The 2011 Federal budget, announced on May 10, may have caused a stir for other industries, but as far as the textile, clothing and footwear (TCF) sector is concerned, there was little to report, according to Council of Textile & Fashion Industries of Australia (TFIA) executive director Jo Kellock.
“In regards to the 2011 federal budget announcement, there haven't been any cuts to the TCF sector, so it's pleasing to see that the existing programs (BIC, SCP and TCF Small Business programs announced in 2009) were preserved,” she says.
These initiatives, announced in 2009 as part of a package designed specifically for the TCF sector, outlined assistance for wholesalers and manufacturers to the tune of $401 million over the 2009/10 to 2015/16 period.
The initiatives included the $112.5 million Clothing and Household Textile Building Innovative Capability Program (BIC), which replaced the last five years of the TCF Post-2005 (SIP) scheme. The BIC scheme provides for innovation grants in respect of eligible clothing and household textile expenditure and is available for research and development including innovative product design activities, innovative process improvements, market research, and some industrial property rights expenditure.
The TCF Strategic Capability Program (SCP), initially allocated $30 million, has also emerged unscathed from 2011 federal budget cuts, even after an extra $5 million was added to the initiative by the government in 2010, bringing the total value to $35 million over five years. The program, which is competitive and merit-based, offers grants from $250,000 to projects which aim to boost innovative capability in the TCF industries at the enterprise and workplace level. Round two of AusIndustry’s Textile, Clothing and Footwear Strategic Capability Program (TCF SCP) will also open for applications next week, on June 6.
The TCF Small Business program, which provides $2.5 million in grants each year for TCF small businesses that are unable to receive assistance under the TCF (SIP) or TCF Post-2005 (SIP) Scheme, has also remained intact. The objective of the program is to improve the business enterprise culture of established TCF small businesses and a maximum of $50,000 is available for each particular project, although applicants are required to compete on merit against other candidates nationally.
The absence of cuts from the TCF package may be enough reason to rejoice, but there is one other sliver of good news for the TCF sector in the 2011 budget, according to Michele O'Neil of the Textile, Clothing and Footwear Union of Australia.
“I think the only specific new initiative in the budget that directly targets our [TCF] sector is the additional $4 million dollars for Ethical Clothing Australia (ECA) which we welcome,” she says. “It's a specific grant to Ethical Clothing Australia and we're very happy that the government has made that decision and recognised the importance of this organisation to the industry.”
This is the second time that ECA has received federal government support, after an initial government commitment of $4 million dollars was made to ECA when the Labor Party was first elected.
This second grant will enable ECA, as a voluntary accreditation and labelling system, to continue to work with businesses that are committed to taking steps to keep their Australian-based supply chains transparent and compliant with relevant Australian labour laws.
Kellock says there may also be “opportunities in the budget for the TCF industry to take advantage of Buy Australian initiatives” via the $34.4 million Buy Australian at Home and Abroad initiative.
The initiative, created to stem the flow of manufacturing, design and procurement work moving offshore, aims to assist manufacturers that have been affected by the “patchwork” economy and the high Australian dollar.
The package will help manufacturers to build on existing skills and identify new supply opportunities through a range of strategies, including employing ‘supplier advocates’ across various industry sectors to help identify international opportunities for Australian manufacturers.
As outlined in the official government budget overview, the nationwide Enterprise Connect network will also be leveraged to give small and medium enterprises (SMEs) in the manufacturing sector the skills and knowledge needed to integrate into global supply chains, which is to help link local companies to major international projects.
“At home this could support the purchasing of goods made locally especially in the government procurement sector,” Kellock says. “As long as government agencies purchasing TCF products will also demonstrate support for their own policy by buying Australian made.”
While it may be a general case of 'no news is good news' in terms of program funding cuts for the TCF sector, it didn't take long for the new budget to draw negative comment from the retail industry.
A mere two and a half hours after the budget was released, Australian Retailers Association (ARA) executive director Russell Zimmerman blasted the government's new small business investment incentives, saying retailers would feel 'ripped off' by the 'recycled' initiatives. Although the initial heat of the comment has now died down, Zimmerman maintains that there is no real relief to retailer business costs or red tape and no new incentives for business investment.
He refers to certain incentives for small business announced last month such as accelerated depreciation for motor vehicles, enhanced write-offs for depreciable assets costing less than $5000, a reduced corporate tax rate to 29 per cent, and lower PAYG installments [see box].
“I think firstly you've got to look at the company tax rate of 29 per cent,” he says.
“That's the second time we've heard that. We heard it first in the Henry Tax Review and again in last year's tax budget announcement. So it's recycled, and I didn't take a real lot of heart in that.
“Then, you've got the $5000 write-off for motor vehicles which was new and that's good news for retailers, but I am concerned that, firstly, you can't claim it until the 2012/13 financial year and then there are changes to fringe benefits tax, so it's really not all that joyous.”
Gary Black, executive director of the National Retailers Association (NRA), adds that certain changes to family benefits combined with the flood levy and concerns about the looming carbon tax will also affect consumer's discretionary spending, which will flow on to retail and TCF industries.
“Overall we [NRA] rate the budget as neutral in the context that it may have been worse,” Black says. “However, the budget does not do anything to stimulate spending or increase consumer confidence and I expect the flood levy, changes to family benefits, and concerns over the impact of a carbon tax on family budgets will all negatively impact spending particularly where discretionary items are concerned.”
Zimmermann agrees and says the phasing out of the dependant spouse tax offset in particular will also discourage discretionary spending and affect the retail sector.
“These industries benefit from what I would call discretionary spend, extra income people get which they end up spending on clothing and footwear and that sort of stuff,” he says.
“While the spending caps that [the government] made were most definitely necessary, I am concerned some of the changes, including the spouse tax offset will take cash away from working families, the consumer and impact on discretionary spending.”
Peter Parkinson, chairman of the National Footwear Retailers Association, echoes Zimermann's sentiment and says there is little comfort for retailers in the budget.
“To be in surplus is to set an ambitious target – and one based on 'window dressing' as opposed to sensible longer term deficit that would allow the opportunity for greater stimulation to the economy and small business. It is difficult to find any aspect of the budget that would offer some positive stimulation for retail business.”
Even the $588 million National Workforce Development Fund, which will deliver around 130,000 high quality training places directly tailored to industry skills needs, provides no joy for the TCF sector. The new fund is currently set to focus on high need industries and critical occupations, with only the resources, construction and aged care sectors identified as immediate priorities.
“There is generally a problem with the TCF sector not being identified as a priority sector for skilled development, so we want to see that those sort of programs are available to our sector and we want to make sure that workers and companies are able to access government assistance to get this assistance,” Michele O'Neil says. “Looking through the announcement, it talks about targeting sectors that are described as critical skill sectors or high priority sectors and then identifies the priority sectors for 2011/12 as construction and aged care, in addition to some of the sectors already targeted. TCF haven't been targeted in the past, so I think that there's an issue with trying to ensure that the funding that's available to build the skills of industry is also available to our sector and we should be pushing the federal government to recognise the TCF as a priority in this area.”
If the industry is craving a dose of positivity, it should focus its attention on the pending R&D Tax Credit scheme, according to TCF Services managing director Gerry Frittmann.
In a recent statement, Frittmann outlined the advantages of the new R&D Tax Credit scheme, which could come into effect as soon as next month, July 1, 2011.
The legislation was passed through the House of Representatives before Christmas but has not yet been debated in the Senate. However, if it is passed, the new R&D tax incentive will replace the existing R&D Tax Concession with two core components: a 45 per cent refundable R&D tax offset for eligible entities with a turnover of less than $20 million, and a non-refundable 40 per cent R&D tax offset for all other eligible entities.
“On the one hand, the long-running sectoral TCF and automotive schemes we have been so influential in delivering since government began reducing high tariffs and quotas, will be phased out over the next 5-10 years,” he says. “On the other hand, a new R&D Tax Credit scheme now promises to provide – for many years to come – more targeted and meaningful incentives for companies operating across the broad innovation space, in all industry sectors.”
Rather than the 7.5 cents in the dollar secured through the R&D Tax Concession Scheme, this new program would allow for 15 cents in the dollar for eligible projects for companies with under a $20 million turnover, providing more opportunities for small businesses to invest in research and development.
So, perhaps there is light at the end of the tunnel after all. And while, overall, it would seem that response from industry commentators has been lacklustre in regards to the budget announcements, the TCF package in one piece and a few budding initiatives may well support the sector in moving towards a brighter future.
2011 Federal Budget – Summary of Small Business Incentives
• The government is introducing lower and simpler small business taxes by allowing instant write-off for all assets costing less than $5000 from 2012-13. Simpler depreciation will apply to long-life assets as well.
• From 2012-13, there will be an early reduction in the company tax rate to 29 per cent to allow small business companies to reinvest and grow.
• Pay As You Go instalments for 2011-12 will be reduced for the majority of small businesses providing a $700 million cash flow benefit.
• The government will allow small businesses to claim up to $5000 as an immediate deduction for motor vehicles acquired from 2012-13. The remaining cost is depreciated at 30 per cent (15 per cent in the purchase year), which was the previous treatment for the entire cost of the motor vehicle.
• The Small Business Support Line will continue with the support of an extra $7.1 million added to its funding.
Source: www.budget.gov.au/2011-12/content/overview