Federal Budget 2008

Since the last federal election, Australia has been quite enamoured with Kevin Rudd and his new world order.  I think it's just been nice not to have a figurehead that's a spiteful blithering idiot.

It hasn't been all roses though.  We've seen Rudd position himself as a jet-setting diplomat on the world stage, seemingly more interested in capitalising on his inbox full of invitations to conferences than in actually sitting in that office he's won.  I'm sure it's an ego boost to finally get on the political b-list, but really, it's only the political b-list after all.  Nothing to brag about.

We've seen sweeping changes to the industrial relations system which have had minimal effect on workers, as the previous system wasn't nearly as bad as the propaganda made it seem.  We've seen plans being made, and conferences held to attract grass-roots opinion about Australia's direction for the future, but the true nature of this Labor government can be seen not in its lofty and idealistic 2020 wish-list, but in what it is doing right now.

Australia has had incredible good fortune on the global natural resources market.  Due largely to this, but also to the previous government's commendable fiscal policy and initiatives to promote business, Australia has experienced the kind of economic growth we'd always hoped would bolster our presence on the world stage.

Of course everything comes with a price, and the price for success has been high inflation.  At a slightly concerning rate of 4.2%, and with food-related prices rising at the highest rate of any developed nation in the world, it was clear that something had to be done.

The Reserve Bank of Australia has been caught between a rock and a hard place, though.  Immediate measures for slowing the economy usually involve an increase in interest rates, but with food and housing prices at record highs, increases in interest rates are pushing lower-income families below the poverty line.  Particularly those paying exorbitant interest rates already, due to the sub-prime lending fiasco.

When talk of the impending budget began to surface, people prepared themselves for inevitable measures to deal with the inflation, but nobody was quite prepared for the dramatic gouging in areas offering no inflationary benefit whatsoever.

Business Gets Shafted

The budget lays down an unprecedented $21 billion surplus for 2008-09, despite tax cuts and massive spending in health and education, most of which is welcome, but some of which is quite frivolous and misguided.  The good news is, at least they're doing what they promised.

I won't rehash the broad strokes as they've been all over the news and are quite readily available.  Instead I want to address a few features of the budget which I think are entirely unnecessary, and do very little to curb inflation.  In fact, they may instead do lasting damage to Australia's performance on the world stage.

Before I begin my whinging, I'd like to bring some numbers to light, with regard to small business in Australia.  Here the bracket defining small business is quite a lot smaller than in other (more populous) nations.  The Australian Bureau of Statistics defines small businesses as those employing less than 20 people.  This type of business makes up approximately 98% of all business interests and employs just under 50% of the entire private sector workforce in this country.

Unfortunately the Rudd government doesn't seem to feel that small business is particularly important.

Commercial Ready: Cancelled

The Commercial Ready program is a $700 million initiative designed to help small business actualise the potential of their product by helping with the daunting issues of manufacturing and distribution, both domestically and internationally.

Axing this program sends the deplorable message to SME, that they are not valued by this government and that Australian innovation and export performance is not considered a worthwhile investment of 0.08% of GDP.  Shameful.

Of all the cuts this one is the worst, as effective commercialisation of innovative ideas has always been one of the biggest hurdles for Australian small business.  This program was one of the most welcome government initiatives in a long time, and now it's gone.

BESB: Cut

The Building Entrepreneurship in Small Business program helps business startups by providing incubation services and otherwise costly advice and mentoring with regard to effective organisation, management, knowledge retention, legals, succession planning and many others.

The government has decided to cut funding for this program by $10.5 million over the next four years, which, as far as I can work out, is a bit under 20% of it's overall budget.  This will put a significant dent into a resource which was already swamped with applications it was forced to reject due to lack of funding.

Programs like this may seem trivial, but they help clueless small business run more efficiently and ultimately improve the dismal success rate of entrepreneurship, leading to increased employment.  In this instance, a little bit goes a very long way.

National Nanotechnology Strategy: Cut

This is both an extremely interesting and extremely useful area of science.  An $11.7 million cut to nanotech research is appalling, when what's really needed is a massive cash injection if Australia is expected to participate in this field.

With an expected $21 billion surplus, and nanotech funding having nothing whatsoever to do with curbing inflation, it's hard to understand how this cut in funding helps anyone.  It also seems entirely at odds with the enormous amount of money being spent on education.

Sure, spending on education is great if you're not burning money on handing out laptops to pacify the clueless masses, while simultaneously trashing research initiatives which might actually give some of these well-educated kids an avenue in which to use their science-based qualifications.

Global Opportunities: Slashed

The GO program assists Australian industry to bid for work in global supply chains and major international projects.  It also encourages multinational enterprises to make further investments in Australia.

The $62.6 million dollar cut represents about a quarter of overall funding, essentially telling those hopeful businesses to GO home, because clearly attracting international competition doesn't matter.

Taxes

Obviously business was going to have to take a hit as part of a belt-tightening budget, but what surprises me is how many of the cuts are aimed squarely at very small business which is invariably buckling under the pressure of loans and the high cost of transport/fuel and renting premises already anyway.  There's extremely little money left over when starting a small business, so it's difficult to justify any of this under the inflation banner.

Access to a tax offset for entrepreneurs has been slashed to the tune of $90 million.  Fringe Benefits Tax has also been tightened which will hurt small business more than anyone else.  Having the business pay for training materials and courses, or the mobile phone which is sometimes used for personal calls, or driving the kids to school in the company car, is often enough to keep new business owners in the game.

FBT is also an essential component of salary packaging for their employees, and tightening it will cost small business $1.3 billion over the next four years.

Changes to depreciation on computer software is also expected to cost business $1.4 billion over four years, which is a particular kick in the teeth for niche industries which rely on very expensive purpose-specific software in order to run their business.

Is it Really That Bad?

Ultimately this budget has it's good points, but for small business it's borderline disastrous.  Unfortunately this seems to reflect party policy which is why most small business owners would have gladly put up with the Howard government's rampant idiocy in other areas.

As much disdain as you may have for the man personally, or his policies on refugees, the monarchy, or whatever, Howard's government was the grease that kept the cogs of Aussie business turning.

Rudd inherited a huge wad of cash, a manageable inflation problem, and a "horrible" industrial relations system which saw unemployment at record lows of 4.1% -- and he complained about it.

For the sake of us all, I hope I won't get a chance to say 'I told you so', but I fully expect to be linking to this post a few years from now, talking about the good old days before Rudd.