Seasoned entrepreneurs should infiltrate our major political parties to shake things up because politicians, including the Coalition, have failed to show leadership on business growth, says Dick Smith.
The serial entrepreneur predicts Tuesday’s federal budget papers will aim to disguise the “Ponzi scheme” nature of Australia’s current economic approach, which requires “endless growth”, and could focus on “outrageous” tax cuts instead of genuinely useful policies to help small business owners.
“He’ll [Treasurer Scott Morrison] reduce taxes and create false growth,” Smith predicts.
Pre-budget conversations have revealed the government’s laser-focus on getting its full company tax cut plan through, while income tax concessions are also on the table.
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Smith is critical of the government’s preoccupations with company tax cuts, believing larger companies do not need a leg-up in order to get ahead.
“For a wealthy country, company tax cuts for small business is okay, but for big wealthy companies, it’s outrageous,” he says.
Meanwhile, the government’s innovation agenda has lost momentum and Smith says this is because it’s “incredibly difficult” to drive business innovation if the key motivator is tax incentives or grants.
Smith believes experienced entrepreneurs should be making a tilt at getting elected through major political parties so they can drive home the importance of cutting red tape and regulation to make it easier for companies to get started in growth areas. He cites the area of aviation, where he claims over-regulation is “nothing short of criminal” and has resulted in small businesses in the flight training space shutting down.
“Maybe we do need someone to stand. It won’t be me, but someone who brings that leadership as an entrepreneur. There’s great potential to get great young people in there,” he says.
Smith’s comments come amid research earlier this week that a majority of SMEs don’t believe next Tuesday’s budget will hold anything that valuable for them. Forty-seven percent of the 300 businesses surveyed said they had no confidence the budget would have policies that make it easier to do business.
Do businesses really feel the impact of company tax cuts?
Company taxation rates has formed a central part of the government’s economic rhetoric over the past year, but not everyone agrees on the true impact of cutting the corporate tax rate.
Small businesses with turnover of $10 million or less have already received a cut in the corporate tax cut to 27.5%, while those with turnovers of up to $50 million have tax cuts locked in to start over the next two years. The government says it remains committed to also securing corporate tax cuts for companies that generate more than $50 million in revenue each year.
Research out this week from Xero and economics consultancy AlphaBeta indicates that when the government has handed down corporate tax cuts to small businesses in the past, business investment and employment went up. But some businesses couldn’t even work out whether they had received a cut or not.
The accountancy firm crunched the numbers from tens of thousands of small business transactions, looking at the period after the corporate tax rate was cut in 2015. This policy saw companies with turnover of $2 million or less pay 28.5%, down from 30%.
Based on their activity after this cut was put in place, Xero says companies received $2,940 on average from the policy. Close to 20% of this amount went to hiring more staff, while just 3% went to wage increases.
Smaller operators also increased business investment slightly, but Xero points out that in a survey of 500 businesses who would have benefited from the cut, 34% did not know whether they had actually received it.
The takeaway? Cutting corporate tax for small businesses has increased job creation in the past, but there is “low awareness” among many businesses about exactly what they will get from the cuts, and therefore how much additional cash they will have to use within their businesses.