Labor MP hits out at Entrepreneurs’ Tax Offset

The Opposition has reacted furiously after a Labor MP claimed the now-defunct Entrepreneurs’ Tax Offset encouraged businesses to ignore market opportunities in favour of tax incentives.

 

In Parliament this week, Canberra-based Labor MP Andrew Leigh defended the tax reforms detailed in the Federal budget, including the scrapping of the ETO.

 

In the lead-up to the budget, the Government announced its plan to scrap the ETO and replace it with an across-the-board deduction of $5,000 for purchasing new cars.

 

The ETO provided small businesses with turnover under $50,000 a tax offset equal to 25% of the income tax payable on business income, but stopped once the business income hit $70,000.

 

By scrapping the ETO, the Government said it expected to save $365 million over four years, and $350 million of that would be pumped into the new vehicle deduction.

 

The move was met with hostility from the Opposition, with shadow small business minister Bruce Billson accusing Labor of showing contempt towards start-ups and the self-employed.

 

But according to Leigh, there is little evidence to suggest the ETO encouraged the establishment of small businesses, labeling the measure as poorly targeted and of little assistance.

 

“More than 80% of small businesses were eligible for the offset. Rather than allowing a small business to grow, the ETO encourages businesses to structure affairs in a particular way despite the market opportunities which might be present,” Leigh told Parliament.

 

“The maximum claim is $2,500 but the average ETO claim was less than $500, with 70% of claims being below $600.”

 

“That is a small amount of money for a fair bit of paperwork. The vast majority of claimants have income from sources other than business income and nearly all are individuals.”

 

“Under the ETO, it is possible for taxpayers to re-characterise their income as business income. For example, by working as a contractor instead of as an employee in order to claim the ETO.”

 

Billson says Leigh’s claims are insulting and unsubstantiated.

 

“The ETO provides a 25% discount on a small business’s annual income tax liability on turnover up to $50,000, and phases out to cease at $75,000 turnover. The ATO reports that more than 402,485 micro-business people claimed the ETO in 2008-09,” Billson says.

 

“For Labor to assert that our smallest businesses are arranging themselves and ignoring market opportunities, purely to access the ETO, requires the Gillard Government to ignore the actual claims evidence and the tapered nature of the incentive.”

 

Billson says the ETO was introduced by the Howard Government in 2005 to support and encourage small businesses.

 

“The Gillard Government’s true motive for axing the ETO was inadvertently revealed [when Leigh] claimed it encouraged individuals to work as a contractor instead of an employee,” Billson says.

 

“This is yet another instalment in the Gillard Labor Government’s concerted and coordinated campaign to hound and harass small business people out of legitimate contracting arrangements and into employee-employer relationships that facilitate union intervention and control.”

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