If you are a profitable small business with less than $2 million revenue, then you are a clear winner from today’s response to the Henry Tax Review.
Your company tax rate will be reduced from 30% to 28% from 2012-2013. You will also benefit from the instant small business asset write-offs worth up to $5,000, which will start from 1 July, 2012. And you will be able to depreciate other assets in a single pool at 30%. On the other hand, you will be paying more in superannuation payments from 2013.
But on the whole, the next few years for a large number of small businesses will look far better from a taxation point of view than they did yesterday.
And of course all companies will benefit from the reduced tax rates and in the long-term, from the Government’s focus on infrastructure.
But there are many missed opportunities in the announcement today. A whopper is Henry’s recommendation to change the definition of a small business to $5 million revenue from $2 million. This would have widened the number of companies that could have assessed these benefits announced today, to include fast growing small and medium-sized companies.
As it is, business owners will have an incentive to stay small and under the threshold of $2 million. And small businesses with more than about 12 employees will be cut out of any incentives at a time in their growth cycle when business is very challenging.
Yet it is at this point, when a business is on the cusp of $2 million that these “larger” small businesses create a large number of jobs, spend a lot of money investing in growth and start to explore export markets. This is a time they need support, not to lose benefits that could help them grow faster.
This big tax reform review also has done nothing to address the looming skills shortages problem that is going to have a major impact on the ability of a company to grow.
It also, most disappointingly, did nothing about the most hated tax of all: payroll tax. In fact, if you now add the extra superannuation contributions that business owners will have to pay, the cost of employing staff for many businesses just went up.
The other big disappointment is the lack of will to blast through the states and demand a clean up of the State/Federal tax system. Henry spent a lot of time looking at the Federal and State tax system. The lack of will to work together means some companies are subject to more than 50 State and Federal taxes.
Yet there is nary a mention about how and when that red tape mess is going to be addressed. And if they can’t do it now, with technological advancements and almost wall-to-wall Labor governments, when is it going to happen?
In fact, when Treasurer Wayne Swan was asked about this at the press conference, he replied that it was a very complex and big job that is still being tackled. Gee, it’s not that hard. Try running a business across state borders, Wayne. Now, that’s hard.
Mind you, Swan did give a very interesting response when asked why he didn’t increase the tax burden on the wealthy through playing around with superannuation contributions. He replied that certainty was paramount when planning for the future and the Government had decided to help build up the “bottom half” of the system.
But what really stood out in today’s response to the Henry Review was the emphasis on values.
Both Kevin Rudd, who made a surprise appearance at today’s press conference, and Swan both emphasised their personal values and the Government’s values had a big role in the decisions they made – and in the suggestions from the Henry Review that they decided to ignore. Swan was asked if the Government lacked “moral courage” for implementing so few of the Henry Review’s suggestions.
No, was the crux of his reply. He believed strongly that profits from the mining boom from resources that belong to “the people” should be redistributed to assist with infrastructure, company tax reduction, particularly for small business, and to boost the savings of an aging Australia.
For many years small business owners have barely received a second glance in budgets and reviews. The fact that business owners are now on the “values” list of this government can only be good news. And it certainly ups the ante for a Coalition Government that regards small business as its natural heartland.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
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