‘Debt levy’ on income tax would hit small business the hardest

Business groups have hit out against the federal government’s so called “debt levy”, saying a potential increase in personal income tax in next month’s budget would unfairly hit small businesses.

Fairfax reports Prime Minister Tony Abbott has not ruled out a temporary increase to income tax to address the current budget deficit and a senior source has said that the levy is “on the table”.

The speculation comes as Abbott and Treasurer Joe Hockey continue their efforts to soften the public reaction to the budget. This year’s budget is expected to outline ambitious plans to dramatically reduce government spending in a bid to find a way back to surplus in the next 10 years.

Head of policy at CPA Australia, Paul Drum, told SmartCompany that “it should not be forgotten that the majority of businesses are unincorporated” and that “lifting income tax rates, even on a one-off basis, will hit small business hard and may act as a disincentive for consumer spending and business investment.”

Australian Chamber of Commerce chief operating officer John Osborn told Fairfax an increase in personal income tax would be inconsistent with the government’s plans to offer tax relief to businesses through the scrapping of the mining and carbon taxes and cutting company tax.

“This would be unfair and inconsistent for small business,” said Osborn. “Any income tax [increase] would be an unwelcome surprise from a new government that promised no new taxes and no surprises before the election.”

Australian Industry Group chief executive Innes Willox also slammed the proposal, saying a tax increase would have a negative effect on private sector demand, which is already feeling the effects of below-trend economic growth and flat labour market conditions.

“Raising income tax rates inflects a heavy excess burden on the working of the economy and is likely to do more harm than good,” said Willox.

However, Drum said “speculating on hypothetical tax adjustments, in isolation, is very difficult and may not be helpful”.

“This pre-budget period, with all the leaks and unconfirmed initiatives – from pensions to health co-payments to the ABC and CSIRO – is wearing us all down. The idea of a budget is that all measures are taken together [and] that’s what we need to see,” he said.