Tax reform, wage incentives and an IR overhaul: What SMEs want from the 2020-21 budget

Mobius Distilling Co co-founder Alex Hardie has his fingers crossed for tax reform in the upcoming 2020-21 federal budget, after a difficult year battling through the COVID-19 pandemic.

The business owner, who saw 95% of his revenue evaporate when the hospitality sector largely shut down in March, kept things going with the JobKeeper program, but will lose access in the coming days.

“We’re just going to have to suck it up and deal with it somehow … I know a lot of hospitality businesses are preparing to pull the pin,” he tells SmartCompany.

Hardie says the biggest thing the federal government could do to support independent brewers would be tax reform, specifically a long bemoaned alcohol excise.

“They make more money than we do,” he says.

The Independent Brewers Association has been lobbying the federal government throughout the COVID-19 pandemic to ease up on alcohol excises for beer and spirit manufacturers.

Currently, distilleries pay upwards of $85 in excise per litre of pure alcohol, while full-strength beer is taxed at $50.70 a litre.

Brewers want a similar arrangement to the wine industry, which pays 29% of wholesale prices under the wine equalisation tax.

Hardie says bringing distilleries under the same arrangements as wineries would be great for the industry and encourage employment as the economy recovers from the coronavirus crisis in 2021.

But the pandemic has already taken its toll on many, and Hardie stresses the need for the government to also double-down on mental health support for small business owners in the upcoming budget.

“A lot more funds being directed towards mental health support is going to be one of the best things they can do,” he says.

In fact, an array of small business advocates are calling on the federal government to bolster mental health measures in the upcoming budget, amid concern the pandemic has created unprecedented personal and financial stress for SMEs across the country.

It’s part of a growing wishlist coming together in the small business sector ahead of October 6, when Treasurer Josh Frydenberg will outline the government’s plan for lifting Australia out of recession.

2020-21 budget: IR reforms and revenue-contingent loans

Council of Small Business Organisations of Australia (COSBOA) chairperson Mike McKenzie is encouraged by rumours the government will look to replace the JobKeeper scheme with employment incentives, but says funds are just part of the equation for businesses considering whether to bring on more staff.

“This measure would need to be supported by appropriate industrial relations reforms to be worthwhile,” McKenzie tells SmartCompany.

While Attorney-General Christian Porter is holding a series of roundtable negotiations with business groups and unions to chart a path to workplace relations reform, COSBOA is calling for an SME model schedule that would effectively set up a differentiated industrial relations system for smaller employers, similar to small business ombudsman Kate Carnell’s suggested small business award.

“The decision to employ isn’t solely financial. Industrial relations needs to be simplified to encourage employment,” McKenzie says.

COSBOA has also echoed Carnell’s call for a new SME loan program where repayments would be contingent on COVID-19 revenue recovery, similar to the HECS loan system for university students.

The Morrison government’s existing unsecured SME loan scheme has not achieved desired uptake across the industry, but McKenzie says a revised program will be imperative to ensuring businesses currently surviving off federal government support and insolvency protections make it through next year.

“Businesses have been allowed to amass loan deferrals and rent through the commercial tenancy code of conduct. The question is, how do you come out of it?

“While businesses may not have structurally failed, they’re going to have debts they wouldn’t usually carry.”

A revenue-contingent loan program would, McKenzie argues, provide businesses with the flexibility they need to get back on track before repayments are due.

2020-21 budget: Investment allowance, or tax cut?

The Tax Institute director of policy Andrew Mills says small businesses would benefit from a rumoured investment allowance, but that a corporate tax cut would ultimately be more beneficial to businesses.

“One suspects those promoting an investment allowance may have been bitten before by attempts to make Australia’s corporate tax rate competitive,” Andrew said.

“A better solution to addressing both the short and long term needs of companies in Australia is to provide a universal corporate tax cut with immediate effect.

“Not only will this be of benefit for capital intensive industries, it will also encourage investment and jobs across more of the economy.”

Poolwerx chief executive John O’Brien agrees, arguing the SME company tax rate, already legislated to reduce from 27.5% to 25% in financial year 2022-23, should be brought forward.

O’Brien told SmartCompany earlier this year that if the government could make a case for fast-tracking personal income tax cuts, then it should be able to bring forward cuts for SMEs as well.

“Businesses know how to manage their money better than governments,” he said.

“Leave the cash in their hands.”

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