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ATO delivers blow to Coalition’s super plans

Tuesday, 7 June 2011 | By Michelle Hammond

The Australian Taxation Office has dealt a blow to the Coalition, claiming its plan to cut small business expenses would cost taxpayers more than $250 million over four years.

 

Last week, Opposition leader Tony Abbott pledged to offer small business the option to make compulsory super payments, on behalf of employees, directly to the ATO.

 

The move was welcomed by small business groups but was quickly dismissed by Small Business Minister Bill Shorten, who said the Coalition overlooked the fact that a free superannuation clearing house already exists for small business employers.

 

The Tax Office has presented another setback to the Coalition’s plan, saying it would need a “significant lead time” to act on the proposal, which would come at a huge cost to the taxpayer.

 

The ATO’s advice to the Government found the scheme would cost $257 million over four years and an additional $71 million after that – assuming the first year was spent building the system and only a quarter of small businesses took up the service in the second year.

 

If half of small businesses took up the service in the second year, and all small businesses took it up in the third year, the cost would rise to $368 million over four years and $114 million each year after that, the Australian Financial Review reports.

 

The cost estimates also assume that only those businesses with 20 staff or fewer, which accounts for about 800,000 employers, would be eligible for the service.

 

The ATO did note, however, the cost could be cut if the existing clearing house – run through Medicare – was transferred to the new system.

 

Shorten has labeled the plan as “underfunded and underdone”, namely because it duplicates an existing service.

 

“Mr Abbott would unnecessarily cost the taxpayer a huge amount to set this up and then tens of millions more each year to keep it going,” he said in a statement.

 

But according to Peter Strong, executive director of the Council of Small Business of Australia, the Coalition’s plan will actually save money.

 

“There are two million employers looked after by super funds. Assuming it costs $100 a year to administer each employer, there’s $200 million,” he says.

 

“On top of that, the super funds have to contact all their members and tell them their payments have been processed, so there’s another $100 million. There’s a saving to everybody of $300 million a year.”

 

Strong has been a vocal supporter of the Coalition’s plan, saying that if it were introduced, it would be the first real removal of red tape.