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Stronger, fairer, simpler – crikey that’s good for SMEs

Australia – we are winning.  The Government today confirmed it plans to implement some of the recommendations from the Henry Review on tax, and wow they are leading edge (hence the slogan stronger, fairer, simpler…). As we know Australia has a lot of natural resources and the government has decided to tax the resources sector more heavily and tax our good friends the small business sector less. A very, very smart move as far as we are concerned. It’s likely there will be a corporate tax rate reduction to 28% for SMEs, effective in the 2012/2013 financial year. This will release some of the pressure on SMEs, allowing them to take a breath and think about growth. Genius.

The other biggie (which we wish other OECD countries would adopt) is a $5,000 write-off allowance for fixed assets. It will save so much administration time accounting for small assets, which now can be written off at time of purchase. Brilliant.The Hon Wayne Swan is coping a lot of flack from big business with their significant PR clout, but the unsung heroes of the Australian economy,  the Mum and Dad business owners, will be singing his praises. A lot of noise is being made about the effect on jobs in the mining industry and fair enough, but if an economy can grow and develop its SME sectors, the employment prospects are massive, even bigger than mining. The social impact of breeding a society of entrepreneurs (who need employees) will last far longer than mineral deposit. For example look at the result of the coal mine closures of England and Wales. Some of those communities are only just getting back on their feet now and the UK Government had to develop significant retraining and investment in the SME sector. The UK ate all it made from North Sea oil, leaving no financial asset or natural resources for future generations. Norway on the other hand invested all the revenue generated and has quietly become a very wealthy nation.

If this is a sign of things to come, we eagerly look forward to the release of the Budget next week. AND if you are listening Kevin (Rudd) or Wayne, can you please drop individual income tax returns just like New Zealand has done…the accountants hate doing them and charging for it.

You can read the executive summary of the Henry Review here.

 

Read more about Accountants, Australia, Small Business

 

3 comments

Mike Deam
4 May 2010 #

Hi Hamish,

Without being too political its not all that terrific when you get underneath it.

Most small business are infact Trusts or Sole Traders in Australia not companies. The only benefit the that government offers is to companies. So if you are not a company – you get nothing.

The Henry Review has hundreds of recommendations in fact the Government choose to implement only very few of them. I’d be surprised if more than 10% of the Henry Review has been adopted. In fact most commentators are saying that they had a real opportunity but as usual folded at the finish line and did very little. An opportunity missed?

They could have reduced a bunch of smaller taxes such as stamp duty on insurance contracts etc but all this remains. Payroll Tax remains all the red tape that Small Business (and larger) remains. The net result is all they have done is introduce a new tax on the Mining Industry which means that a number of large projects are probably going to become marginal and not go ahead which will reduce the jobs in these industries. Of course the miners will take more interest in creating projects overseas where they will pay less tax. Net result – increase unemployment in Australia – export those jobs overseas and It will fail to deliver the stimulus to small business.

In addition superannuation is a mixed bag. They have reduced the maximum contribution levels from high income earners (max $25,000 pa age dependent) and now want to increase the age limit you can contribute to and now they want to increase the rate you can put money into it. But its so slow that most are saying it will be ineffectual – but most employers will use this increase as an excuse to slow take home pay growth.

Honestly dealing with Superannuation in Australia is like playing Russian Roulette – you never know the rules from one day to the next (where the bullet will be in the chamber) and if you are actually ever going to get anything out of it. If you are middle aged 40-50 its a nightmare. Lots of the super funds have invested in the mining sector which will now be more heavily taxed.

Death Duties also rate a quiet mention with a tax on bequests and gifts. This tends to hit the small families and caused many in the rural sector untold damage and family hurt as they attempt to pass the family farm from generation to generation.

So all they appear to have taken from the Henry Review are all the possible new taxes and none/little of the possible reforms. They have to get this through the Senate and the next election due here before April 2011 (though most are often held around Nov/Dec). Without support in the Senate it won’t get off the ground.

If you are going to reform the tax system – then reform it. This is merely an increase in the wound and a band-aid over the surface. Most small business will pay more tax under this plan in the current format.

Disclosure: My small businesses (3) are all structured as family trusts, personally and in the Self Managed Super Fund I hold investments in large miners that will be effected by the new tax.

Cheers Mike Deam

Hamish Edwards
5 May 2010 #

Mike – thanks very much for you well consider post. Clearly sometimes the devil is in the detail and I guess the Budget and result from the Senate will confirm some of these matters. Lets also hope that in the not too distant future there is a drop in individual tax rates, which will help the sole traders.

[...] Deficits are inevitable and Kevin Rudd’s intent to get the Australia economy back to surplus by 2013 (three years ahead of time) is ambitious but admirable. In the Budget announcement last night all the big issues were reaffirmed as per my post on the Henry Review last week. [...]

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