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The Federal Budget released on May 9th, conveyed a clear message that businesses must forge their own path and not rely on government-led initiative to reshape the Australian economy and navigate the impending challenges.  Regrettably, the business sector is likely to perceive this Budget as a missed opportunity, as the government has shied away from implementing more visionary reforms.  So, what are the reasons behind this perception?

Economic Challenges and Gloomy Outlook:

• Soaring inflation and interest rate hikes have led to a decline in business conditions, reaching their lowest level since early 2022.
• The gloomy outlook is further reflected in declining forward orders and below-average confidence in the business sector.

Forward orders, [is a leading indicator of the economic outlook], fell to 1 index point.  The decline in this headline figure was driven by a 4-point drop in trading conditions sub-index, and the data suggests the economic environment is becoming more challenging as higher interest rates cause the economy to cool.

• Westpac senior economist, Andrew Hanlan [recently] said: “The flow of forward orders has dried up as the economy slows and lacks momentum – that is in stark contrast to the sustained strength in new orders through October 2021 to October 2022 during the reopening phase”.

Implications for Businesses:

• The RBA expects unemployment to increase as households reduce spending in response to higher interest rates and cost-of-living pressures.
• Although inflation is predicted to fall from 7% to 4.5% by the end of the year, the jobless rate is forecasted to rise from 3.5% to 4%.
• NAB chief economist, Alan Oster said cost pressures remained high, but the data suggested a gradual easing of inflation in the early stages of the June 2023 quarter, with JP Morgan economist, Tom Kennedy saying the figures were broadly consistent with an economy that was losing momentum and agreed with the NAB which supported the idea that inflation has most likely peaked.

Budgetary Constraints and Lack of Structural Reform:

• Despite the peak in inflation, businesses will continue to face cost pressures and ongoing challenges.
• The budget lacks significant structural reforms to support businesses during the projected economic tightening.
• Only a few positive measures, mainly focused on energy efficiency, have been introduced to support businesses.

Forecasted Economic Challenges for Businesses:

• Economic activity is expected to decline from 3.25% this year to 1.5% next year.
• Real wages are projected to continue rising, reaching 4%, as employees try to catch up with recent high inflation.
• Access to the labour market will remain competitive, despite a net migration of almost 1 million people over the next three years.

Compliance Measures and Support for Businesses:

The Australian Taxation Office (ATO) has received increased funding to enhance compliance oversight and taxpayer reviews, targeting those evading income tax and GST obligations.  And as such:

• Businesses recovering from the COVID-19 years are encouraged to engage with the ATO.
• An amnesty program is available for SMEs with an aggregate turnover of less than $10 million.
• The ATO will remit failure-to-lodge penalties for outstanding tax statements originally due from 01 December 2019 to 29 February 2022, will be remitted if lodged by 31 December 2023.
• Businesses are required to align superannuation and PAYG payments to improve compliance and boost employee returns (and business administration).
• Small businesses can benefit from the $20,000 Instant Asset Write-Off and the Small Business Energy Incentive.

How can you take action?

Amidst all the challenges discussed above, one factor remains paramount: cash flow.  It is crucial to ensure that your business can cover expenses, fulfill commitments, and meet ATO obligations promptly while navigating the uncertainties of an unpredictable market.  BCashflow Positive provides a solution by enabling businesses to unlock the funds tied up in outstanding customer accounts.  This allows you to address operating expenses, meet ATO obligations, and ensure timely wage payments, effectively resolving cash flow challenges.

Ensuring Financial Resilience: Key Takeaways

As businesses navigate through 2023 and 2024, they face significant challenges such as inflation, interest rate hikes, and economic tightening.  While the government’s budget may have missed some visionary reforms, businesses can still find opportunities within compliance measures and support programs.  By prioritising cash flow management, businesses can overcome uncertainties and improve their financial resilience.  For more information, contact our cash flow experts at BCashflow Positive on 1300 937 292.