In the 2018/19 Mid Year Economic and Fiscal Outlook (MYEFO) the Treasurer, the Hon. Josh Frydenburg MP provided an update on economic conditions and updated the annual budget based on recent decisions.

Credit Professionals will be interested to hear the MYEFO confirmed or announced 4 key initiatives that have not been broadly reported on but will be relevant to how they manage and mitigate their portfolios in 2019.

1- Renewed intention to allow ATO to report Tax Defaults

Since releasing draft legislation early this year the progress of this proposal had stalled. The MYEFO signals that the measure will progress in the new year with an increase in the threshold of business tax debts that can be disclosed to credit reporting bureaus from $10,000 to $100,000.

The complete criteria for reporting is expected to be

- Businesses only

- Tax debt aged over 90 days totaling more than $100,000, and

- The company is not effectively engaged with the ATO to manage their obligations

AICM CEO Nick Pilavidis said “The ATO is the country’s largest creditor with a growing backlog of collectable debt (currently $23.9 billion) and this measure will see them contribute data on companies avoiding or unable to meet their tax obligations.  This is a major data point currently not available to credit professionals and will go along way to levelling the playing field between businesses that do pay their tax debts and those that gain an unfair advantage by avoiding their obligations.

However the $100,000 threshold leaves a lot to be desired e.g.:

Sends the wrong message that it is ok not to pay the ATO as long as its not more than $100,000 of tax debt. 

 It will not deter illegal phoenix operators as they will just accelerate the recycling of businesses.

 Many businesses will continue to trade whilst insolvent, exposing credit providers to greater risk.

 Small business that don’t meet their tax obligations will continue to receive an unfair advantage."

The AICM’s other concern is whether information will remain on credit reports once the business subsequently engages with the ATO.

When further details are released the AICM will fully consider its position which currently supports the lower $10,000 threshold.

2- Increase to reporting thresholds

Further to draft legislation released in November the AICM together with the Australian Finance and Industry Association (AFIA) and Australian Restructuring Insolvency and Turnaround Association (ARITA) in a joint submission to government (lodged on 14 December 2018) has strongly opposed plans to change the thresholds that determine when a company is deemed large and required to lodge annual financial reports with ASIC.

The proposal plans to revise the thresholds to require reporting only if the company (including any entities it controls) meets at least two of the following thresholds:

- annual consolidated revenue of $50 million or more (increased from $25 million);

- consolidated gross assets, at the end of the financial year, of $25 million or more (increased from $12.5 million);

- 100 employees or more (increased from 50).

AICM CEO Nick Pilavidis said “There are many concerns with this proposal as the absence of full information is a detriment to  good credit risk decisions, increases the likelihood of insolvencies that stifle business and the economy and increases barriers to accessing credit for small business.”

3-      $1.2m funding for small business initiatives including:

This funding will be allocated to 5 projects with 3 relevant to Credit Professionals:

1 - Develop online publication of large business payment times to support small business to negotiate fair payment terms.

2 - Develop a plan to implement to 5 day payment terms (currently 20 days) between government and small business suppliers utilising e-invoicing.

3 - Seek agreement from states to match Commonwealth payment times to small business.

These initiatives come directly from an inquiry into payment times led by Kate Carnell, Australian Small Business and Family Enterprise Ombudsman (ASBFEO) together with the AICM, State small business commissioners and other small business bodies.

AICM CEO Nick Pilavidis said “Payment times are the barometer of business health as they indicate the cashflow issues businesses face.  It is very pleasing to see the work that the AICM contributed to will result in initiatives that will improve payment times for small business as this is good for all business and is likely to see industry wide payment practices improve”

4-      $8.7m over four years to combat Phoenix activity

The Government will provide an additional $8.7 million over four years from 2018-19 for the Australian Securities and Investments Commission (ASIC) to increase funding to the Asset less Administration Fund. This will increase ASIC's ability to fund liquidators' preliminary investigations and reports into corporate misconduct including illegal phoenix activity, and to support enforcement and recovery actions.

AICM CEO Nick Pilavidis said “A zero-tolerance stance to illegal phoenix activity will be the most effective tool to disrupt this activity that costs the Australian Economy $5.13bn annually, However it is not the only area as many loop holes needed to be closed such as the reporting of ATO tax debts, implementation of Director Identification Numbers and other legislative changes in progress.”

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Published 19 December 2018

Full MYEFO Statement here