In order to give some substance to his claim that the Coalition are for lower taxes, Scott Morrison has chosen to bring forward by five years tax cuts already legislated for small and medium businesses. To use his oft-repeated phrase, these are nothing new, they are ‘existing’ legislation, just fast-tracked for an election sweetener as Coalition governments always do.
According to ProMo, this will allow tradies and hairdressers and family businesses to hire more people and give wage rises to their staff and invest more in their businesses.
Sounds good…until you actually examine the real implications of this announcement and which businesses it will affect.
For starters, the vast majority of businesses (61.2%) don’t employ anyone. Of the 38.8% of businesses who do employ someone, 70.1% of them employ between 1 and 4 people.
If they are sole traders, their tax is determined by income tax rates rather than company tax rates. Under Scott’s proposal, they will bring forward a discount of 16% for unincorporated businesses, capped at $1,000 per individual.
Of the 2,238,299 actively trading businesses operating at the end of 2016-17, 98% had annual turnover of less than $2m. About one-third (34.7%) had turnover of $50k to less than $200k.
For those that are companies, Scott’s proposal is to reduce their company tax by 2.5%. That means if you made a profit – not turnover, profit – of $100,000 you would have an extra $2,500 annually to give wage rises, employ more staff, and expand your business – or take a holiday? Or, more likely, pay a tiny bit off your debt.
Of course, shareholders in any company would have their dividend imputations reduced if company tax was reduced, which means they would have to pay more in personal income tax without that tax credit.
We are told “this will cost $3.6 billion over four years and that the beneficiaries will be about 3 million businesses employing about 7 million people.”
Big numbers that do not tell the real picture. The idea that this will make any difference to wages or jobs or business investment is a total con. The most a sole trader will get is $1,000 and a small business would have to make a profit of $250,000 to be able to afford Kelly O’Dwyer’s toaster with their tax cut.
This is another blatant and ham-fisted attempt to wedge Labor by a government who prefers announcables to evidence-based policy.
Everybody except the major political parties have spoken of the imperative of raising Newstart and the many benefits that stimulus would bring to individuals and to the economy. (Labor has said they will have a “review” – rolls eyes).
A Deloitte Access Economics report says lifting allowances by $75 a week could help boost the economy.
“It’s $75 a week — $10.71 a day, per year across the economy as a whole, direct cost is about a bit over $3 billion,” explained Deloitte Access economist Chris Richardson, who oversaw the report.
“What our modelling shows is … if you give a bit over $3 billion to people who spend it, that flows through the economy, you get a bigger economy as a result. The direct cost might be a bit over $3 billion a year, but the net cost once you allow for that is actually only $1 billion a year — you go to one third of the total cost.”
For about the same cost, we can give a paltry amount of money to businesses which will make no difference whatsoever, or we can invest in lifting people out of crippling poverty so they can be in a position to care for their families, to look for employment, and to concentrate on their studies.
Businesses need customers, not a feel-good few bucks a week.
