What the Federal Budget could mean for NFPs and business

30 April quoteTreasurer Joe Hockey has put Australia on notice: no one is safe in next month’s federal budget as the government embarks on fiscal consolidation possibly on an unprecedented scale.

Professor David Gilchrist FAICD, a director of Curtin University’s Not-for-profit (NFP) Initiative, says the looming budget raises a number of questions for NFP directors. These include:

  • What will the funding levels be for services provided under the National Disability Insurance Scheme (NDIS), and what will its pricing look like?

  • If the NDIS is underfunded, will cuts be made in terms of the National Disability Insurance Agency and its administrative and assessment roles? “Such cuts are likely to affect service providers when it comes to vacancy filling and the time it takes for assessments to be undertaken,” says Gilchrist.

  • What will reductions and/or limits on eligibility for pensions do for organisations, such as aged care and disability accommodation providers, that rely on a portion of pensions to pay part of the costs associated with care services and accommodation?

  • How will the Australian Charities and Not-for-profits Commission (ACNC) be funded if the government cannot convince the Senate to repeal the ACNC Act 2012?

  • If the government does convince the Senate to repeal the ACNC Act, what resources will be made available for its successor organisations to ensure that progress made to date is not lost?

  • Will the removal of the ACNC mean that the government will no longer focus on red tape reduction initiatives, such as a one-stop-shop or report-once-use-often system?

  • For organisations providing services overseas, how will the government's overseas aid program be directed and funded in the context of the services that those agencies provide? “Clearly, the government's contribution in this regard is important for leveraging private contributions,” says Gilchrist.

He adds: “Any decrease in social security payments, due to changed eligibility requirements or in terms of quantum, will have an effect on increased demand for emergency accommodation and other emergency services while increased taxation is likely to have the effect of reducing donations as cash flow bites for mortgagees.”

When it comes to how other sectors of the economy will be affected by the federal budget, more details are likely to emerge after the government's Commission of Audit report is released tomorrow.

At present, it is believed that a $6 co-payment for “free” bulk billed GP visits, a tightening of income rules for family welfare, the raising of the pension age to 70 over time and a paid parental leave scheme to be introduced in 2015 could be on the cards. There are also heightened concerns the government may introduce a temporary income tax increase, targeted largely at higher-income earners, after Prime Minister Tony Abbott declined to rule this out.

What appears certain, however, are announcements of new infrastructure projects, with an emphasis on transport links such as the recently announced second airport for Sydney.

Exactly what Corporate Australia should be bracing for is unclear at this stage, although some economists have warned the government not to cut spending too deeply because the economy still faces many challenges and is stuck in low gear as the resources boom cools.

Come what may, Deloitte’s restructuring partner Martyn Strickland GAICD, says directors can ensure processes are put in place to help their organisations deal effectively with any changes that are announced.

He says: “It isn’t always obvious what the implications of any major announcement could be or how it could affect a business and its customer base. This is often hidden and could mean surprises further down the track.”

He recommends that directors get management to prepare a “budget response paper” that deals with all the announcements that could affect the organisation.

He adds: “Directors have responsibility not only for performance, but also strategy. Budget announcements are often out of cycle with the strategic planning process. Companies may plan to respond to them in the strategic planning process, but so often we see that this falls away or is forgotten six or nine months later. So we say don’t just prepare a ‘budget response paper’, but as a director, ask for it to be put on the agenda of the next two board meetings.”

When the changes are discussed, Strickland says directors should not only analyse how these affect the organisation, but also its customers and suppliers.

“The next questions to consider include: What risks do the announcement create for our organisation? And, what are the scenarios that might play out for us?”

Strickland says focusing on scenarios is vital. “Management is often very good at putting answers up to a board, but when this occurs, the board misses the opportunity to have a really good discussion around what might happen. Because the implications of a major announcement are often fuzzy, the board needs scenarios to create discussions. What is important is that the board talks about these issues.

“Given those scenarios, the board should ask how the organisation should respond or reset its business. It should also consider if it should still be competing in a market affected by the changes. Should it change the way it is organised? How should it refine its strategy? To avoid surprises, the board should also understand what the financial or performance implications might be. All of this could become good input into the strategic planning process.”

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