Tax incentives boost machine sales

It has been the most generous tax incentive measures introduced by a Federal Government in history, in an attempt to entice businesses to spend up and keep the economy ticking over during a global health crisis that no one saw coming.

And if the sentiment shared by machinery and vehicle dealerships around the country in recent months is anything to go by, the Government’s sweeteners are certainly working.

In March 2020, as COVID-19 firmed its grip on the country, the Federal Government introduced a stimulus package worth $17.6 billion to keep businesses afloat and employees in jobs.

Among the two most significant incentives for businesses were the instant asset write off (IAWO) that was boosted from $30,000 to a whopping $150,000; as well as the generous Accelerated Depreciation Deduction which allows business owners to deduct up to 57.5 per cent of the new asset in the first year, if the asset does not qualify for the IAWO.

According to a recent report by market research expert, ACA Research, nearly a third of SMEs with business vehicles surveyed intend to use the Instant Asset Write-Off and a quarter intend to use the Accelerated Depreciation Deductions to purchase new vehicles for their operations. ACA said these numbers are likely to increase as another quarter are undecided at this stage.

Light commercial vehicles (LCVs), light-duty trucks and passenger vehicles are high on these businesses’ shopping lists. The construction sector, in particular, has the largest appetite for spending out of all the industries, with 41 per cent looking to purchase LCVs like utes and vans, and 32 per cent hoping to buy new plant and machinery to add to their fleets.

The Federal Chamber of Automotive Industries’ May 2020 vehicle sales report showed sales of new LCVs have increased significantly from April (an increase of 5355 units month-on-month), although still down on a YoY basis.

FCAI chief executive Tony Weber said the combination of the stimulus and the gradual easing of the pandemic-enforced restrictions has introduced some optimism into the market.

“Anecdotally, we may be beginning to see some ‘green shoots’ in the marketplace. With people venturing out a little more, dealers have advised of a slight uptick in floor traffic through dealerships,” he said.

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The agricultural industry has been somewhat spared from the wrath of COVID-19, with agricultural operations deemed essential during the pandemic.

That, combined with recent rainfall, increased optimism and the massive IAWO incentive, has led to farmers digging deep to add to or upgrade their fleets of machinery.

According to the Tractor and Machinery Association of Australia (TMA), tractor sales in Australia have had a very healthy three months since March this year, with May 2020 figures experiencing a YoY increase of 30 per cent.

That was a far cry from January figures when the country was in the midst of the bushfire crisis.

“With three consecutive months of above-average sales, the industry has resumed a level of activity that will give some comfort to dealers after what has been a torrid two-year period,” said TMA executive director, Gary Northover.

For farm machinery dealership, Hutcheon & Pearce, it has been a crazy few months.

“We can't find enough tractors to sell,” said Hutcheon & Pearce Sales Operations Manager, Andrew Watt.

“We've sold six months’ worth of tractors in just three months.”

He added most farmers have been targeting mid-range and utility tractors which qualify for the IAWO.

Construction equipment dealer, RDO Equipment, has also reported similar uptick in activity in recent months, with the tax incentives playing a big part in it.

“April in the construction industry has always been a quiet month because of school holidays and Easter, but because COVID-19 has put everyone into isolation this year it has given people time to reassess their machinery needs and as a result our enquiry went up,” said RDO Equipment National Sales Manager, Nathan Psaila.

“Our conversion rate on new machines has been very good, as has been the case with our used equipment and we don't have a lot of used stock.”

Psaila added a lot of customers enquiring on or buying machinery have quoted the IAWO as a key reason for their purchasing decision.

“I can say it has definitely increased enquiries, whether or not they translate into sales later on,” he said.

The generous IAWO incentive was supposed to end on June 30, from which time the threshold would go back down to a measly $1000.

However, in response to overwhelming demand from lobby groups and industry associations for an extension, the Federal Government has decided to push the IAWO deadline out to December 31, allowing plenty of time for business owners to take advantage of the incentive.

However, with increasing and continuous demand for more stock comes the inevitable issue of supply, especially considering the pandemic is not quite over yet and multiple restrictions are still causing some logistical problems.

“Whilst factories across the world have begun reopening, the supply pipeline will take time to replenish, the full impact of this will play out over the coming months," said TMA executive director, Gary Northover.

And then there is the concern with a plummeting Australian dollar, freight costs and what it means for machinery purchases moving forward.

“Looking ahead, freight costs are one of the industry’s biggest challenges, particularly international freight,” said Case IH Australia and New Zealand general manager, Pete McCann.

“With the dramatic drop in the number of planes in the air, freight costs have jumped enormously. That’s been difficult but we’ve worked hard to ensure that we could meet our customers’ requirements for machinery and parts, and we’re constantly reviewing the situation in order to meet the needs of customers and keep their businesses ticking over,” he said.

“Our dealers have adjusted well and are continuing to provide essential services that support our agriculture industry, whilst adhering to Government guidelines.

“We’ll just play it by ear with regards to what the new normal will be, but I don’t think it will be business as usual.”