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Reflecting on the 2024-25 Federal Budget: What it Means for Hospitality Businesses

May 29, 2024

The federal government’s budget for 2024-25 primarily focuses on alleviating the financial burdens of everyday Australians—such as freezing medicine prices, increasing rental assistance, and reducing student debts—there are also key initiatives to support small and medium-sized businesses (SMBs). 

These measures are set to relieve the financial pressure that inflation has heightened over the past year by providing financial relief and improving cash flow for many hospitality businesses.

The Current State of the Hospitality Sector

The hospitality sector is navigating a period of unprecedented challenges. Recent data reveals that an alarming 15% of business closures in Australia occur within this industry, underscoring the immense pressure it faces. This concerning trend highlights several key issues, including escalating operating costs and a notable decline in consumer spending, both of which are driven by the ongoing cost-of-living crisis.

The sector's outlook remains precarious, with industry analysts projecting one in thirteen Australian hospitality businesses is at risk of closure within the next 12 months, according to Credit Watch. This forecast is rooted in the sector's significant reliance on discretionary spending, which has seen a dramatic reduction as consumers tighten their belts amid financial pressures.

As the hospitality industry grapples with these challenges, it is clear that innovative strategies and resilient business practices are essential for navigating these turbulent times. The sector's ability to adapt and evolve in response to shifting economic conditions will be crucial in determining its future trajectory.

Addressing the Cost-of-Living Crisis

Hospitality businesses face the dual challenge of decreased consumer spending and rising operating costs. Prior to the budget announcement, SMBs expressed a preference for measures that alleviate cost-of-living pressures. While the budget did not include extensive relief packages for businesses, the policies announced should still positively impact the hospitality industry.

Key Budget Highlights for Hospitality Businesses

Energy Bill Relief

Starting July 2024, around 1 million eligible small businesses will receive e a $325 rebate on their energy bills. This rebate will be automatically deducted from energy bills quarterly over the next financial year. This initiative also extends to households, with a $300 rebate per household, representing a 17% reduction on the average power bill.

How This Helps: The energy bill relief directly reduces operational costs, which is critical for businesses struggling with high overheads. Lower energy bills can free up funds for other essential areas, such as staff wages and marketing efforts.

Instant Asset Write-Off Extended

The budget extends the $20,000 instant asset write-off for another year, benefiting businesses with an annual turnover of $10 million or less. This allows hospitality venues to immediately deduct the cost of eligible assets under $20,000. 

To be eligible the asset must be installed or ready for use by 30 June 2025. The $20,000 threshold applies to each asset, enabling businesses to write off multiple assets. Click through for more on how to get the most out of the instant asset write-off.

How This Helps: This measure encourages hospitality businesses to invest in new equipment and technology, enhancing operational efficiency and customer service. By upgrading assets without the financial burden, businesses can stay competitive, attract more customers and lower overheads.

Stage 3 Tax Cuts

Scheduled to take effect on July 1, 2024, the stage 3 tax cuts will provide tax relief for all of Australia’s 13.6 million taxpayers. This means more disposable income for consumers, potentially boosting spending in hospitality venues.

This will

  • Reduce the 19% tax rate to 16%
  • Reduce the 32.5% tax rate to 30%
  • Increase the 37% tax rate threshold from $120,000 to $135,000
  • Increase 45% tax rate threshold from $180,000 to $190,000

How This Helps: Increased disposable income for consumers could translate into higher patronage at restaurants, cafes, and bars. More spending power among Australians can help mitigate the decline in discretionary spending that has impacted the sector.

Reduced Immigration

The predicted reduction by half of overseas migration could impact staffing levels for hospitality businesses. The number of places for international students is being capped, and the permanent migration program will be capped at 185,000 places, with 132,200 allocated to skill streams.

How This Hurts: Reduced immigration may exacerbate existing staffing challenges in the hospitality sector, which relies heavily on foreign workers. Businesses can offer employee incentives to drive retention including access to exclusive loyalty tiers. Kiosks can increase revenue 2-4X while freeing up staff to provide better service. 

The 2024-25 Federal Budget provides several opportunities for hospitality businesses to navigate the current economic climate. Hospitality venues can enhance their financial stability and operational efficiency by strategically leveraging the available measures—such as the instant asset write-off, energy bill relief, and tax cuts. However, the industry must also prepare for potential staffing challenges due to reduced immigration.

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