A holistic approach needs to be considered to enable Australia to realise the essential benefits of company tax cuts, especially removing payroll tax, and attract capital. We need to reverse under-employment before it is too late, especially when enterprises continue to encounter more changes and disruptions to their businesses.
by Steven Yap
60,000 businesses will now join the ranks of 870,000 Australian small and medium enterprises for a less taxing year forward.
They are the SMEs with an annual turnover of between $2 million and up to $10 million. This group will be able to enjoy corporate tax rate relief of either 1% or 2.5%.
They form part of Australian SMEs that make up 97% of all Australian businesses, producing one third of Australia’s GDP and employing 4.7million people, representing 90 percent of all goods exported and over 60% of service exporters.
SMEs with turnover between $10 million and up to $50 million will only be able to start to enjoy this reduced corporate tax rate from the 2017-18 and 2018-19 financial years.
Personal tax and GST revenue from new jobs replenishing corporate tax cuts
The $5.3 billion tax cut benefit works out to be about $5,700 per entity across 930,000 SMEs. It would only need each of these SMEs to employ one person with a $39,000 salary to contribute that amount back into tax revenue through personal income tax and GST.
Another positive is that 930,000 new jobs or positions should be available in Australia – each year. It would be an incredible boost even if 300,000 new jobs are created.
Even greater economic growth would be supported if 2.5% tax cuts and the $20,000 asset tax depreciation were to be extended to the remaining SMEs with turnover between $10 million and $50 million. It wouldl be a small step for the government but a big step for SMEs to employ people and embrace innovative means to be more productive. This is especially the case now when every ‘bricks and mortar’ business, as well as service companies, are facing daily disruption to their business models. They need to transform to survive and tax incentives are at the core of sustaining working capital to support this investment.
Removing payroll tax will spur employment
If there is a one action that needs to be performed to truly enable the benefits of the tax cut to be crystallised for its intended purposes - it is to encourage employers to employ via the removal of payroll tax. Payroll tax is the very antithesis of employment.
With the array of business costs that need to be managed to enable Australian businesses to survive, let alone be competitive, especially in the borderless digital world, payroll tax and stamp duty are the two most outdated levies in the world. They are in direct conflict to encouraging employment, and are unnecessary costs of doing business.
Reducing business costs to retain and nurture talent, and attract foreign direct investment
It is frightening to encounter the level of under-employment across generations with no thanks to high business costs – even when compared with our like-competitors.
There are many potential suitors for FDI into Australia but high business costs are a major disincentive.
These suitors have been looking elsewhere to develop profitable business models.
It should not be surprising that home grown talented people and enterprises have chosen to relocate elsewhere to follow opportunities.
Hubbing such enterprises in Australia can only benefit our economy significantly.
The thesis of continuously selling (non-renewable) assets as a major means of attracting capital for the economy that is arguably not applied directly for productive use – is not sustainable for the near future and even for the next generation.
Need to be productively competitive and profitable
The Government needs to strengthen its resolve to work with the private sector to devise and implement more productive and world competitive fiscal policies. It also needs to remove obsolete business barriers, particularly aiming to reduce business costs for all Australian enterprises, whether start-up, SMEs or large corporations. This will ensure we remain productively competitive and profitable inter-regionally and globally – as we enter and embrace the next revolution, the digital revolution.
Steven Yap, is Chapman Eastway’s CEO of CE Capital – an advisory and capital entity.