Go deeper: How SMEs can strategically read the federal budget

If you want a fast overview of the federal budget within hours of its release, SmartCompany, newspapers, professional services firms and more will all publish their key takeaways and opinions. 

However, if you’re building a future strategy for your small-to-medium enterprise and need to make some key decisions, it could pay to dig a little deeper into the budget overview and the various budget papers in their original form. 

The budget is essentially the result of what the government thinks is likely to happen with the Australian and global economy. It contains the government’s plans for both taxes and spending for the coming years — particularly new initiatives and policies. 

This means that getting a grip on the budget can help you see a bigger picture outlook on the economy beyond your own industry. Maybe you’ll spot incentives to expand into a new market, to research or develop, invest in new infrastructure or technology, or better manage your tax position. You might uncover some influences that could impact your business in unexpected ways. Could a childcare subsidy mean you have access to new talent? Could a cybersecurity grant trigger an overhaul of your entire digital approach? 

Here are some tips on how to navigate the overview and papers so you can find these insights quickly.

Get the big picture first: Budget Overview

The best place to begin is the ‘Budget Overview’, which is designed to be the main summary across both the economic/fiscal outlook and the budget’s priorities. 

In the overview, there is typically a section summarising the domestic and global economic outlook, the fiscal strategy adopted by the government, and headline fiscal numbers like tax receipts and government spending. 

Next, in the ‘Budget at a Glance’ section, you’ll find the major themes for the year that the government wants to emphasise. For example, in FY 2020/21, the spotlight was on topics including ‘Lower taxes for hard-working Australians’, ‘Supporting housing construction’, and ‘Supporting Australians through the Pandemic’, among others. 

For FY 2021/22, leading themes could include digital economy and childcare. Also, look out for any details on any more targeted support for particular sectors as we transition from JobKeeper to JobMaker support.

Along with the overview, the government also tends to publish ‘Fact Sheets’ to provide a more detailed breakdown of these priority areas. Last year, it was no surprise that in the depths of COVID-19 that ‘Economic Recovery Plan for Australia’ was top of the list.

These are all a useful start, but it’s always worth diving into the budget papers to find anything that might be really specific to your sector. 

The deeper detail: Budget Papers

If you want a much deeper insight into the thinking behind the government’s initiatives, the budget papers are the official version of the figures. These traditionally contain hundreds of pages of information, so it’s important to know where to look. The budget papers tend to be organised in a consistent way year-to-year. They are:

Budget Paper 1: Economic and Fiscal Outlook

This paper covers the budget strategy and the economic and fiscal outlook underpinning it. 

The federal government and the economy are in a two-way relationship, in that a strong economy means more tax revenue and also lower unemployment benefits, which all improve the budget balance. Meanwhile, tax cuts and government spending can stimulate the economy, as we saw in the significant spending package to support the economy through COVID-19. 

Therefore, the budget reports both on the overall state of the economy — including Gross Domestic Product (GDP) growth, inflation, unemployment, and the outlook in major trading partners. It also reports on the headline fiscal outlook — the state of the government taxes and spending. 

This analysis is like getting a huge piece of economic research done for free, every year. It also covers what has changed since the last budget and Mid-Year Economic and Fiscal Outlook (MYEFO, published in December), so you can think about what those changes might be indicating.

Budget Paper 2: Budget Measures

This covers the budget measures, such as changes to taxes and spending, and it is organised by federal government portfolios. There are also more details on where the money will be spent in each initiative, and whether these initiatives will be offset by cost savings elsewhere in the portfolio.

Budget Paper 3: Federal Financial Relations

Paper 3 covers federal financial relations, which is the flows of funds between the Commonwealth and the states and territories, broken down by state and by type of payment. 

While a lot of the media reporting tends to focus on things like the GST, this is also where a large proportion of spending on health, education, skills, infrastructure, and environment flows through, as much of this is run by state/territory governments.

If your business relates to any of these areas, this paper is worth a look. However, you may also want to look at your local state/territory budget as they tend to combine payments from the Commonwealth along with their own funding to provide these services.

Budget Paper 4: Agency Resourcing

This covers agency resourcing, for example, the budget for each individual government department and organisation, and for both existing spending and new initiatives. 

There’s a lot of detail in this section, but much of it is about the internal accounting about what pieces of legislation authorised particular areas of taxes or spending (which is not so relevant outside of government law-making). 

However, it is worth looking at where areas of spending are increasing and decreasing in parts of government that are relevant for you. Decreases might be because one-off initiatives announced in previous budgets are coming to a close — not a point that the government tends to publicise.

Tips for interpreting these budget figures

Now, let’s work through an example of how to read a table within the budget. 

The table below is from the FY 2020/21 Budget Overview, Appendix C, page 46.

On the left, each row describes a budget initiative. The next four columns to the right are the planned government spending (in millions of dollars) over the next four financial years. 

The ‘total’ column to the far right is the combination of each year of spending, which is known as a ‘forward estimate’. Forward estimates can make for a bigger ‘spending announcement’ that captures headlines, but there might only be a small fraction of that spend in the next year. 

In the table, you’ll see a big difference between short-term initiatives like the JobKeeper Payment extension, which is spent entirely in FY 2020/21, and longer-term initiatives like the Modern Manufacturing Strategy, which is mostly spent in future years. Therefore, the middle columns are important to look at, as the timing of the spending could make a big impact on your strategy. 

Other terms to look for in the budget figures include:

Receipts/Revenue: This describes money received from taxes, and also charges, for example licence fees or visa fees. Receipts measures when money actually hits the government’s accounts, while revenue is based on accruals, so measures when money is committed but not necessarily paid yet (e.g., GST gets paid after BAS).

Payments/Expenses: This describes money spent by the government on things like staff, but also money given to states and territories (e.g., for health and education funding), or money sent directly to households and businesses (such as grants and aged pensions). Again, payments are based on cash, and expenses are based on accruals.

Balances — cash, operating and fiscal: These are the equivalent to the ‘bottom line’ for the federal government. However, unlike a for-profit business, these are commonly negative — partly as a result of the government needing to stimulate the economy, and partly because it has access to very low-interest loans (and can print money if it really wants to!). The cash balance is obviously based on cash, operating balance is based on accruals, and fiscal balance takes this operating balance and includes the value spent on new capital investment, such as infrastructure spending.

Looking ahead

Whatever the nature of your SME, if you can get under the lid of the budget, there’s a chance that there will be something in there that could impact your strategy for the next 1-4 years.

Start with the big picture before diving more into the details, then think about what it means for your decisions in the year ahead.