The business community has enthusiastically welcomed the idea of a $5 billion company tax cut under a Coalition government, but have all asked the same question – where is the money coming from?
With Opposition Leader Tony Abbott and shadow treasurer Joe Hockey announcing the 1.5% company tax cut this morning, business leaders are a little wary about how it will be funded.
They also point out plenty of businesses will miss out on the tax cut, which will only apply to incorporated entities.
The move has two advantages: it relieves big business of the Coalition’s planned hike in order to fund the paid parental leave scheme, and woos the business community away from Labor after former treasurer Wayne Swan scrapped the government’s planned tax cut last year.
“This tax cut will result in more economic activity, will be good for jobs and prosperity and ultimately good for revenue,” Abbott said at a press conference this morning.
The cut is set to begin from July 2015 if the Coalition wins power.
But Peter Strong, executive director of the Council of Small Business of Australia, told SmartCompany the justification for the tax cut needs to be explained.
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“We’re just waiting to see how this is going to affect the bottom line,” he says. “We need to see how this is going to be justified.”
Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, also pointed out the tax cut will only apply to incorporated businesses. Many SMEs will miss out.
“It’s certainly a welcome step in the right direction, but it does need to be accompanied by or incorporated into a broader economic plan.
“It will take high pressure off the cost of doing business, but for microbusinesses that often work as partnerships, they receive no benefit.”
“This really does need to be presented as a broader plan to strengthen the economy…no doubt there is plenty of capacity for savings, but it does need to be funded.”
The issue of a company tax cut has been hanging over the heads of small business for the past few years.
The Henry tax review in 2010 recommended a tax cut of five basis points. The Labor government was originally going to cut tax rates by 1%, but that was dropped last year as the budget situation deteriorated.
While it has demanded Labor rein in “reckless spending”, the Coalition has yet to provide a method by which to fund its proposed $5 billion cut.
CPA Australia said in a statement it welcomed the announcement, saying a lower tax rate frees up cash that would otherwise be given to taxes.
Tax Institute senior tax counsel Robert Jeremenko also said in a statement the decision is a “step in the right direction”.
“When this announcement is coupled with the opposition’s policy to increase the company tax rate on companies with a taxable income of more than $5 million to fund a paid parental leave scheme, the company tax rate cut will be neutral to those businesses and a real reduction for companies earning less than $5 million.”
This story first appeared on SmartCompany.