Brokers advised to reassess SME cover after Budget stimulus
The insurance industry has applauded a “strong” federal Budget and its promise for an update on hazard mitigation, while brokers are being urged to reevaluate small business arrangements after targeted incentives worth billions were introduced.
The Insurance Council of Australia (ICA) says the 2020-21 Budget, delivered last night by Treasurer Josh Frydenberg, is a welcome and strong step towards Australia’s recovery from the COVID-19 pandemic and devastating summer bushfires.
The National Insurance Brokers Association (NIBA) provided a summary of the most pertinent measures for brokers, including temporary full expensing until mid 2022 of eligible depreciable assets for about 3.5 million businesses with turnover up to $5 billion.
These businesses will also be able to offset tax losses against previous profits and tax paid, helping companies that were formerly profitable but now find themselves in a loss position due to COVID-19.
Temporary loss carry back will be available to about 1 million companies.
NIBA says allowing businesses to access their losses earlier, by way of a cash refund, will provide a needed cash flow boost.
“Clearly the federal government wants to take whatever opportunity it can to stimulate the economy and recover from the situation that has had to be in place because of the health challenges of COVID. Now the focus is back on the economy again,” NIBA CEO Dallas Booth told insuranceNEWS.com.au today.
“So far the most relevant information for insurance brokers as business owners – and their clients – are the business tax initiatives that are predicted to help businesses grow and assist in our overall economic recovery.”
The Budget includes $98 billion in response and recovery support, including $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker Plan.
NIBA says the full expensing measure creates a strong incentive for businesses to bring forward investment to access the tax benefit before it expires, and combined with the loss carry back measure, $31.6 billion in tax relief is estimated for businesses.
Brokers should liaise with clients armed with full understanding of what the new initiatives mean from an insurance perspective, for example clients planning a significant capital upgrade may need to alter their sum insured.
Mr Booth tells insuranceNEWS.com.au NIBA is working to make sure SMEs are aware of these key budget features, and that brokers too can make an informed decision in relation to their own business.
“There are two purposes: it’s for their own business and so that they discuss matters with their clients and be well informed,” Mr Booth said, adding that existing cover “needs examination.”
ICA CEO Andrew Hall said Mr Frydenberg’s statement that further announcements in relation to natural disaster mitigation will be made in response to the royal commission into national natural disaster arrangements was encouraging, and noted $7.6 million has been pledged to upgrade the Australian Community Climate and Earth System Simulator (ACCESS).
Currently only 3% of natural disaster funding is spent on resilience and mitigation.
“When that response comes, the Federal Government must take a lead on building a more resilient Australia,” Mr Hall says. “A significant investment is required.”
The Actuaries Institute of Australia President Hoa Bui acknowledged a $20.9 million allocation for disaster risk reduction, part of a broader $130.5 million package over five years to support resilience to natural hazard disasters, but also called for more resources to be allocated.
The Institute is hopeful the just-finished royal commission will recommend the creation of greater natural disaster resilience measures to combat the escalating economic impacts of climate change when it delivers its conclusions at the end of the month.
"Timely investment to mitigate the potential impacts of climate change will protect future budgets from significant adverse effects,” Ms Bui says.
The ICA welcomed a $5.7 billion commitment to mental health and wellbeing and says the Australian Bureau of Statistics should be funded to urgently conduct a new national survey into these issues.
Actuaries Institute CEO Elayne Grace applauded the government’s support of women, particularly through initiatives for STEM (Science, Technology, Engineering, Mathematics) education measures.
The Budget forecasts the deficit will hit $213 billion and net debt will reach $703 billion and says the economy is set to shrink 3.75% this calendar year, then grow 4.25% in 2021.
Unemployment was forecast to peak at 8% in the last three months of 2020 and to stay above 6% until mid-2023.