I agree with Alan Kohler when he says today that the Government probably doesn’t have much appetite for more tax reform, particularly not with its budget surplus promise still very much alive and the fact that it still has to get its carbon and mining taxes in place.
But that doesn’t mean the Tax Forum, which kicks off tomorrow in Canberra, isn’t an important event. More than 200 tax experts, business groups, community group, unions and other observers will come together for the Forum and it seems a reasonable hope that all that brain power will produce more than a few good ideas.
The Tax Forum is also a way of keeping tax on the agenda, something that Labor has actually done very well through its long Henry Tax Review process – even if most of the recommendations made by former Treasury Secretary Ken Henry are yet to see the light of day.
A simpler, more competitive tax system is something government’s should always be striving towards. Even if this Labor Government isn’t in a position to take steps towards that right now, we should always keep looking at initiatives that could be introduced in the future.
From an SME perspective, there are few things that we hope to see come out of the Tax Forum. The big ones include:
- Payroll tax reform. As any entrepreneur will tell you, payroll tax acts as a handbrake on growth. And as the Henry Review found, payroll tax is inefficient due to the large number of exemptions and distortions – there simply has to be a better way and state and federal governments must start looking for it.
- Carry-back losses. Last week the Government leaked the fact it wanted to pick up a Henry Review suggestion that would allow small businesses to “carry back” tax losses. This means that if a small business makes a profit one year and a loss then next, it could effectively claim back to tax paid on the profit in the previous year. A great idea, let’s get it in place.
- Tax write-offs for small business. From next financial year small businesses will be able to claim a $5000 immediate write-off on deductable assets. But the Henry Review recommended this should be $10,000 and so it should be. This can be a great benefit for entrepreneurs and a great stimulus to the economy.
- Redefine the small business. The Henry Review wanted the definition of small business lifted from $2 million in revenue to $5 million. Raising the threshold would make many of the initiatives above even more powerful.
- Company tax rates. As the Australian Industry Groups’ Heather Ridout has said, company tax rates are falling around the world and Australia’s should too. Henry said the rate should fall from 30% to 25% but the Government will cut to just 29%. Further reductions would be welcome.
- Personal income tax rates. Of course, for the hundreds of thousands of small businesses who are incorporated, company tax rate cuts don’t mean anything. While personal tax rate cuts are a vexed issue, let’s not forget that in his review Henry pushed for “a high tax-free threshold with a constant marginal rate for most people…to provide greater transparency and simplicity”. This goal is probably some way off, but it is a worthy one.
Our deputy editor Madeleine Heffernan is travelling to Canberra to report from the Tax Forum – don’t miss her analysis over the next three days.
