Second Reading SpeechMr Billson (Minister for Small Business)
That this bill be now read a second time.
This bill amends the tax law to help small businesses and primary producers to invest, grow and innovate.
It provides accelerated depreciation arrangements as outlined in the Growing Jobs and Small Business package and the new framework for drought preparedness, both of which were announced in the 2015-16 budget.
It was a budget that has been widely welcomed. ACCI CEO Kate Carnell said, 'Small business is the engine room of the Australian economy, so support for these businesses will boost overall jobs and investment. The government's measures will help to restore confidence among small businesses.' New South Wales Business Chamber CEO Stephen Cartwright said, 'These measures will be particularly well received in regional Australia, where unemployment is at its highest and job opportunities are limited.'
Small businesses play a significant role in the Australian economy, particularly as a major employer and contributor to our economy.
Small businesses make an important contribution. Ninety-six per cent of all Australia's businesses are small businesses. They employ over 4.5 million people. They are adaptable and able to respond profitably to changing circumstances and where opportunities are identified.
Small businesses are often the entities that test and pioneer innovative ideas and business practices which are critical to future economic growth, job prospects and living standards of our country.
Small businesses produce over $330 billion of Australia's economic output. While this is a very significant role in the Australian economy, small businesses face a unique set of operational challenges, and, as a consequence, face typically higher failure rates than larger companies. This makes it particularly important that the right policy settings be in place to support small business growth and innovation.
This is why the government announced in the budget the biggest jobs and small business package in the nation's history, and it was the centrepiece of the 2015-16 budget. The package includes a tax cut for incorporated small businesses, tax relief for unincorporated small businesses and accelerated depreciation arrangements. These measures were designed to help small businesses grow, compete and employ more Australians.
Farmers too play a pivotal role in the Australian economy; they are at the heart of our national identity and provide vital livelihoods right across our continent. 115,000 businesses report that they are in an agricultural industry and that is the main focus of their business activity. A further 13,900 report agriculture as a secondary activity to their enterprise.
Farmers are a significant employer, particularly in regional areas. These businesses make up 52 per cent of Australia's land mass. Ninety-nine per cent of agricultural businesses are Australian owned.
The value of agricultural production was worth over $50 billion in 2013-14, contributing to around two per cent of Australia's gross domestic product and 15 per cent of total Australian merchandise exports.
In 2013-14, agriculture exports were worth around $40 billion, with over 60 per cent of production exported to more than 100 countries.
The agricultural industry plays an important role in the social fabric of Australia, being recognised by the government as one of the five pillars of our economy; the industry has a prime place in our nation's history, current economic good fortune and future.
Agriculture is one of the sectors on which the prosperity of our nation is increasingly reliant. The government has laid the foundations for a stronger agricultural sector. We have reduced regulation, removed the carbon tax, increased export market access, invested in infrastructure, refined the settings for foreign investment and secured FTAs with China, Korea and Japan.
Stronger farmers mean a stronger economy, and we are focused on strengthening the competitiveness of the sector.
Boosting the competitiveness of the agriculture sector will contribute to our nation's broader economic growth, jobs, trade, innovation and productivity.
However, farmers have to cope with significant challenges, including severe weather events. Currently, some parts of the country are subject to unprecedented drought and large parts of the North have experienced a third failed wet season. This affects the financial position and wellbeing of farmers, their families and the surrounding rural communities, and the economies that depend upon them. Helping farmers through times of drought is in our national interest.
Considering the significant role farmers play in our economy, it is important they are provided with support and encouragement to better manage their risks and prepare for extreme weather events.
The government is committed to providing the necessary support to Australian farmers to help them prepare for drought, and to provide them with a better tax system.
In addition to providing farmers with a simplified accelerated depreciation regime, the government is providing more money to:
- continue the Drought Concessional Loan Scheme and the Drought Recovery Concessional Loan Scheme for an additional year;
- assist farmers to reduce the impact of pest animals in drought affected areas;
- fund civil and civic infrastructure projects in drought affected areas through grants; and
- extend existing social and community support services for farmers to 70 local government areas that are experiencing a severe and prolonged rainfall deficiency.
Schedule 1 to this bill amends the small business simplified depreciation rules in the tax law, to increase the threshold for immediately deductibility for capital assets.
The schedule will significantly increase this threshold from the current level of $1,000 to $20,000. This will mean that any small business buying an asset costing less than $20,000 will be able to immediately deduct the full cost of the asset. This measure is available for any business asset purchased and installed, ready for use, between 7.30 pm (Australian Eastern Standard Time) on 12 May 2015 and 30 June 2017.
This is a massive increase in the threshold and a massive gain to cash flow for small businesses. CPA Australia CEO Alex Malley said, 'By allowing small businesses to immediately deduct assets costing less than $20,000 is a positive move which will support vital and much needed business investment.'
Currently, small businesses purchasing assets above $1,000 have to depreciate these assets over multiple income years. In some cases this imposes complex record-keeping requirements on small business, and it also reduces their cash flow.
This government is returning small business's profits to its owners and allowing them to make the decision which best suit them, the decisions that allow them to grow their business and employ more Australians.
As part of the increased threshold, any assets that individually cost $20,000 or more can be pooled together in the general small business pool and depreciated at 15 per cent in the first year and 30 per cent each year thereafter. Once an asset is placed in the pool, there is no requirement to track that item. This reduces paperwork and frees small business to get on with what they do best, and that is to deliver jobs and economic opportunity through their enterprise and private endeavour.
The pool itself may also be deducted entirely if its value is below the $20,000 threshold at the end of any financial year between 7.30 pm 12 May 2015 and 30 June 2017.
The law currently includes 'lock-out rules' that stop small businesses that elect out of the simplified depreciation scheme from re-entering for five years. To ensure fairness and the broadest availability of this measure, this schedule relaxes those rules so that the higher threshold is available. This will allow all small business entities to access this measure.
Consider an electrical business that purchases tools and other equipment for their small business. These tools can be expensive and the rules around depreciating them can be time consuming to understand. Under the expanded accelerated depreciation measure, this business can write off each and every item under $20,000 that is purchased and brought into operation before 30 June 2017.
Schedule 2 of this bill amends the tax laws to provide a more simplified accelerated depreciation regime for all farmers, in three ways.
Firstly, the schedule will allow all primary producers to immediately deduct capital expenditure on fencing.
The current depreciation for fencing is complex, and can vary depending upon the type of fencing asset. For example, currently, a general farm fence may be depreciated over 30 years. An electric fence, on the other hand, may be depreciated over 20 years. An energiser for this electric fence is depreciated over a different period again.
If the fence is used for landcare operations for example, to segregate a section of land which may be affected by land degradation its cost is immediately deductible.
If a farmer makes a repair to an existing fence, the repair costs are immediately deductible.
From 7.30 pm( Australian Eastern Standard Time) on 12 May 2015 that great budget night for small business, family and farming enterprises rather than repairing an existing fence, which can be costly and time consuming, farmers can instead immediately deduct the cost of installing a new fence. This will reduce red tape and complexity.
Farmers will no longer need to keep track of expenditure over extended periods of time. Farmers will have more cash in their pockets to spend, to invest and to pay off debt. New investment may also boost farm productivity.
Consider our friend Jake the farmer. If he installs 25 kilometres of new fencing, at a cost of $25,000, on his cattle farm, under the current system he is able to depreciate his fencing costs over a period of 30 years. Jake can claim a depreciation deduction of $833 each year.
Now, Jake will be able to deduct the full cost of $25,000 immediately.
These additional deductions mean Jake will pay less tax if he makes a profit. Assuming Jake's marginal tax rate is 39 per cent, including the Medicare levy, his tax liability will be reduced by $14,742. This means Jake will have more to spend, to invest and to use to retire debt.
The second and third amendments under this schedule will encourage primary producers to prepare for and manage drought risks.
Extreme weather events, such as drought, are an unavoidable reality for many farmers. Farm preparedness, such as having available sufficient feed and water, is vital to surviving extended periods of drought.
Under this schedule, capital expenditure on water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills will be immediately deductible.
Currently, water facilities are depreciated in three equal amounts, over three years.
Farmers will now be able to invest in new irrigation systems, build a new dam, install a new pump and be able to immediately deduct that cost for tax purposes.
The schedule will also allow capital expenditure on fodder storage assets such as silos to store animal feed, tanks to store liquid feed supplements and hay and grain storage sheds to be depreciated over three years.
Having fodder on hand is important for farmers during drought periods. Currently, a farmer wishing to prepare for drought who invests in a steel silo would need to depreciate and track the expenditure of that asset over a period of up to 30 years. Under the amendments, this is reduced to three years.
Consider Robyn, a farmer who purchases a steel silo, at a cost of $21,000, for the storing of animal feed on her farm. Currently, Robyn is able to depreciate the steel silo over 30 years and claim a depreciation deduction of $700 per year.
Now, Robyn will be able to depreciate the silo cost of $21,000 over three years, giving her $6,300 more in deductions in each of the first three years.
These additional deductions mean that Robyn will pay less tax if she is making a profit.
Assuming Robyn's marginal tax rate is 34.5 per cent, including the Medicare levy, her tax liability would be reduced by $4,127 in each of the first three years, meaning that she will have additional funds to invest, to pay off debt or to spend.
Accelerating the depreciation on water facilities and fodder storage assets will mean more money in farmers' pockets for investment in drought preparedness, a simplified depreciation system and an increase in farm productivity.
Full details of the measures are contained in the explanatory memorandum.
The government is the best friend of small business and farmers. The 2015 budget is where we demonstrate our bona fides to that claim. I particularly want to recognise and respect the great work of the 'shy and retiring' Minister for Agriculture, Barnaby Joyce. He has been an outstanding advocate and has crafted the primary production measures that are part of this budget. The bill is one of several that will implement the small business and primary producers measures announced in the budget, therefore putting in place further significant acknowledgment and recognition in the tax law of the importance of small business, and of farmers, to our economy and our communities.
The measures are appropriate and they are affordable. I call on all members to give their early and full support to this bill. I commend the bill to the House.