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Federal Budget shaping as another win for spin over substance


It’s time for the Federal Government to stop messing about with low impact policy fiddling and provide some real economic reform, writes Adelaide tax and family business specialist Andrea Michaels.

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Buckle up – we’re facing some major spin from Canberra less than a week out from the Budget, my favourite time of the year.

Expect more around school and university funding, and the old “good debt/bad debt” narrative that keeps on giving… and perhaps another go at finding a magic bullet for the housing affordability issue. I suspect we’ll hear a lot more about  “jobs and growth” by Tuesday night too.

And then, of course, there’s tax.

In the run-up to the big day we’re rehashing last year’s corporate tax reform package – that’s now firmly back on the Treasurer’s agenda. But it all seems like just more of the same. Desperate spin.

Hailed as transformative policy that will boost inward investment and help everyone from large corporates to small business, is it really likely to make a difference?

Some actual tax reform would be good

Certainly, we don’t look very competitive compared to our international counterparts. US President Donald Trump just announced he will reduce corporate tax rates from 35 per cent to 15 per cent, and the UK’s rate sits at 19 per cent.

So, what are we doing? Parliament passed legislation to reduce the tax rate by 1 percentage point to 27.5 per cent this financial year for companies with a turnover of less than $10 million.

The tax rate cut will be expanded over three years for companies with a turnover of up to $10 million, then up to $25 million, and then $50 million. Eventually, the plan is to drop it to 25 per cent – maybe in the next 10 years, maybe for all companies. Transformative? Hardly.

According to Treasurer Scott Morrison, this will deliver jobs and wages.  And $75 to pensioners. Plus, maybe a “potential SA-NT pipeline”. Even a government loan at 3 per cent interest for a solar thermal plant at Port Augusta. All thanks to a deal with Nick Xenophon.

One problem is the current small business tax rate for companies is 28.5 per cent. So how many jobs are going to be created when small business owners realise they have a whole 1 per cent less tax to pay? Not a lot. Are they going to give it all away on pay rises to staff? Unlikely.

The proof – how many extra jobs or pay did people get as a result of the small business tax cut from 30 per cent to 28.5 per cent in 2016? Not even a ripple in the ocean.

Why not try a 5 per cent or 10 per cent cut in one hit across the board and see if that makes a change? Other countries have realised they must make significant changes to remain competitive – why don’t we understand that?

Current tax proposals won’t help South Australian SMEs, or family businesses

The other problem is that less than 40 per cent of all business are set up as companies and so, for sole traders, trusts and partnerships (a big chunk of family businesses), this whole thing doesn’t mean a lot.

And the hoopla over getting the rate cut through for “big business”? Well, these companies represent less than 7 per cent of all businesses in Australia according to the ABS, so thank goodness we went to all that effort.  (Although I’m sure those 7 per cent are very pleased with the outcome, and most of those are likely to be in Sydney or Melbourne.)

Don’t get me wrong: as a tax specialist, I’m all for decent tax reform from any side of politics. But unless you balance the cost with the actual real economic impact, you get nowhere.

Put up or shut up

The tax cuts are costing us about $5.2 billion. That’s fine if you are offsetting the cost with real gains in economic activity, but the rats and mice impact for an individual business means you’re not likely to see any effect.

Plus, there’s $260 million for the pensioner payment. Again, that’s great if it’s really going to help. But the logic that a one-off $75 payment (or $125 if you’re a couple) is going to help with regular electricity bills is crazy. We’re not that naïve.

The Government can talk all its wants about tax reform, “big picture” federal infrastructure, good debt vs bad debt, jobs and growth. I’ll start listening when someone comes up with solid policy that shows real leadership and a decisive and workable plan to address our economic issues.

Either do something properly and take the hit, or don’t do anything at all. Sadly, it’s the latter choice that seems to be winning these days in politics.

Happy Budget Day.

Andrea Michaels is managing director of NDA Law and a tax and family business specialist. Twitter @michaels_andrea

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