5 May 2016

Australia’s tax system holding back business investment

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Australia’s tax system holding back business investment

Taxation brick wall brick wall by michal-grosicki, Unsplash

Business confidence levels inhibiting asset acquisition intentions

Australia’s taxation system is having a detrimental impact on the asset acquisition and investment intentions of more than one third of Australian businesses (36.6%), a finding that comes despite the Federal Government continuing to try to encourage investment in productivity.

The latest round of the Alleasing Equipment Demand Index (the Index) has found that micro businesses are feeling the pain most acutely, with 42.0% indicating that tax compliance has a negative impact on their capital equipment intentions. The figure is lower for larger businesses, with 33.8% and 33.9% of SMEs and corporates respectively, reporting a struggle.

Examining the data at a location level reveals some interesting differences, with 39.4% of businesses based in New South Wales and the Australian Capital Territory indicating the tax rate impacts their intent to acquire assets. In contrast, 24.0% of Victorian and Tasmanian firms report the same, and even fewer businesses based in Queensland and Western Australia (18.1% and 12.6% respectively).

According to Alleasing’s Chief Executive Officer, Daniel Blizzard, tax is a topical issue at the moment, particularly given businesses turning over up to $10 million have been awarded a reduction in the tax rate as a result of this week’s Federal Budget.

“The government is focussed on finding ways to encourage investment and improve productivity,” said Mr Blizzard.

“Strong uptake of the $20,000 accelerated depreciation measures for small businesses released in the 2015 Budget has been reported, however, it’s clear from our research and our daily dealings with Australian firms, that more needs to be done.

“While the tax reduction for businesses has been welcomed, Australia’s corporate company tax rate will still be higher than neighbouring countries, including Indonesia, Singapore and Hong Kong [1]. In addition, this week’s reduction is not expected to result in the release of enough capital to spur investment in much-needed assets that would also positively impact the nation’s productivity. If this continues, we risk losing investment and innovation.

“Other markets such as the United Kingdom, which successfully implemented an annual investment allowance for certain assets up to £200,000 [2], have seen flow on effects, including an increase in investment and capital expenditure [3].”

Adding to the current challenges, the latest round of the Index also finds that confidence levels are causing many Australian businesses to put asset purchases on hold. The data shows firms are 40.0% more positive about the position of their organisation than they are about the broader economic environment, with as many as two thirds indicating the domestic economy is enough of a concern to hold off acquiring new equipment. Over the past 12 months, the level of confidence Australian firms have in their own operation has risen by 6.0%, while their level of confidence in the economic situation has plummeted 20.0%. This shows that the relatively stable business conditions the Australian government has promoted over the past two years have not translated to increased confidence levels.

It is not just the domestic economy that is a cause for concern, as 41.9% of businesses said the state of the global economy is having a direct impact on asset intentions. This sentiment is likely a reflection of the downturn in the Chinese economy.

While Australian businesses remain concerned about the economic environment and cautious about investment, Mr Blizzard contends that there are some positive signs appearing, namely in the number of businesses that intend to expand their asset base outnumbering those looking to wind back their capital investment by a rate of two to one.






The research and publication of the Equipment Demand Index was conducted under Maia Financial’s previous name, Alleasing. 

About the Alleasing Equipment Demand Index

The Alleasing Equipment Demand Index is a quarterly index, which examines the current asset inventory of Australian businesses, as well as expectations for future investment. More than 1,200 firms that turn over $1-$100M are surveyed each quarter. These businesses have been broken into three segments: micro business ($1-5M annual turnover), SME ($5-20M annual turnover) and lower corporate ($20-100M annual turnover). The inaugural index was run during July and August 2014 – the research is executed by East & Partners on behalf of Alleasing.

Alleasing is a leading, independent provider of asset finance and leasing solutions. We have financed billions of dollars of assets for businesses in Australia and New Zealand during our 25 years of operation.

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