The Morrison government is fast-tracking a $29.8 billion tax cut for Australian small businesses which will see about three million employers benefit within three years rather than eight.
Announced on Thursday, the cut is slated to be introduced into parliament next week and will reduce tax for businesses with less than $50 million in annual turnover from 27.5 cents on the dollar to 25 cents.
Under the plan, the small business tax rate will drop from 27.5% to 26% in 2020-21, and then 25% in 2021-22.
The government secured a deal in the Senate earlier this year to reduce the small business tax rate from 30% to 27.5%.
That deal included the same 27.5% to 25% cut, but it is scheduled to phase in by 2026-27, which means today’s announcement will effectively bring forward the cut by five years.
A business with a profit of $300,000 can expect to save $7,500 in tax from 2021-22 under the plan.
For David Nunez, co-owner of gift boutique and kids goods store The Super Cool, savings from the tax cut will be poured back into growth.
“The new tax cuts will enable us to have additional money in our pocket that we can re-invest back into infrastructure, staff or marketing purposes to continue to grow our brand,” Nunez tells SmartCompany.
“It is definitely an assistance because it means we will have this extra pool of funds that will help us in managing our cash flow as we continue our 10-15% annual growth.”
Sole traders will also benefit from a fast-tracked tax cut which will see the headline rate for unincorporated small businesses fall to 16% by 22021-22, instead of 2026-27.
The decision, foreshadowed early last month by the Australian Financial Review, comes as both major parties are gearing up for the 2019 election, with Labor leader Bill Shorten unveiling his own policy mini-manifesto over the weekend.
By bringing forward the cut, Prime Minister Scott Morrison on Thursday differentiated his policy platform from Labor’s position on small business tax in the next term of parliament.
But by Friday Labor had matched Morrison’s commitment.
“We’re prepared to compromise in the national interest,” Shorten said on Friday.
Labor had previously said it would legislate to keep the small business tax rate at 27.5% for companies with up to $50 million in annual revenue.
Speaking to the ABC’s AM radio program on Thursday morning, Morrison said SMEs were in for a “big boost” which will provide increased flexibility.
“This is a very big boost to businesses that employ more than half the Australian workforce,” he said.
“If small- and medium-sized businesses are paying less tax to the government then they are more able to provide better wages to their employees.”
Morrison plans to bring the legislation before parliament in the next few weeks.
The Morrison government is considering a raft of other small business policies at the moment in the lead up to the election next year.
Minister for Small and Famiy Business Michaelia Cash has travelled across the country visiting businesses and told 2GB the government wants to simplify regulation.
“We really want to focus on red tape reduction in particular and also having a one-stop-shop for small business when it comes to government departments,” Cash said.
Business groups support the cut
Council of Small Business of Australia (COSBOA) chief executive Peter Strong welcomed the decision.
“This decision will increase confidence in the future for those who write business plans and invest their money in that future,” he tells SmartCompany.
Strong says the decision will hopefully limit investment drain to larger economies such as UK and US, which already have lower tax rates for small businesses.
Australian Industry Group chief executive Innes Willox urged Labor to support the cuts.
“Such business tax relief should have bipartisan support and we urge Labor and all cross-bench MPs to support the legislation in the parliament,” Willox said in a statement.
The Australian Chamber of Commerce and Industry (AICC) echoed that view.
“Bringing forward the tax cut means business will be able to keep more of the money they make and that will put them in a better position to hire people, offer more hours of work, to pay down debt, to invest and pay higher wages,” AICC chief executive James Pearson said in a statement.
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This story was updated on October 12 1:08 PM AEDT to reflect the fact that Labor has matched the policy.