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Tax Forum: Swan Outlines Possible Small Business Tax Breaks

Tax breaks on the agenda for October forum

By Michelle Hammond
Friday, 29 July 2011

Tax breaks and personal tax changes are on the cards for October’s tax forum, but not all industry groups are happy about how the summit is being handled or who is invited.


Releasing a discussion paper for the forum earlier this week, Treasurer Wayne Swan said the Government wants to have a “conversation” with business about the “patchwork economy.”


The paper proposes tax breaks for equity financing as a way of both reducing business reliance on debt and targeting tax relief to the more marginal projects and sectors.


Other proposals up for discussion include tax breaks to encourage skilled workers to move to regional areas, and personal tax changes to encourage workforce participation and productivity.


The forum is expected to rebuild impetus for a long-term reduction in the company tax rate to 25%, as recommended in the Henry Tax Review.


The Government plans to reduce the company tax rate to 29% from 2013-14, with small companies benefitting from an early start from 2012-13.


However, the Henry Review recommends the corporate tax rate be reduced to 25%. In the short-term, an overhaul of the tax treatment of company capital raisings could help reduce business’ reliance on debt.


According to the Henry Review, over-reliance on debt makes companies more vulnerable to insolvency and economic shocks, which could affect the stability of the economy as a whole.


The system also discriminates against smaller businesses and knowledge-based industries, which invest heavily in intangible items and may have more difficulty borrowing.


But any major concession on company tax rates or equity financing could come at a cost, with other less justifiable business tax breaks facing the axe.


“More generally, there may be scope for a detailed examination of whether the collective business and investment tax concessions and incentives are working well or whether their cumulative approach leaves scope for too much tax arbitrage,” the paper says.


Swan said the discussion paper was not exhaustive but did “point in the directions of reform”, with fringe benefits tax indentified as an area ripe for reform.


“Some of these are complicated and, in some cases, there are a number of alternative rules for the same type of benefit. This imposes high compliance costs on employers,” he said.


However, Swan said debate surrounding the GST would be strictly off limits.


“Let me make this absolutely clear: the Government will not be touching the base or the rate of the GST, end of story,” he said.


Swan said he would talk to industries, including manufacturing and tourism, over the coming weeks about options to provide cashflow relief for struggling businesses.


“I don’t want to really pre-empt those discussions except to say that we’ve got to continue to have a discussion about how we put in place arrangements which keep them competitive in the new environment that we’re in,” Swan said.


The summit will be held on October 4-5, and participants include representatives from business, unions, government and academia.


The Business Council of Australia has welcomed the event but believes the GST should be on the agenda, while the Australian Council of Trade Unions said the summit should not be used by business to push for corporate tax cuts.


Peter Strong, executive director of the Council of Small Business of Australia, says he was “pleased as punch” to even be invited.


“We’re going to go to our constituents and ask them if they have any ideas. COSBOA will focus on complexity, particularly around superannuation, which is far too complex for small business,” he says.


Meanwhile, the Australian Retailers Association has expressed its disappointment over not receiving an invitation to the forum.


“There has never been a more important time to advocate for a sector that’s struggling,” ARA executive director Russell Zimmerman says.

“We are looking forward to discussing this matter with [Small Business] Minister Bill Shorten and rectifying the omission.”

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