The Budget Fallout and What It Means for SMBs
By Timothy Pope, Senior Manager
This was quite a significant budget, as confirmed by the long-tail media coverage we’ve seen over the past few weeks.
From an insolvency and restructuring perspective, it’s clear that the budget was intended to support long-term reform objectives, but there’s concern about the short- to medium-term stress it may create for already fragile businesses and leveraged investors.
The budget clearly signals a shift away from supporting passive asset inflation and toward productivity, tax integrity and housing supply reform, or at least it’s certainly trying to. Whether that eventuates, we will have to wait and see.
The measures around negative gearing, CGT changes, discretionary trust taxation and broader anti-avoidance settings are significant structural reforms rather than just responses to recent cyclical economic measures.
From a restructuring perspective, that matters because Australian SMBs are deeply intertwined with discretionary trust structures, property-backed borrowing, leveraged investment strategies and intergenerational asset ownership models.
The proposed 30% minimum tax on discretionary trusts alone could trigger a major wave of restructuring activity over the next several years.
Whether that restructuring is informal or formal remains to be seen, but businesses will reassess entity structures, succession planning, and tax efficiency. Trust lawyers will certainly benefit greatly over the next few years!
Overall, it’s an economically ambitious, politically bold budget, and potentially destabilising for marginal businesses already under financial pressure.
Businesses Were Already Under Pressure
One of the biggest issues is that many businesses were already operating with weakened balance sheets before the budget landed.
Higher interest rates, compressed margins, reduced consumer spending and rising ATO arrears are all creating pressure across the SMB market.
Insolvency statistics probably aren’t yet fully capturing the underlying stress.
Many businesses are surviving through delayed creditor payments, invoice financing, funding from directors or related parties, and simply accumulating tax debt.
There’s also been a softening in asset values. During COVID, businesses couldn’t get cars or heavy machinery, so second-hand markets were extremely strong. That environment has changed significantly.
The Sectors Most Exposed
Construction, transport, hospitality and retail remain the sectors most exposed.
In construction, businesses are still dealing with fixed-price contracts signed during peak inflation, alongside labour shortages, fluctuating material costs and project delays.
One subbie goes down, or the project developer goes down, and the domino effect to other parties involved in the project can be significant.
Hospitality and retail businesses continue to feel the impact of reduced discretionary spending. People are staying at home and bunkering down whilst we ride these interest rate rises.
Transport and logistics businesses are also heavily exposed, particularly to fuel supply disruptions and broader economic slowdowns that are impacting freight demand.
If the temporary fuel excise reduction is not extended, and petrol & diesel prices go back up, transport and logistics are going to feel it.
Has the Budget Done Enough?
It’s not all doom and gloom.
There were some positive measures for small businesses in the budget, although they haven’t had the headlines that CGT and negative gearing reform received.
These included:
- the permanent $20,000 instant asset write-off
- expanded loss carry-back provisions
- startup loss refundability
- more flexibility around PAYG reporting and payments
- venture capital incentives
Those reforms should improve cash flow flexibility and restructuring options for viable businesses.
But at the same time, broader tax changes reduce investor confidence, property market liquidity, refinancing flexibility and access to private capital.
That combination can materially affect distressed businesses because Australian SMBs often rely on property equity, trust distributions, related-party lending and investor appetite to survive downturns.
What Accountants Should Be Looking At
With the May tax return deadlines now passed, this is a good time for accountants to conduct a thorough financial health check on clients’ businesses.
It’s a good time of the year to assess how businesses are looking.
Areas worth paying closer attention to include:
- ATO debt positions
- PAYG flexibility changes
- payday super obligations
- fuel-related support measures
- equipment finance arrangements
One practical issue many businesses overlook is equipment finance consolidation. Many businesses have equipment leased from multiple financiers and lenders, and consolidating those arrangements can sometimes improve cash flow and simplify repayments.
ATO Enforcement Pressure Is Rising
One of the biggest concerns moving forward is the increasing enforcement activity coming from the ATO.
Director penalty notices, garnishee notices and winding-up applications are all increasing, with directors increasingly being pursued personally for unpaid GST, PAYG withholding and superannuation liabilities.
There’s no meaningful relief from the ATO’s enforcement pressure.
Over the next two to three years, there will likely be:
- increased insolvency events
- more restructuring activity
- Higher voluntary administration volumes
- increased creditor enforcement
The trust restructuring measures will also create legal and transactional complexity that many SMBs simply aren’t prepared for.
Ultimately, the budget feels like a long-term play and an attempt to correct broader structural issues in the economy. For many SMBs already operating under pressure, the short-term fallout could be significant, so having trusted advisors in their corner will be a critical future-proofing strategy.