The more you look at the budget update released yesterday from The World’s Greatest Treasurer Wayne Swan, the worse it gets.
In an interview on last night’s 7:30 Report on ABC Television, Swan used the word “reform” no less than nine times.
But when you look at the measure that accounts for more than half of the $16.4 billion in savings created – that is, the shift from quarterly to monthly tax instalments for 10,500 businesses with revenue above $20 million – the idea that this is real reform is laughable.
As Cara Waters explains today, this is little more than a smoke and mirrors job.
The shift to monthly instalments will raise a total of $8.3 billion over the next four years. But the bulk of that figure – a forecast $5.5 billion – will be raised in the first year, when from July 1, 2014, 350 companies with over $1 billion in revenue will start paying up monthly.
Why is the initial number so high? Not because this is any great reform, but because the change will mean that these 350 companies will pay 14 months of tax instead of 12 months in the 2014-15 year.
Currently, there is a quarterly company tax instalment due in July. Companies affected will pay this quarterly payment in July 2014 (obviously covering three months) and then 11 monthly payments from August onwards.
In the 2015-16 year, 2,150 companies with more than $100 million in turnover will pay 14 months of tax and in the 2016-17 year, a further 8,000 companies with more than $20 million in revenue will pay 14 months of tax in 12 months.
Swan said yesterday that “this reform will make the tax system more responsive, efficient, and consistent by better matching tax collections with the economic conditions faced by business.”
He also said the total tax paid by companies would not change. But that doesn’t mean that this “reform” doesn’t have cost associated with it.
Business groups are already warning that companies could see a big impact on cashflow as a result of these changes. Effected businesses may need to line up financing arrangements to smooth out any cashflow issues – that, of course, has a cost.
Effected businesses will also face compliance costs in changing systems over for the new regime.
While the Federal Government believes this measure is really aimed at “large” companies – I’d argue it’s squarely aimed at fast-growth SMEs who will feel the pain in a few years’ time – it will be interesting to see whether the government eventually extends the monthly payments regime to the small business sector.
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Rob McGuinness, a partner at accountancy firm Nexia Australia, says the idea shouldn’t be discounted.
“If this works well and there is not too much backlash from the business sector about these changes, the Federal Government will certainly consider extending monthly repayments to the SME sector.”
Time will tell, but you wouldn’t be surprised.
I think what really gets the SME community is the cynical nature of this change.
We can accept that spending cuts need to be made and that things like the baby bonus might need to be wound back. We can accept that grants program like the Export Market Development grants scheme might be trimmed. I reckon we can even accept that the government would want the ATO to step up debt collection in the small business space, although the ATO should be really careful how it does that.
But a “reform” that has little real point, other than to protect Swan’s surplus?
That deserves to get seen for what it is – a short-term fudge done for political reasons.