No relief for small businesses in 2026 Federal budget

Ryan Williams | 4 minute read

Key points:

SMEs doing it tough have little help from Federal Budget

Australia’s small and medium-sized businesses have endured an extraordinarily tough past few years. First came the inflationary spike from COVID, followed by labour shortages exacerbated by delays in skilled migration.

Since then, businesses have faced further pressures one after another – from US tariffs, global conflict and oil price volatility. The cumulative impact on the business landscape has been severe, and particularly acute for SMEs.

Unfortunately, business owners hoping for relief in this year’s Federal Budget are set to face another layer of pressure. Many are questioning why new taxation measures are being prioritised ahead of more meaningful efforts toward fiscal restraint and structural spending reform.

The government appears to be attempting to repair structural budget pressures by taxing asset structures that are widely used by middle-income Australians and business owners, not just the ultra-wealthy. However, this misunderstands how many SME owners structure investment, retirement planning and business growth.

At a time when small businesses are already operating under immense strain, this budget risks actively disincentivising investment by undermining many of the tax-efficient structures that business owners use to deploy capital back into their organisations.

These pressures arrive alongside a wave of additional compliance costs. For many businesses, the issue is not any single reform in isolation but the burden of multiple regulatory changes arriving simultaneously into an already fragile operating environment. Emissions reporting obligations, anti-money laundering reform and growing accounting overheads will ultimately be passed back to SME operators already struggling with rising input costs and constrained cash flow.

While the proposed tax-loss carry-back measures feel like a neat solution in theory, their practical value for SMEs is questionable. If a business has already exhausted its cash reserves and cannot absorb sustained losses, a future tax benefit offers little immediate relief.

The broader concern is that Australia is potentially baking in five to ten years’ worth of stagnant economic development. Reduced incentives for growth, rising compliance costs and longer-term uncertainty around capital deployment risk suppressing economic expansion for years to come.

The silver linings: commercial property and productivity

Despite the challenges, there are two areas where businesses may make changes.

The first is redirecting capital from commercial property. Many SME owners own their premises, which is an inefficient use of capital that constrains growth. Some may rethink tying capital up in commercial property, given the changes in taxation, and instead invest more directly into business growth and workforce investment.

The second is placing a sharper focus on productivity. There will be sustained pressure on valuations and returns thanks to the proposed CGT changes, this may may force businesses to focus more aggressively on productivity and stronger dividend generation.

It’s time for businesses to be adaptable

For now, most SMEs would be wise to take a cautious and defensive approach. Businesses should prepare for conditions to remain difficult for longer than many had hoped. That means protecting cash flow, scrutinising capital allocation carefully and working closely with finance and accounting teams to understand how proposed reforms may affect operations over the next 12 to 24 months.

At the same time, difficult conditions often create opportunity. Adaptability is key during times of crises. And having the tools to be flexible and shift strategies as market conditions change is the reason many businesses have not only survived but thrived post-crises. Businesses that remain financially disciplined may find opportunities to acquire customers, talent or assets from weaker competitors struggling to adapt.

Turn attention to growing the economy with business in mind

Ultimately, the Federal Budget risks suppressing business expansion at precisely the moment the economy needs productivity and growth. Major policy reform should create a glide path, not a cliff. Sudden changes to capital gains settings risk triggering unintended behaviours across investment, housing and business ownership structures, rather than encouraging long-term productive growth. They may also create flow-on consequences for housing supply and rental affordability as investors restructure or exit assets.

There is a deeper frustration many business owners have with the Budget. It does not simply impose new pressure but also lacks a broader productivity and growth agenda to offset that pain. Moreover, there is little focus on accelerating housing supply through measures such as incentivising modular construction, modernising critical infrastructure or driving broader long-term productivity reform. As my Adelaide University colleague economist Susan Stone put it: “We should be arguing about what the most effective CGT rate to apply to investments is, and how we can create credible channels for homeowners currently investing in property to invest in business growth in Australia.”

At a time when Australia faces structural housing shortages and slowing economic momentum, many SME operators will be questioning whether the government’s long-term economic vision is focussed on growing the economy.

Originally published in Dynamic Business.

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