Small business doesn’t want lower penalty rate tax trade-off if it means more paperwork

Small business doesn’t want lower penalty rate tax trade-off if it means more paperwork


The small business community has backed the Treasurer’s call for a “mature discussion” around any potential reduction in Sunday penalty rates, but says any incentives to ease the transition to lower rates should not create more paperwork.

Treasurer Scott Morrison told ABC Radio yesterday he believes potential tax credits for employees who are paid lower penalty rates on Sundays is an innovative idea and one worth considering.

It is not yet clear whether a tax credit for workers could take the form of an additional tax rebate or simply a lower rate of income tax.

“We need the flexibility in our system to ensure we have this agile and innovative economy,” Morrison said.

The recently appointed Treasurer pointed out that for far too long debates about industrial relations in Australia have been a “pitched battle between unions and business, capital and labour”.

“I want to see people with disabilities, people with long-term unemployment get jobs,” he said.

“I don’t know why anyone would want to rule out anything that would help young people get into jobs. I would like to see other parties, and particularly the Opposition, get past this boring industrial relations rhetoric of us versus them.

“We’re all in this together and we need to get young people in jobs.”

There have been growing calls among Coalition ranks to reform penalty rates, with Prime Minister Malcolm Turnbull arguing everyday Australians need to be convinced they will be better off if they are to accept changes to their pay cheque.

Peter Strong, chief executive of the Council of Small Business of Australia, told SmartCompany the issue of what to do with people who are currently earning Sunday penalty rates is the major sticking point when it comes to reforming this area of industrial relations.

“Just to be clear, we don’t want to get rid of penalty rates,” Strong says.

“All we’re talking about is Sunday and public holidays and saying they are too high. People on these rates are a group we have to consider and over time that group will get smaller and smaller – places like Coles already pay lower Sunday rates.

“So it’s already there, the only issue will be in the restaurant and catering industries and other retailing.”

Strong says it could get “confusing” if the government asks businesses to report to the ATO which employees need a tax credit due to new penalty rates.

“If it works and it’s not complicated for the business, that’s fine,” he says.

“But any paperwork is always problematic. I think the way to deal with it is any new employee who wants a job gets the lower rate. I think that’s the better way to manage it.”

However Tristan Webb, national tax director at Crowe Horwath, told SmartCompany the idea of giving tax credits to employees in return for cutting their Sunday penalty rates wouldn’t be too difficult to administer. 

“In the first instance, people would be able to claim the rebate under self-assessment and the ATO would reserve the right to go back and check through, review or audit whether Sundays were actually worked to claim the rebate,” Webb says. 

“Under tax law the onus of proof is on the taxpayer, so people would have to prove that they worked the Sundays they claimed they worked in order to claim the rebate. In addition, it would be easy enough to put a new box on PAYG payment summaries that would indicate that employees are eligible for the rebate as a system of checks and balances.” 

The bigger issue facing policy makers when it comes to a potential tax rebate, according to Webb, is the affordability of such a proposal.

“If the tax credit is intended to leave workers in a similar position to penalty rates, essentially the proposal just involves moving expenditure on workers from the private to the public sector,” he says. 

“With public finances in the state that they are in currently, how could the government possibly afford it? In addition, tax credits are generally designed to soften the progressivity of the tax system at the top end to encourage certain behaviour – for example superannuation and CGT concessions. At the lower end of the income scale, they are often less effective.”



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