Big spending on jobs and tax, but many sectors face tough times for a while yet
The Morrison Government has delivered what has been touted the most significant budget since World War II. In this article, we focus on the key takeaways for Moores clients in the sectors we serve.
This year’s budget showed a continued commitment from the Federal Government to support independent schools, with $12.8 billion allocated under the Quality Schools Program. Funding levels in 2020 are stable compared with previous years, with more significant funding increases projected for 2021-2022 ($14.66 billion). In light of the fastest growing part of the sector being low fee (and therefore heavily funded) schools, this increase will be needed to meet demand.
Despite this, pressure on non-government schools continues. Many schools are still facing:
- ongoing lack of access to international students unable to return to Australia;
- increased costs of operation arising from the need to comply with new COVID-safe requirements;
- fee pressure from parents in circumstances where schools are often locked in to salary increases; and
- the cost of complying with new regulations, including for registration and for boarding houses.
School management will see the relaxation of FBT requirements, including the elimination of FBT on re-training for people re-deployed due to COVID-19 and simpler means for schools to complete FBT returns.
On curriculum, the budget does provide a large STEM package of $27.3M over 5 years which will bolster the coffers of key industry groups partnering with schools to deliver STEM content.
There is also help for students and families, including:
- a number of initiatives to help disadvantaged students via key charities including the Clontarf Foundation ($39.8M supporting young indigenous men), the Smith Family ($38.2M supporting disadvantaged young people moving from year 12 into work or study) and a $25M Government Fund with a mandate to respond to educational challenges occasioned by COVID-19; and
- support for mental health of students by providing parents with mental health and career information in the midst of this pandemic via a $5M Prioritising Mental Health Initiative.
Childcare & Early Education
Earlier in the year, the Federal Government injected $2.6 billion of funding into the sector as part of its COVID-19 Response Package through childcare subsidies. Victorian out-of hours-care and childcare centres will continue to have access to those subsidies (albeit at a reduced rate) until the end of January 2021.
Notwithstanding the importance of this sector to our economy, there are really no new other spending initiatives. There is a renewed one year commitment to the Universal Access National Partnership, which is an initiative designed to ensure that every child has access to a quality preschool education for 600 hours (15 hours a week) in 4 year old kinder. However, sustained capacity building is unlikely to be promoted without a multi-year commitment.
Moores welcomes the removal of red tape to new entrants to childcare operation. Part of the budget measures include “reducing red tape” in order to making it easier for early childhood education and care centres to get approval to operate. We look forward to the detail of this initiative.
Not for Profit Sector
COVID-19 has placed significant strain on the NFP sector. Moores’ clients report that demand for their services have never been higher, yet their funding sources are constrained, partly because their donors are also under financial pressure. Many flagship fundraising events and campaigns have been cancelled or modified, resulting in less revenue. Church and community halls which are normally booked with functions or after-school activities have been closed without any hire fees for the owner despite the ongoing costs of operation.
The Federal Government has earmarked $2.9 million over the next three years to strengthen the Australian Charities and Not-For-Profits Commission (ACNC) capacity to carry out field based compliance reviews of charities at high risk of failing. It appears that this may have been prompted in part by responses to natural disasters, including the much-publicised Celeste Barber appeal which arguably failed to meet the expectations of a significant proportion of its donors.
The ACNC Governance Standards are principle-based standards – each charity must carefully consider how to apply the standards in their own context to ensure compliance. With increasing ACNC oversight, charities must not only be compliant, but must be prepared to provide evidence of compliance if and when required.
Meeting increased demand for services, funding constraints and (in the case of charities) managing ongoing compliance obligations will place significant strain on some NFPs. This may result in increasing mergers and collaborations to maintain operational efficiency and impact. Regrettably, in some instances it may also result in winding up for some organisations that cannot continue to operate.
Many NFPs have not been eligible for JobKeeper, either because they do not meet the decrease in turnover test or because they pursue their objectives principally outside Australia (unless they are international aid organisations). Pleasingly, the JobMaker initiative discussed below may be available to NFPs who have not received JobKeeper.
Employment Hiring Incentives
Much has been made in the media about the JobMaker credit. The credit is available for new jobs created between 7 October 2020 and 6 October 2021. The aim of the program is to encourage employers to create new jobs for individuals who have received a JobSeeker payment, Youth Allowance or Parenting Payment. Employers claiming the JobKeeper payment are not eligible for the credit.
The credit ($200 a week for 16 to 29 year olds, and $100 for 30 to 35 year olds) is for jobs involving at least 20 hours of work per week (on average), and the employee can be hired on a permanent, fixed term or casual basis. Employers need to report this and other tax and superannuation information to the ATO through “Single Touch Payroll (also known as “STP”).
The incentive does not make age discrimination lawful. The policy was framed in this way in order to encourage non-JobKeeper businesses to create entry level positions, which tend to attract younger candidates. Given that the labour market is in turmoil, employers might find older candidates applying for those positions. It will be important for employers to maintain records documenting their decisions to ensure that selection processes are meritorious and not discriminatory.
Industrial Relations & Enterprise Bargaining
The centrepiece of the Federal Government’s budget is income tax cuts for lower and middle income Australians. Some businesses that are struggling in this environment may be dreading the prospect of another round of enterprise bargaining with locked in increases for the next three years.
For those employers, it will be worthwhile to crunch the numbers on the benefit their employees may receive as part of this package.
Enterprise bargaining under the Fair Work Act requires parties to engage in “Good Faith Bargaining”. There is no legal requirement to commit to pay increases that a business cannot afford. Particularly in these turbulent uncertain times, employers can legitimately take income tax cuts into account when bargaining for wage increases. (Note: in its most recent minimum wage determination, the Fair Work Commission took into account the impact of tax policy on low paid workers.)
Parental Leave Scheme – relaxation of eligibility
Changes have also been announced to supported paid parental leave for new parents (by birth or adoption) who earn less than $150,000 a year.
The eligibility criteria relating to adoptions and births between 22 March 2020 and 31 March 2021 have been relaxed. Parents earning less than $150,000 a year will now be eligible for paid parental leave payments if they have been working during at least 10 months of the last 20 months before the birth/adoption (relaxed from 10 months out of the last 13 months previously). This initiative will help parents who have lost their job due to the pandemic remain eligible under the Scheme.
Elder Law and Granny Flats
Moores commends the announcement that the Federal Government is supporting older Australians and their families by providing a targeted CGT exemption for granny flat arrangements where there is a formal written agreement in place. The CGT exemption will enable older Australians and their family members to protect their interests should they decide to live together.
Granny flat arrangements refer to an arrangement where an older person cohabits with their adult child and often their family. Commonly the older person contributes funds to acquire or renovate a property (or contributes the property itself) so that the extended family can live together. The arrangement often also includes provision of care or support to the older person. All too often, what seemed like a good idea at the outset becomes unmanageable over time due to a familial relationship breakdown, the increasing care needs of the older person or unexpected difficulties associated with cohabiting.
Historically, formally documenting a “granny flat” agreement or family agreement that documents the arrangement has had the potential to give rise to a CGT liability on the sale of the property. Moores has dealt with a number of instances where family members in dispute have entered into informal granny flat arrangements in order to avoid potential CGT consequences.
Implementing the CGT exemption will allow older Australians and their family members to document their arrangements and protect their interests should they decide to live together, without facing any significant tax consequences in future.
Although welcoming the additional funding for the National Housing and Finance Investment Corporation (NHFIC), the budget did not contain major announcements or new direct funding to increase the supply of social or crisis housing. This was a little surprising in the face of so many economists and experts encouraging government to stimulate the economy by building this kind of social infrastructure.
Perhaps a missed opportunity, the theory must surely be that better employment outcomes afforded to many will flow through to alleviate demand. It will now be for housing providers to seek funding opportunities directly through other means, including philanthropy, State or local governments, corporate partnerships and charitable donations.
Our clients in social and crisis housing continue to respond with innovation and grace to COVID-19, including re-purposing unused property for people experiencing homelessness and adapting face-to-face services so they can still be delivered in a safe way.
This budget was devised to get Australians employed and paying less tax.
Moores supports initiatives which will improve employment and the economy, as, in doing so, key sectors which look after and support others will also thrive. For more information, please do not hesitate to contact us.