Treasurer Scott Morrison has doubled down on pledges to provide income tax relief in the May budget, but experts say concessions on this front won’t afford SMEs much breathing room.
Fairfax reports this morning that the Coalition’s 2018 budget will include a 10-year plan for income tax cuts, starting slowly but amping up over the next five years to relieve the tax burden on those earning $87,000 or less a year.
Speaking to the Seven network last night, Morrison said “nothing has changed here” on his commitment to provide tax relief to low- and middle-income earners. This also extends to scrapping a planned increase to the Medicare levy, worth more than $8 billion to the budget bottom line, with Morrison to outline in an address today that higher-than-expected company tax receipts are putting the national accounts in a stronger position than previously thought.
On the flipside, the government is still committed to pushing the full extent of its corporate tax cut package through the Senate.
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Small businesses with a turnover of $10 million or less are already taxed at a lower rate than the big end of town, but the lowered income tax plan could also provide some relief to sole traders, a sector that has reported a number of conflicts with the Australian Taxation Office of late.
Founder of Perigee Advisers Lisa Greig says this could be a small win for sole traders, but overall, most of her clients have income above the government’s threshold.
“Most of my sole trader clients are probably just over that $87,000 mark,” she tells SmartCompany.
Greig observes that many of her clients are now avoiding using Australian Business Number structures and are instead choosing to incorporate themselves, with stories about ABN cancellations taking the sheen off that type of business structure.
“More and more are pushing into company structures now, and it’s just not as expensive to run a company as it used to be,” she says.
With this in mind, any income tax cuts will only boost the take-home pay of business owners. While this is a nice addition, it will begin as a minor change and a lot can happen over the next decade, she says.
“It’s a ‘coffee and cake’ style deduction for people,” Greig says.
Business owners and sole traders should be more worried about other tax policies on the horizon, says Greig, like suggestions that the government may place a cap on standard work-related tax deductions.
But when it comes to the impact of income tax cuts on consumer spending, economists have painted a slightly rosier picture.
“Targeted personal income tax cuts could reduce the squeeze on households and make up for persistent low wages,” economist Saul Eslake wrote on The Conversation last week.
However, the cuts need to be sustainable. Meanwhile, others believe that if the cuts are phased in slowly, smaller operators should not expect a sugar hit to sales.
“It looks like these cuts are going to be quite small initially — at least for the next couple of years. Even the proverbial five, eight or 10 dollars a year doesn’t really make an impact [on sales],” says managing director of Market Economics Stephen Koukoulas.
Businesses need to keep in mind that consumer spending is affected by other issues, like low base wages and a lack of job prospects in some sectors. This could very well wipe out any gains for SMEs, he says.
However, it does appear that no matter how the government goes about tax cuts, they want to do it with overall budget repair in mind, Koukoulas says.
“I guess as Mr Morrison has been implying, they can’t afford to do it all now,” he says.
“It’s one of those policies where the idea is not bad, as long as it’s assuming the overall budget numbers look good.”