The Australian, October 12, 2016:
Australia’s tax war has reignited, with Bill Shorten facing fresh warnings over his plan to scale back the government’s proposed corporate rate reductions, as business argues Labor will discourage growth in 100,000 small companies and dampen job creation.
Tim Reed, chief executive of accounting software firm MYOB, yesterday took aim at Labor’s plan to limit the 27.5 per cent corporate tax rate to businesses with a turnover of up to $2 million instead of Malcolm Turnbull’s proposed threshold of $10m.
“I think they (Labor) have got it wrong and it’s actually shortsighted and shows a lack of understanding,” Mr Reed told The Australian. “Many businesses literally can’t afford to grow over $2m of revenue because the implications around that aren’t just the reduction in the company tax rate.”
He said businesses with more than $2m in turnover already missed out on other growth incentives such as the $20,000 instant asset write-off and faced greater complexity in the filing of business activity statements. He argued that providing tax relief to larger companies would also drive growth for smaller operators. “For every dollar spent by small business with a big business, the big businesses spend two dollars with the small businesses,” he said.
Institute of Public Accountants tax expert Tony Greco cited Australian Bureau of Statistics figures showing that 61 per cent of businesses below the $2m threshold did not have any employees. By contrast, he said there were between 90,000 and 100,000 businesses in the $2m- $10m turnover category that employed staff and had the capacity to use the extra tax relief to take on more workers or deliver higher wages.
“Out of the extra 100,000 business that get access to the suite of tax benefits, a higher proportion of those business would be employing entities and, therefore, more likely than not, they have the opportunity to increase their workforce,” Mr Greco told The Australian.
“Moving the tax benefits up the food chain is likely to bring the economy substantial benefits. We believe there’s a strong argument that, over time, you will see economic benefits that will hopefully exceed the cost (of the tax cut).”
Of the actively trading small businesses below the $2m threshold, only about 28 per cent have between one and four employees while a further 10 per cent have between five and 19 employees.
Scott Morrison and his Labor counterpart Chris Bowen traded shots yesterday over the $10m threshold which represents only the first phase of the government’s enterprise tax plan to glide down to a uniform corporate rate of 25 per cent by 2026-27.
While the cost of the plan over the forward estimates is put at $2.6bn — including $450m in the 2016-17 financial year — the total cost of the glide path towards the 25 per cent target over the decade is estimated at $48.2bn.
Australian Chamber of Commerce and Industry chief executive James Pearson said yesterday it was disappointing that Labor was set to deny many Australian workers the benefit of the tax cuts by insisting on a $2m turnover threshold.
“This threshold will deny larger employers an incentive to invest in hiring more people. Much of the benefit of the cut will come from it being made available to medium and large businesses, on which many small businesspeople depend,” Mr Pearson told The Australian. “We encourage the government to persevere in seeking a way to secure the bill’s passage through the Senate.”
Brisbane small business owners Ella and Craig Brown, from Bardon in the federal electorate of Ryan, said the company tax changes would make a difference to the number of staff and subcontractors they could employ.
Their business Corella Construction falls within the $2m-$10m category, currently has a staff of about 15 and calls on a bank of subcontractors as they take on new jobs.
“If we don’t have to pay out as much in our business in tax — and we can retain that a bit longer in our business from a cash perspective — we can reinvest it back in growth, jobs and capital,” Mrs Brown said.
“It really frees up additional cash for us to be able to use in the business. It’s not going to revolutionise our business but every bit helps our business’s cash flow and turnover.”
Mrs Brown said the number of subcontractors employed was also dependant on the businesses available working capital. “You need that working capital to take on additional work,” she said.
“Those additional sites and work means you are giving more jobs to more subcontractors and more people in the community.”
Mrs Brown said any suggestion a business with a turnover of between $2m and $10m was not small was hard to swallow. “To not include us, it’s sort of like branding us as a large business and we are not,” she said.
Mr Bowen told The Australian it was not the right time to proceed with corporate tax cuts which he warned represented a “$50bn ram raid” on the budget.
“Scott Morrison has just been given a very clear message from S&P about the Australian Government’s fiscal position, the external balance, and the triple-A credit rating,” he said. “The last thing the budget needs is a $50bn ram raid that is structural in nature, meaning that it builds to $13bn a year by the end of the next 10 years.”
The Treasurer told 2GB radio yesterday that businesses between the $2m and $10m turnover thresholds employed “on average around 22 people” and argued that Labor was unwilling to extend the tax cuts because it couldn’t cut back on expenditure elsewhere.
“I understand their view about tax cuts for large corporates, but they’re going to block it for those small companies,” Mr Morrison said.
“They don’t want to make any changes to these savings in welfare. So they’d rather keep that rolling out the door, and they’re going to make small businesses pay for it, in higher taxes.”