Welcome to WebKeeper - where the real Budget winner is Big Digital, as usual
Training companies, event organisers and web developers were among the Budget winners, while Screen Australia will see a big cut
Welcome to Unmade, written while you were sleeping on Wednesday morning.
Happy Take A Walk in the Park Day.
Today’s writing soundtrack: Anyway The Wind Blows - JJ Cale. (Thanks for the tip, Mark; belatedly followed up ten months late.)
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Four winners and a loser
In the week of the Budget, it’s hard to go past a favourite quote from the legendary US investor Charlie Munger:
“Show me the incentive and I’ll show you the outcome.”
Leaving aside the politics of temporary fuel excise cuts and the like, there were several new policies in yesterday’s announcement that will have an impact on various parts of the media and marketing industry.
Winner 1: Web developers
First, it’s a golden time to be in the web development business.
The government is trying to position itself as a backer of digital transformation by offering a 120% tax deduction for small businesses to update their websites or go online for the first time.
The definition of small business in this context, by the way, is one with a turnover of less than $50m.
For those who are not accountants, the intent of Treasurer Josh Frydenberg’s deduction is to incentivise small brands to make the jump online.
Real accountants may shoot me for oversimplifying this, but here’s a hypothetical example. If a company normally makes a million dollar profit, and it spends an extra $100,000 on its web development (the maximum amount allowed under this perk), instead of paying tax on what is now a $900,000 profit, it will be reduced for tax purposes by $120,000 to $880,000.
Or that’s the incentive anyway. It might not make a huge difference, but if a brand had been meaning to get around to an extra work, then it might just decide to get around to it now.
Rather like the way that government’s building grants for new home builders immediately drove up the cost of construction, web developers are likely to immediately recognise their coming boom and put up their prices. When I sent a screen shot of the announcement to a web developer I know, his immediate, cheerful, reply was: “Sounds like everyone just added 20% to their price!”
He added: “They should call it WebKeeper.”
Indeed they should.
Winner 2: Training providers
That same 120% incentive also goes for small businesses sending their staff to external training courses.
While it’s again an incentive aimed at small business, the main beneficiaries may well be the training providers themselves. As The Australian Financial Review explains it today:
“But Frydenberg’s largesse to small business goes further. He’s also allowing them a 120 per cent deduction for the cost of sending their staff to external training courses, at a cost of some $550 million to the nation’s coffers.
“And again, Treasury is taking a liberal attitude. It doesn’t matter whether the training is in hospitality, cybersecurity, or agribusiness. Just as long as it involves some upskilling of employees.”
For an event industry hammered by two years without face-to-face meetings, this seems like one not to be begrudged.
And incentives do indeed create outcomes. To use Unmade’s business as an example, we were always going to get into the business of events and training at some point. After a careful chat with the accountant, this deduction moves it up the agenda.
Winners 3 and 4: The digital behemoths and laptop makers
While the Digital Platforms Inquiry may have been designed to create something of a hostile environment for the likes of Google and the rest of the digital giants, the Budget was the opposite.
That $100,000 for digital takeup by small business can also be spent on the likes of GSuite, Salesforce or a shiny new MacBook Pro. As the AFR explains it:
“And Treasury is taking a very broad view of what spending will be eligible for the deduction. As a result, small businesses will be able to claim the generous tax break for their spending on laptops, accounting software, portable payment devices and for their subscriptions to cloud-based services.”
Thanks to the ubiquity of Gsuite, Google is already effectively able to levy a digital tax on every company. Now the digital holdouts are being picked off too.
The loser: The screen industry
In a budget designed to try to either win the election or at least not lose too badly, the government has been incentivised to be generous to just about everybody. Apart from those in the arts sector.
The $943m spend on arts programs in the current financial year will drop by more than $200m to $718m by the 2024-25 financial year. That’s a cut of 24%.
Among the biggest losers is Screen Australia, which will still have $27m to hand out to film and TV makers next year, and then just $11m a year for the next two years after that.
I must admit, I struggle to be outraged by that particular cut.
Thanks to the rise of streaming, the Australian screen production sector is going through the sort of boom it last saw thanks to overly generous tax incentives in the 1970s. For once, it’s able to stand on its own feet.
If Screen Australia is at least in part a market failure organisation designed to keep the screen sector ticking over during its fallow years , then it makes sense that funds go elsewhere during boom times. (It’s worth noting that Screen Australia’s staffing appears in a separate line item elsewhere and is not being reduced.)
When the likes of Marvel Studios and Netflix are pumping in production dollars, then taxpayer funds can be better spent elsewhere.
Unmade Index: Nine back above $5bn
The Unmade Index of ASX-listed media and marketing companies climbed back upwards again yesterday, by 0.71%, after a 0.59% fall on Monday.
Nine’s share price has been continuing to improve. Yesterday, thanks to a rise of 1.7%, the company’s market capitalisation moved back above $5bn for the first time since December.
Meanwhile, Monday morning’s speculation about the potential for a merger between Seven West Media and HT&E hasn’t made much difference to either company’s share price. Both were flat on Monday, and yesterday, Seven’s market value fell by 1.5% while HT&E eased up by 0.5%.
Time to let you go about your Wednesday.
Have a great morning.