Federal Budget 2015-16 Submission to the Australian Government NOVEMBER 2014 Page 1
RESTAURANT & CATERING AUSTRALIA Restaurant & Catering Australia (R&CA) is the national industry association representing the interests of 35,000 restaurants, cafes and catering businesses across Australia. R&CA delivers tangible outcomes to small businesses within the hospitality industry by influencing the policy decisions and regulations that impact the sector s operating environment. R&CA is committed to ensuring the industry is recognised as one of excellence, professionalism, profitability and sustainability. This includes advocating the broader social and economic contribution of the sector to industry and government stakeholders, as well as highlighting the value of the restaurant experience to the public. Cover images courtesy of Tourism Australia Page 2
Table of Contents Executive Summary 4 Recommendations 5 The value of Australia s visitor economy 6 INDUSTRY SNAPSHOT: CAFE, RESTAURANT & CATERING SECTOR 7 TOURISM EMPLOYMENT 7 AT A GLANCE: TRENDS IN THE FOOD SERVICES SECTOR 9 Budget Initiatives 10 TREASURY 10 Simplified Tax System 10 Fringe Benefit Tax 11 Superannuation Guarantee Scheme 13 FOREIGN AFFAIRS & TRADE 14 Tourism Australia 14 SMALL BUSINESS 15 Practical help for small business 15 IMMIGRATION 16 Visa application charges 16 EDUCATION, EMPLOYMENT & WORKPLACE RELATIONS 17 Tax deductions for training 17 HEALTH 18 Food Safety 18 Page 3
Executive Summary Australia s visitor economy is a $110 billion industry, employing close to one million people and supporting 280,000 businesses across metropolitan and regional Australia. The restaurant, café, and catering sector is the largest contributor to the visitor economy; employing 529,500 people across 35,900 businesses. These businesses are small businesses; with 93 per cent of these organisations employing 19 people or less. Tourism has been identified as one of Australia s five super growth industries second only to gas with the sector expected to grow more than 10 per cent faster than global gross domestic product. Australia s top five super growth industries including tourism have the potential to deliver an additional $250 billion to the national economy over the next 20 years if these growth projections are realised. As Australia moves towards a service-based economy as a result of globalization and growth in Asian source markets, the importance of the tourism and hospitality industry will become even more prevalent. Indeed, employment growth in the hospitality industry is expected to be higher than any other sector; growing at 8.5 per cent or 43,700 jobs. The Australian Government has also adopted an ambitious target of doubling overnight visitor expenditure to $140 billion by 2020. With five years until this milestone, the sector requires unwavering support to reach this stretch target and continue to contribute to the Australian economy. Restaurant & Catering Australia (R&CA) recognises the unenviable position of government in curtailing spending and bringing the budget back to surplus. During this time, the industry realises government must show fiscal constraint, with conservative allocations to be expected for existing initiatives and programs. R&CA would encourage the Australian Government to maintain support for agencies and initiatives that boost visitation to Australia and increase the productivity of small businesses. Campaigns developed by Tourism Australia and initiatives to improve small business understanding of the Fair Work Act are necessary in lifting the performance of smaller operators, which in turn supports economic growth and productivity. With this is mind, R&CA has made a range of recommendations ahead of the 2015-16 budget including maintaining funding for Tourism Australia, examining superannuation payments for Working Holiday Makers, freezing further increases in visa processing charges, as well as implementing industry advisory services for small businesses on the Fair Work Act. Commitment to these recommendations will ensure the sector continues to make a vital contribution to the Australian economy. Page 4
Recommendations TREASURY SIMPLIFIED TAX SYSTEM Amend the eligibility criteria of the Simplified Tax System to allow businesses with an annual turnover of less than $2 million to use this system, bringing the criteria in line with the Australian Tax Office s definition of a micro business. FRINGE BENEFIT TAX In line with the recommendation to increase the eligibility criteria of the Simplified Tax System to $2 million, small businesses with an annual turnover less than $2 million should be exempt from FBT entirely. SUPERANNUNATION GUARANTEE SCHEME Remove the requirement to pay superannuation to overseas workers including Working Holiday Makers. Raise the Superannuation Guarantee Threshold to $600 per month ($1800 per quarter) and index to CPI. FOREIGN AFFAIRS & TRADE TOURISM AUSTRALIA Maintain funding for Tourism Australia and initiatives that promote Australian food and wine experiences to international visitors. SMALL BUSINESS INDUSTRY ADVISORY SERVICES Adequately resource specialised industry advisory services to assist small businesses in the restaurant, café and hospitality sector understand their obligations under the Fair Work Act. IMMIGRATION VISA APPLICATION FEES Freeze visa application fees for the 2015-2016 period. EDUCATION TAX DEDUCTIONS FOR TRAINING Grant employers a 120% tax deduction for expenditure on training and development. HEALTH FOOD SAFETY INITIATIVES Resource a best-practice food safety management campaign including mandatory training for food handlers nation-wide. Page 5
The value of Australia s visitor economy Deloitte s Positioning for Prosperity? Catching the next wave report identifies tourism as one of Australia s five super growth industries, with the sector expected to grow more than 10 per cent faster than global gross domestic product (See Figure 1). Australia s top five super growth industries including tourism have the potential to deliver an additional $250 billion to the national economy over the next 20 years if these growth projections are realised 1. The café, restaurant and catering sector is the largest contributor to Australia s tourism industry; employing 529,500 Australians across 35,900 businesses. The sector generates $23.4 billion in turnover, of which $14.6 billion is attributed to Gross Value Added and $4.2 billion to the Australian tourism industry. Ensuring this sector continues to prosper is essential for the growth of the broader economy. Figure 1: Projected annual global industry output growth, 2013-33 Gas Tourism Agribusiness Health International education Wealth Management Water and waste services Retail and wholesale Other education and training Public administration Transport and logistics Business and property services Telecommunications Oil Banking Mining Construction ICT Manufacturing Media 2.52 2.50 2.96 3.34 3.28 3.25 3.24 3.53 3.49 3.49 3.42 3.70 3.62 3.57 3.9 3.81 4.08 4.06 3.95 4.11 + 10% GGDP GGDP - 10% GGDP 0.00 1.00 2.00 3.00 4.00 5.00 Global growth rate (%) Source: Deloitte Access Economics 1 Deloitte (2013) Positioning for Prosperity? Catching the next wave Page 6
INDUSTRY SNAPSHOT: CAFÉ, RESTAURANT & CATERING SECTOR THE SECTOR CONTRIBUTES $23.4 BILLION TO THE NATIONAL ECONOMY $23.4 Billion TAKEAWAY COMPONENT, $15.4 BILLION CONTRIBUTES $14.6 BILLION TO NATIONAL GROSS VALUE ADDED AND $4.2 BILLION DIRECTLY TO THE TOURISM INDUSTRY THE SECTOR EMPLOYS 529,500 PEOPLE WITH THIS NUMBER EXPECTED TO INCREASE TO 560,800 BY 2018 EMPLOYMENT GROWTH 35,911 PROJECTED AT 8.5% OR 43,700 JOBS BY 2018. CAFÉ, RESTAURANT, & CATERING BUSINESSES IN AUSTRALIA 93.1% ARE SMALL BUSINESSES THIS RATE OF GROWTH IS HIGHER THAN ANY OTHER SECTOR IN THE AUSTRALIAN ECONOMY Page 7
TOURISM EMPLOYMENT The food and beverage services sector is the single largest employer across all tourism-related sectors of the visitor economy. Service Skills Australia s Tourism, Travel and Hospitality Environmental Scan 2014 highlights that strong domestic demand and a growing tourism base is expected to lead to phenomenal employment growth in the visitor economy over the next five years, particularly in the café, restaurant and takeaway food sector 2. Employment growth in this sector will exceed any other in the Australian economy, with expected growth of 43,700 workers, or an increase of 8.5 per cent 3 (See Figure 2). These forecasts are further supported by projections released by the Department of Employment that indicate the accommodation and food services sector alone has a projected five-year employment growth rate of 7.1 per cent, requiring an additional 55,200 workers by November 2018 4. Figure 2: Top 20 industry sectors ranked by projected growth to November 2017 ( 000s) Café, Restaurants and Takeaway Food Services Child Care Services School Education Other Construction Services Building Completion Services Medical Services Other Social Assistance Services Legal and Accounting Services Allied Health Services Computer System Design and Related Services Pulbic Order and Safety Services Building Cleaning, Pest Control and Gardening Services Tertiary Education Hospitals Specialised Food Retailing Pharmaceutical and Other Store-Based Retailing Supermarket and Grocery Stores Sports and Physical Recreation Activities Electrical and Electronic Goods Retailing Residential Care Services 17.5 16.4 15.5 15 14.8 13.6 13.3 12.4 12 28.6 24.5 23.8 22.9 22.7 22.4 22 21.9 38.2 37.2 43.7 Source: Department of Employment, 2013, Employment Outlook to 2017 2 Service Skills Australia (2013) Tourism, Travel and Hospitality Environmental Scan 2014, p.21 updated with figures from the Department of Employment (2014) 2014 Employment Projections, Industry projections to November 2018 3 DEEWR (2012) Employment Outlook to 2017, p.3-4 4 Department of Employment (2014) 2014 Employment Projections, Industry projections to November 2018 Page 8
AT A GLANCE: TRENDS IN THE FOOD SERVICES SECTOR The food services industry is a complex and dynamic sector, often providing a barometer for consumer sentiment and economic activity. While improvements in consumer sentiment has led to an increase in industry turnover to $23.4 billion, restaurant yield continues to decline with spend per person falling from $61 to $54 per person 5. R&CA s 2014 Industry Benchmarking Report found business confidence is subdued with 53.7 per cent of businesses indicating their net profit had decreased over the past three years. A further 45.8 per cent of businesses believe their profitability will decrease over the next 12 months. Staff wages and on-costs can account for up to 45.3 per cent of business costs, often making trading on weekends and public holidays unviable. In an attempt to bring labour costs down, staff hours are reduced in favour of the business owner working weekends and value-add food services such as ready-to-use ingredients (peeled and diced onions for example). In addition, shortages in labour including waiters, chefs, and restaurant managers has resulted in an increasing reliance on temporary skilled workers, where the process for applying for visas is burdensome and difficult to navigate. Apprentice numbers also continue to dwindle, making existing shortages even more prevalent. The growing popularity of shows such as MasterChef and My Kitchen Rules continue to build momentum and demand for restaurant and café experiences, while mobile food vendors, small bars, and food festivals have changed the operating environment and business model of many food operators. Food and wine experiences are an increasingly important component of our selling proposition to international visitors, with research indicating Australia ranks second only to France for food and wine experiences among people who have visited the country 6. The sector continues to balance local and international demand for culinary experiences with an operating environment that is filled with complexity, regulation, and escalating operating costs. 5 Dimmi (2013) Dimmi Dining Index 6 Tourism Australia (2013) Gourmet Tourism is Growing Page 9
Budget Initiatives TREASURY Simplified Tax System R&CA recognises the Simplified Tax System (STS) was established to provide small business taxpayers with a mechanism to simplify some aspects of their income tax affairs. R&CA supports the continuation of existing STS benefits, including: Cash accounting rather than accruals accounting; A simplified depreciation system (capital allowances); and A simplified treatment of trading stock. However, in R&CA s experience, the STS is infrequently used by operators in the sector. This is due to the labour intensive (as opposed to capital intensive) nature of the industry. To be eligible for the STS in an income year a business must satisfy the following three tests: Be carrying on a business in that year; Have an STS average turnover for that year of less than $1million; and The total of the adjustable values of the depreciating assets held by that individual and its grouped entities at the end of that year must be less than $3 million. While the sector is dominated by small business owners, the $1 million average turnover threshold does not accurately reflect the operating capacity of even the smallest business operating in the sector. R&CA proposes that the STS criteria should be brought in line with the Australian Tax Office s own definition of a small business, which is a business with a turnover of less than $2 million turnover per annum. R&CA further suggests that this be the only criteria for the use of the Simplified Tax System. Recommendation Amend the eligibility criteria of the Simplified Tax System to allow businesses with an annual turnover of less than $2 million to use this system, bringing the criteria in line with the Australian Tax Office s definition of a micro business. Page 10
Fringe Benefit Tax Restaurants often form an extension of business boardrooms, providing corporate Australia with another avenue to do business. Business meals are a legitimate form of doing business and should thus be recognised as a business cost not a fringe benefit to employees. Australia s tax system should strive to efficiently collect revenue without distorting business decisions. The current taxation treatment of business meals discriminates against restaurateurs over other suppliers of goods and services as a vast majority of other business expenses are tax deductible. R&CA has long argued for changes to the Fringe Benefits Tax (FBT) treatment of business meals, recognising the compliance cost to small business is proportionately higher than for large corporations. This argument has centred on the inequity that exists in the ability of small businesses to employ strategies to avoid FBT compared to big business (i.e. big business is able to use strategies to avoid FBT, such as boardroom catering). In a report prepared by Access Economics, it was found that FBT on business meals is overly complex and distorts market decisions. FBT on business meals over taxes 87 per cent of the Australian population, with 23 per cent of revenue collected being expended on compliance 7. In its submissions to the Henry Tax Review as well as the 2007 study of tax compliance costs by Treasury, R&CA highlighted that there is 39 different ways to classify a business meal for taxation purposes. This does not include classifications that exist for FBT on parking and other expenses that may also be applicable to the operation of a small business. In addition, a 2007 report on compliance costs for small business found that while very few small businesses pay fringe benefits tax, some small businesses undertake considerable compliance activities in order to avoid being included in the FBT system 8. 7 R&CA (2001) The Case for, and Economic effects of, Part-recognition of business entertainment as legitimate business inputs or expenses for taxation purposes prepared by Access Economics. 8 Commonwealth Government of Australia (2007) Scoping study of small business tax compliance costs - A report to the Treasurer, Dec 2007 Page 11
The following table, taken from the same report demonstrates the minimal FBT revenue collected from small business: Table 2: Micro-businesses: Taxpaying profile, 2004-05 Taxpayers and $ tax liability Income Tax Goods & Services Tax Fringe Benefit Tax No. of entities $ million No. of entities $ million No. of entities $ million Individuals 1,532,079 16,034 924,524 1,071 214 1 Partnerships 368,200 0 320,708 14,525 452 2 Trusts 215,431 0 188,550 1,755 3,565 22 Companies 689,915 6,227 573,228 3,607 18,036 122 Total 2,805,625 22,261 2,007,010 7,958 22,267 147 Source: ATO. Based on tax returns processed to 18 May 2007 for entities that have lodges their 2004-05 income tax return. Data is rounded to nearest $ million. The GST turnover threshold was $50,000 in 2004-05. On the basis of the compliance cost and lack of access to strategies to minimise the burden of FBT, R&CA argues that the STS should include an exemption for small businesses from FBT entirely. That is, businesses classified as small businesses under the STS should be exempt from paying FBT altogether. Recommendation In line with the recommendation to increase the eligibility criteria of the Simplified Tax System to $2 million, small businesses with an annual turnover less than $2 million should be exempt from FBT entirely. Page 12
Superannuation Guarantee Scheme Australia s superannuation system was intended to deliver retirement savings to the economy, reducing the pressure on Australia s welfare system. There are, however, instances of leakage from the current superannuation system, in particular, contributions made for Working Holiday Makers. As the tourism and hospitality sector is one of the largest employers of Working Holiday Makers, they bear a disproportionate burden of processing contributions. Despite promoting the collection of superannuation contributions to Working Holiday Makers, very few collections are made. This is either because the amount of the contribution is so small that it is not worth rolling into another fund (due to the cost of administration fees), or they are unable to collect the funds from outside Australia. As a result, employers bear the administrative burden of making contributions with no net benefit delivered to the employee or the economy. R&CA suggests superannuation contributions made for overseas workers including Working Holiday Makers are contributed to an education and training fund. In addition, the Superannuation Guarantee Levy (SGL) threshold under the Restaurant Industry Award 2010 was lowered to $350 per month. The SGL threshold was established in 1996 at $450 per month with the minimum wage at the time of $9.19. Today the minimum wage is $16.37 (a 78 per cent increase on 1996), yet the threshold has remained the same. Based on the growth in the minimum wage, the SGL threshold should be approximately $577 per month or $1731 per quarter. R&CA recommend the SGL threshold be raised to $1800 per quarter and that it be indexed to CPI. Recommendation Remove the requirement to pay superannuation to overseas workers including Working Holiday Makers. Raise the Superannuation Guarantee Threshold to $600 per month ($1800 per quarter) and index to CPI. Page 13
FOREIGN AFFAIRS & TRADE Tourism Australia The industry fully supports Tourism Australia as Australia s tourism marketing agency, dedicated to increasing international visitation from Australia s major source markets. As Australia s largest services export, the efforts of Tourism Australia are critical in driving interest and visitation to Australia as a travel destination. Maintained funding for Tourism Australia allows the agency to build on campaigns already in market, providing the private sector with greater confidence to invest in cooperative partnerships developed by this organisation. Tourism Australia s Restaurant Australia campaign is one initiative that continues to go from strength to strength, with the most recent Invite the World to Dinner campaign reaching approximately 170,000,000 potential visitors. The reach of this initiative could not be achieved by small tourism businesses alone, given the market failure that exists in tourism promotion. Initiatives such as Restaurant Australia raise the profile of the sector with international visitors, encouraging greater patronage of Australia s restaurants once visitors land in Australia. Industry strongly encourages the Australia Government to maintain funding for Tourism Australia in real terms over the 2015-16 period. Recommendation Maintain funding for Tourism Australia and initiatives that promote Australian food and wine experiences to international visitors. Page 14
SMALL BUSINESS Practical help for small business The restaurant and catering industry has one of the highest proportions of small business owners in the country. Approximately 93 per cent of restaurants, cafes and catering companies are small businesses 9. Ensuring these organisations understand their obligations under the Fair Work Act is critical in lifting the productivity of the hospitality sector. R&CA believes the regulation of the labour market under the Fair Work Act 2009 and associated employment legislation creates excessive red tape and spiraling labour costs for small and medium size businesses. Fair Work Act 2009 Impact to business Modern Award wage regulation with complex transitional arrangements Payroll system updates required to reflect new employment conditions and rates of pay Unfair dismissal compliance requirements Fair Work Information Statement must be given to new employees Reduction in workplace flexibility with individual agreements prohibited Penalties of up to $51,000 for individual breaches R&CA welcomes the Abbott Government s commitment to providing practical help to small businesses to improve their understanding of Fair Work Laws. R&CA urges government to adequately resource specialised industry advisory services in partnership with industry associations. The tourism and hospitality sector is complex; tailored advice is required to meet the needs of the sector. A onesize-fits-all model will only create further confusion regarding sector-specific obligations. Recommendation Adequately resource specialised industry advisory services to assist small businesses in the restaurant, café and hospitality sector understand their obligations under the Fair Work Act. 9 ABS (2014) Cat. 81650 Counts of Australian Businesses, including Entries and Exists, Jun 2009 to Jun 2013. Page 15
IMMIGRATION Visa application charges The tourism and hospitality sector is currently experiencing labour shortages of up to 35,800 positions, with this number expected to increase to 56,600 by 2015 10. As a result, operators are increasingly reliant on temporary skilled migration to fill vacant positions. R&CA notes the Visa Pricing Transformation initiative which saw significant increases in the cost of visa processing charges for temporary and skilled migration on 1 July 2013. Further increases in Visa charges were then recorded on 1 September 2013. Visa Classification Fee prior 1 July 2013 Fee post 1 July 2013 Fee post 1 Sept 2013 457 Temporary Work (Skilled) $455 $900 $1035 457 Dependent (Over 18) $0 $900 $1035 457 Dependent (Under 18) $0 $225 $260 Cost to apply for family with one child $455 $2025 $2330 Revenue from the Visa Pricing Transformation initiative is estimated at $613 million, with increased 457 visa application charges from 1 September 2013 expected to generate $198 million over four years. These significant increases in 457 visa application charges impede skilled workers and their families from applying for positions in Australia. In addition, the fees employers have to bear throughout the 457 process limit the ease of accessing skilled migrants. Recommendation Freeze visa application fees for the 2015-2016 period. 10 Deloitte Access Economics (2011) Australian Tourism Labour Force Report, Labour Force Profile (Part 1) p. vii and xi Page 16
EDUCATION, EMPLOYMENT & WORKPLACE RELATIONS Tax deductions for training As Australia moves towards a service-based labour market, employment in cafes, restaurants and takeaway food services is projected to grow by more than 43, 700 jobs or 8.5 per cent to November 2018. The rate of growth for this sector is expected to be higher than any other sector in the Australian economy 11. In addition, research by the Centre for the Economics of Education and Training suggests that between 2006-2016, Australia will require an additional 2.5 million people with VET qualifications, 1.7 million of which will need to be qualified at Certificate III level or above 12. Education and training is critical to improving Australia s productivity. A report by the Business Council of Australia indicated that an additional year of education may raise the level of productivity between 3 and 6 per cent for a country with Australia s current average education level 13. R&CA is cognisant the responsibility of up-skilling the sector is not solely that of government, but rather a significant contribution by employers is required. R&CA advocates that rather than instituting a training levy on employers, offering a tax advantage significantly increases the incentive to invest in staff training and development. Recommendation Grant employers a 120% tax deduction for expenditure on training and development. 11 Department of Education, Employment and Workplace Relations (2013) Employment Outlook to 2017, p3-4 12 Business Council of Australia (2007) Restoring our Edge in Education, p8 13 Business Council of Australia (2007) Restoring our Edge in Education, p8 Page 17
HEALTH Food Safety All businesses providing food for sale must comply with food hygiene requirements under Standards 3.2.2 Food Safety Practices and General Requirements and 3.2.3 Food Premises and Equipment of the Australian New Zealand Food Standards Code (ANZFSC). R&CA believes these standards are effective in providing a safe foodservice system in Australia. R&CA supports risk-based regulation where regulatory resources are targeted to deliver safe food outcomes in areas where they are most required. R&CA contends that risk classification should not be used to apply additional regulation (to standards 3.2.2 and 3.2.3) but should rather be used by enforcement agencies (through local government) to determine where regulatory resources should be focused. In addition, the role of Food Safety Plans (FSPs) under Standard 3.2.1 in improving food safety is questionable, evident by a range of studies which have found no correlation between the implementation of FSPs and increased food safety outcomes 14. As a result, an additional layer of administrative burden is placed on operators with no additional food safety outcomes delivered in the sector. R&CA believes FSPs should be used as a best practice and/or punitive measure. There is, however, evidence to suggest that improving food-handling practices through training can increase food safety outcomes 15. This being the case, R&CA advocates training for food handlers should be mandatory, similar to the requirements for Responsible Service of Alcohol, in addition to the requirement for trained Food Safety Supervisors. Recommendation Resource a best-practice food safety management campaign including mandatory training for food handlers nation-wide. 14 Food Standards Australia & New Zealand (FSANZ) National Food Handling Survey (2001-2007) 15 Food Regulation Standing Committee (2011) Food Regulation Policy - Review of the 2003 Ministerial Policy Guideline Regulation Impact Statement, p. 5 Page 18
RESTAURANT & CATERING AUSTRALIA PO Box 121 SURRY HILLS NSW 2010 T 1300 722 878 F 1300 722 Page 396 19