Small business to be hit by Coalition tax hike as budget hole blows out to $12 billion

The small business community could be hit by the Coalition’s proposal to tax the largest 3200 companies in order to fund its maternity leave scheme, with tax experts warning smaller companies are in danger of being affected.

The warning comes as Prime Minister Julia Gillard’s budget troubles have continued, as she is set to announce today the government will record a shortfall of $12 billion in next month’s budget – a figure worse than expected.

Economists and business groups have said they are concerned about the announcement, and what long-term effects it could have on the nation’s finances. 

The Coalition has made the maternity leave scheme a pillar of its election campaign. The 3200 largest companies will be taxed an extra 1.5% in order to fund the plan, which will pay primary carers a full six months’ salary.

Coalition leader Tony Abbott has said the program will come alongside a reduction in the corporate tax rate for other businesses, although reports indicate this proposal is in jeopardy.

The Tax Institute tax counsel Deepti Paton told SmartCompany this morning the category of largest 3200 companies squarely hits a number of SMEs.

Paton points to the ATO’s own statistics. The ATO categorises the number of “very large” companies existing in Australia at 927. These companies have income more than $250 million.

However, there are only 1099 companies in the next biggest category, “large” businesses, which have income between $100 million and $250 million.

This means, in order to fulfil the 3200 companies target slated by the Coalition, it needs to tax businesses in the “medium” category, of which there are 12,916 businesses. These have income between $10 million and $100 million.

Paton told SmartCompany while the organisation has “always been very supportive of a tax rate cut when it can be afforded”, the impact of taxing smaller organisations cannot be denied.

“The notion of affordability has to be counter-balanced,” she says. “We’d like to see a cohesive plan that maximises productivity for Australian businesses and SMEs.”

Paton also points out the ATO also can define an SME as a business earning anything up to $250 million.

Meanwhile the government is set to announce the current budget shortfall is even worse than feared.

Prime Minister Julia Gillard is set to announce today the May budget will produce a shortfall of $12 billion – but no new spending programs such as education and disability reforms will be targeted for spending cuts.

The deficit of the 2012-13 year is now expected to be at least $11 billion.

The Department of Prime Minister and Cabinet was contacted this morning regarding the announcement, but no reply was received prior to publication.

The Australian Financial Review has reported Gillard will announce the deficit today. It comes as two new reports from the Grattan Institute and Macroeconomics have found the government is facing long-term deficits as a result of both weak revenue trends and new spending initiatives.

Gillard will reportedly say today the budget must “respond to the huge reductions in revenue growth over the next four years”, but it also needs to “make necessary investments in the nation’s future to ensure that none of our people are left behind”.

The major problem is not spending, Gillard is expected to say, but falling revenue rates.

Australian Chamber of Commerce and Industry head of economics, Greg Evans, told SmartCompany this morning the announcement “puts the onus on the government to properly deal with spending in the next federal budget”.

“Without a sustainable budget there is no scope for the major economic reforms required such as delivering a tax system that promotes incentive and enbales productivity improvements.”

AMP economist Shane Oliver says while the shortfall isn’t a significant problem in the sense we already knew the budget wouldn’t deliver a surplus, it does underline a “broader issue”.

“Where it’s probably a longer-term problem is the fact it’s underlined Australia has a revenue problem.”

“We’re not in dire straits…but instead of years of surpluses we may expect several years of deficits.”