The Turnbull budget would rather risk the economy than risk the election

My general opinion towards the budget has already been circulated in the media, and yes Business Insider did quote me correctly – the Budget is bull****.

But before I touch on why, I’d like to discuss what incited me to write this article: risk.

As a finance guy, a business-starter and investor, I think about risk in a certain way: namely, that when it comes to risk and return, you don’t get one without the other.

So how does risk equate to this Budget and the economy? Think of it like this: my company, Yellow Brick Road, is a wealth management firm and we investigate and audit each client’s risk preferences before putting any investment strategy forward. But while measuring one person’s tolerance for risk is relatively easy, how do we measure a country? How do we get the risk-reward settings right so capital is encouraged to where it is needed rather than massing in the places where it is safe?

I’ll start by conceding it’s a tough job. But as difficult as it may be, I think the government has made a poor attempt in this year’s budget. The Australian people are chasing big returns, they want to stay up late, eat a burger that’s a little pink in the middle and shop whenever they want. Justin Hemmes is correct: regulating Australia into oblivion will erode any return we hope to enjoy.

Our latest budget was BS because the federal government didn’t take enough risk. Doing too much could potentially cost them the election, but not doing enough for small business and innovation, will probably cost Australia its future.

Thanks to Xero I was part of a fantastic post-budget roundtable recently. It was a great event and it gave me the opportunity to discuss the country’s economic issues with some seriously smart men and women.

Some details:

Immaterial benefits: The company tax rate for small businesses was lowered, from 28.5 per cent to 27.5 per cent. Let’s put that into perspective. A small business earns $100k a year before taxes, now instead of paying $28,500 to the government I’m paying $27,500, resulting in a net saving of $1,000. Do you really think I’m going to hire more staff and expand my business because I’ve got an extra thousand bucks in my pocket? Small businesses need their tax rates cut to 25 per cent now, in 2016, not over the next few years!

The same goes for unincorporated small businesses (sole traders). They’ll get an increase in the tax offset discount from 5 per cent to 8 per cent. But the cap still sits at $1,000, meaning most won’t be any better-off. Again, $1,000 wouldn’t buy a decent laptop let alone any expansionary activity.

Another highlight for small businesses was the widening of accelerated depreciation concessions to include businesses with up to $10m in turnover. This is a great initiative, to be able to depreciate assets under $20,000 straight away instead of over a number of years. But why didn’t they extend the scheme? This time next year, that great initiative will be gone.

The government also pledged to simplify BAS reporting, although they didn’t mention how. The fact that businesses have to collect GST on behalf of the government is absurd. Filling in BAS statements on a quarterly basis is a waste of economic opportunity and real resources.

Misdirected focus: The Turnbull government has been spruiking innovation for the past 6 months, yet the Budget did so little for Aussie start-ups. Announcing a regulatory sandbox for Fintech businesses is a great initiative, allowing testing of new and innovative products without having to jump regulatory hurdles. But why hasn’t this been extended to all industries where start-ups are trying to innovate? And provisioning just $200,000 to promote Australian Fintech? As someone who’s spent a lot on advertising over the years, I can tell you $200k probably amounts to a week of prime-time TVCs and a month of social media marketing. Hardly enough to create impact.

What wasn’t there: Okay, here’s one I might have expected from the innovation government – an immediate tax write-off for start-up investment. Rather than waiting for a capital gain or loss to materialise, there should be an immediate benefit to investors. Early-stage venture is a critical growth space for the Australian economy, but it’s risky and the people who control the capital usually have a good excuse for staying out. We need to do everything we can to incentivise deployment of capital into this asset class. There is over $2 trillion in superannuation and it’s mostly invested in cash, bonds, property, fixed income and listed equities. The Australian government needs to sweeten the pot to move capital flows in the right direction.

My co-panelist at the Xero roundtable – Google’s John Ball – was correct in saying there were ‘no negative surprises’. But this budget was innocuous, designed to have little effect.

Australia needed impact – not getting it will surely set us back.