget delivered in the last two years which have mostly consisted of short-term reactions from Government to deal with the COVID-19 pandemic. This Budget was based on a rationale encompassing the effects of natural disasters, a deteriorating global economy, rising inflation, a shrinking workforce, and ongoing supply chain pressures. The commitments revealed in this budget are the starting point of a more sustainable budget expected in May 2023 and are underpinned by a long-term strategy.
Businesses are looking for real change and real improvements that go beyond the current news cycle. It will be interesting to see if these measures taken by the Government will help resolve the budget deficit and keep Australia’s economy moving forward.
