Mid-tier businesses confident, KPMG Enterprise pre-Budget survey finds

KPMG

Australia’s mid-market businesses are upbeat, and markedly less worried about the ending of the JobKeeper program than they were six months ago, KPMG Enterprise’s annual pre-Budget survey finds.

The survey of 100 mid-tier business leaders and directors found two-thirds (68 percent) had either used government support mechanisms 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 said that COVID or other factors had negatively impacted the business.

Only one-third expected the recent ending of the JobKeeper scheme to lead to a significant decline in economic activity and higher unemployment. This compared to two-thirds in the equivalent KPMG Enterprise survey just ahead of the October Budget last year. Almost one-half had used JobKeeper and one-third the instant asset write-off scheme.

The biggest challenge seen by mid-market businesses was once again cost and margin pressures, followed by supply chain problems, then recruiting skilled staff. Reduced revenue and demand, and changes to consumer spending were also prominent issues.

In terms of paying back Australia’s COVID-related debts, raising productivity resulting in revenue growth was strongly favoured over tax increases. Tax reform was considered key to this achieving this extra productivity. But if any single tax had to rise, then GST was the most nominated option.

Clive Bird, KPMG Enterprise National Tax Leader said: “It is heartening to see Australia’s mid-tier sector, the backbone of the national economy, feeling upbeat and a lot less fearful about the ending of JobKeeper than they were six months ago. Many have accessed government support schemes over the past year and are now emerging with confidence.”

“A significant number have taken advantage of the Instant Asset Write-off and plan to do so with the R&D Tax Incentive, both of which are encouraging signs for future growth and innovation. It was also positive to see strong support for innovation measures like the early stage investor incentive; innovation tax incentive; software-specific development and collaboration premiums.”

He added: ‘While nobody wants tax rises, it is clear that if there has to be one, then GST was the option chosen by respondents. This is consistent with our last survey. This is difficult territory but there is a clear business view that tax reform is needed and we need to move away from Australia’s over-reliance on direct taxes.”

The large debts and emergence from COVID mean that a ramp-up in ATO compliance activity has commenced and the survey found half of businesses concerned about this. ATO programs directed at the top 500 and ‘next 5000’ privately-owned groups, as part of the wider ‘Justified Trust’ tax assurance program aimed at Australian businesses and wealthy family groups, are in full swing.

Clive Bird said: “It is concerning that nearly half of businesses believe they are well prepared for the additional compliance activity – yet nearly two-thirds say they do not currently have documented tax risk management frameworks. This is a key part of proper tax governance as the ATO sees it and I think there may be a degree of unfounded optimism about the readiness of many businesses and family groups.

“I can understand reluctance to invest in documenting tax risk management procedures where taxpayers don’t see an immediate value add – but this is now a clear expectation from the ATO, and a key focus of each review program. Given the ATO focus on tax governance and justified trust, documentation is essential but relatively few taxpayer groups are prepared.”

Other survey findings showed significant support for ownership succession to take place in family businesses without tax, and for the two-tiered company tax rate system to remain until finances allowed the higher rate for larger companies to come down.

Clive Bird said: “It is curious that the Australian tax system 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 in this respect, and 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.”

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