Opportunities arising from Federal Budget

For business with turnover up to $50 million that haven't been impacted by Covid and have free cash flow, the announcement in the budget that all improvements to existing eligible assets, new eligible assets and second hand assets will be able to be immediately expensed if bought between 6 October 2020 and first used or installed by 30 June 2022 represents in my view the biggest opportunity. The logical question arising is how a timing benefit will create or enable long term wealth accretion.

The answer to that question lies in a number of complementary factors that are in play right now. Interest rates are historically low and bank analysts are suggesting about to go lower again with the cash rate tipped to go to 0.1% next month. We are hearing business gaining variable rates under 2% and fixed rates of not much more.

Income tax in the short term appears to be almost a choice for those with capacity and free cash flow. This one needs fleshing out. We think the outcome of the budget is for clients to raise their sights in strategic planning. The obvious answer is to consider equipment requirements and upgrades earmarked for the next 10 years. Should replacements be brought forward to be fit for purpose and positioned for growth.

The bigger picture is to look at expansion of territory with everything that is subject to depreciation being claimed as an immediate deduction on acquisition. This is going to create an inflation bubble of asset pricing in many areas. We see rural land in particular where season and price in the main have been good outside of wool production as being first and foremost of desirable acquisition. We have seen a rapid rise in the price of land with reliable rainfall. That rapid rise is set to continue with the budget stimulus.

We also see opportunities for well managed businesses to duplicate operations into further territory. The main requirements will be capacity to manage and achieve quality control in oversight, capacity to meet demand with people and capacity to meet demand with equipment. Competitively it will lead to further contraction in the number of players in industry with those players getting ever bigger and swallowing the smaller counterparts tax advantageously.

Structurally these combined outcomes will lead to some unintended consequences without doubt for future policy makers to grapple with. For now, the rules of the game have been set and boards have much to contemplate strategically in upcoming meetings.