Small businesses have been hailed one of the few winners of the budget, but as the dust settles many will discover that Joe Hockey has delivered little more than window dressing around the real issues they face.
While Hockey pleas for business to “help out” with the budget repair, the reality is small business is already more than pulling its weight, putting millions of Australians to work and contributing a huge amount of tax to the economy.
Lower corporate tax and the establishment of a small and family business ombudsman are welcome developments, but closer inspection reveals they may not have the far-reaching positive impact many are hoping for.
Lower company tax
The government is standing by its promise to cut the company tax rate from 30 per cent to 28.5 per cent by July 2015.
Max Newnham, a partner at TaxBiz Australia and small business expert, says plenty of noise has been made about the budget’s benefits for small business, but not much of it holds water.
“The announcement in the budget about how the reduction in the tax rate for companies was supposedly good for small businesses is further proof of how much Canberra and the politicians are out of touch with the real world of businesses,” he said.
First, he says, most small businesses don’t operate through a company structure, they operate as sole traders or partnerships, so the new rate doesn’t apply. Second, if a small business does operate through a company, and pays 28.5 per cent tax, the owner still ends up paying the marginal rate when taking out the profit. Third, a 1.5 per cent drop, when put into realistic dollar terms, is not much at all. So from the point of view of that supposedly being a ‘champion for small business’ it is nowhere even close to being a small business benefit.
Three business boosters
- The government has set aside $8m to establish a small and family business ombudsman -- a single entry point aimed at informing businesses about government services and programs, as well as help resolve disputes.
- A new $2.8m government unit will be set up to help small businesses tender for government projects. It will look to break down the roadblocks that have seen small business muscled out of government contracts in the past.
- Small businesses will also get more protection from unfair contract provisions when dealing with big businesses. Coles and Woolworths have come under fire for intimidating their small and family business suppliers, and while they entered into a voluntary code of conduct last year, the $1.4m government scheme announced in the budget will see more concrete protection.
These initiatives are certainly a step in the right direction. The fact that the government is establishing a small and family business ombudsman shows it’s grasped that the two are not one and the same.
But Newnham says these programs are unlikely to have the far-reaching positive impact many are hoping for.
“If the ombudsman has real powers to help and defend small businesses then it will be a worthwhile exercise. If it ends up being just a government portal that explains what businesses are eligible for I don’t think there’s going to be a huge benefit for most small businesses,” Mr Newnham said.
Higher income tax
While small business owners may not bring in enough profit to be hit by the deficit levy, family businesses are another story.
With the 2 per cent tax increase hitting people earning more than $180,000, owners of larger companies might want to reassess what they pay themselves.
Once Medicare and other levies are taken into account the top tax bracket becomes 49 per cent, up from 46.5, which means that business owners will have to revisit their tax strategy and figure out if it’s worth their while taking a cut. (Link to Bob)
As it stands, if a car is bought by a business for more than $6500 it can claim an immediate tax reduction for the first $5000 as well as 15 per cent of the excess cost.
As part of the ‘Mining Tax Repeal Bill’ that $5000 will become $1000.
It was at $1000 when John Howard was prime minister, then it was bumped up to $5000 under Labor and now it’s being cut back.
And who could forget that once the business buys a vehicle it will have to fill it up -- an increase in the price of fuel will impact small and family businesses too.
But while the government has made it more difficult to drive products around Australia, it’s encouraging small businesses to export with a rebate of up to $5000 being offered to cover half the cost of export registration fees.
But this isn’t necessarily a small business hero either: Max Newnham says of the 800 small businesses his company takes care of, none are in the export business.
The reason why the latest trumpeting on the importance of nurturing small business fails to hit the mark, according to Mr Newnham, is because the sector still lacks a reliable definition.
“Under John Howard, a small business employed up to 100, under Labor it was 15 people… I believe there should be a legislated definition of small business,” he said.
And it’s the same for family business, the lack of a clear understand of what constitutes a small business and a family business, and how they differ, could have been a useful inclusion to a budget that promised a lot to small business but delivered little.