Politics, Tax

“Naive”: SMEs say Labor plan to repeal tax cuts for companies earning over $10 million would stunt business growth

Dominic Powell /

company tax cuts

Leader of the Opposition Bill Shorten delivers the 2017-18 Federal Budget Reply speech on Thursday, May 11, 2017. Source: AAP/Mick Tsikas

Opposition leader Bill Shorten has revealed Labor’s plans for company tax cuts if the party was to win the 2019 federal election, promising to repeal legislated cuts for companies with $10 million to $50 million in annual turnover.

Labor has been opposed to corporate tax cuts for businesses with turnover above $2 million since debate began on the topic, but after legislation passed in April 2017 extending the gradual 25% corporate tax rate cuts to businesses with up to $50 million in turnover, the opposition has been silent on if it would reverse the changes if it found itself in government.

Companies turning up to $25 million are already eligible for a lower tax rate of 27.5% in the current financial year, while companies turning over $25 million to $50 million are due to have their corporate tax rate lowered on July 1. Further cuts to the corporate tax rate are scheduled to come into effect by 2026-27.

But in a doorstop interview yesterday, Shorten told media that if it wins the next election, Labor would seek to repeal the cuts, a stance that has reportedly surprised a number of Labor members and was not ran by the party’s Caucus.

Shorten reinforced that Labor would support “any Australian business with an under $2 million turnover to get a tax reduction” as an Australian small business can use “all of the assistance it can get”. However, he said the party is also considering potentially repealing corporate tax cuts for companies turning over between $2 million to $10 million, saying “fundamentally you have got to look at priorities”.

“I just don’t agree with [Malcolm Turnbull] that the four big banks deserve $17 billion in tax cuts over the next 10 years. I would rather see $17 billion be put back into our schools,” Shorten said about tax cuts for big business.

“I don’t agree with Mr Turnbull that multinationals should get a tax cut, yet he is carrying out cuts to our hospitals and health care system. It’s all a matter of values.”

The approach has attracted criticism from many in the Australian small business community, with Australian Chamber of Commerce and Industry (ACCI) chief executive officer James Pearson labelling it “a kick in the guts” for local businesses.

Data from the Australian Taxation Office shows in 2015-16, 91% of Australian businesses had turnover of less than $2 million, and 2.2% had a turnover of over $10 million.

Shorten “naive”

Speaking to SmartCompany, RedBalloon founder and prominent entrepreneur Naomi Simson said there would be “no joy” for small businesses if Shorten delivered on his proposed changes, and claimed company tax cuts are essential to Australian businesses staying internationally competitive.

“Donald Trump has just done a lot of work on company tax cuts, and there has been a significant amount of money repatriated back into the US,” Simson says.

“If [Shorten] thinks company tax cuts is not a driver of growth to the economy, honestly he’s being naive.”

Naomi Simson

Simson believes that every day, small business owners are working harder and harder to combat global competitors, and maintaining a competitive company tax rate is one way to combat this.

“Ninety percent of Australian businesses are small, and most people couldn’t hack a day in a small business. It’s getting harder to find customers, and there are more and more challenges from global players,” she says.

“If we can’t expect to compete on tax cuts, we’re going backwards. No one’s getting rich off these tax cuts, who do you think is employing people?”

“I know I employ 100 employees, and also provide work for my 2,000 suppliers who each incrementally employ people. It’s just about where the tax occurs, and if you employ people, they will pay more taxes. It’s just creating growth.”

When it comes to uncertainty around tax rates, founder of Healthy Business Finances Stacey Price says it can definitely affect how business owners financially plan, with concerns around tax rate changes bringing on a reduction in business spending, she says.

This can lead to SMEs reducing their growth and business expansion plans, she says, and when it comes to cost-cutting, the biggest expenses will be first to go, Price believes.

“If this happened, businesses would start looking at their biggest costs, which are always wages and R&D, and that’s going to make a big difference,” she says.

“If businesses are worried or they don’t understand the changes, they’re going to stop spending on big ticket items, and then it becomes a question of how does that affect everyone else.”

For Simson, a potential repeal of the tax rate cuts would undoubtedly lead to a lessening of growth in small businesses — not that anyone will see it.

“You won’t see the job that is not created or the export deal that couldn’t be done. This will stop growth, but you won’t even see it,” she says.

“Therefore, ignorance is not bliss.”

In a poll on SmartCompany’s Twitter page, the majority of respondents have agreed that a plan to repeal the tax cuts would lead to a drop in SME growth.

NOW READ: Dick Smith slams “outrageous” company tax cuts for big business, and calls for more entrepreneurs to get into politics

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Dominic Powell

Dominic Powell is the lead reporter at StartupSmart.

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