A leaked pre-election plan from the federal government shows that tax cuts for SMEs are set to be fast-tracked by four years, which will come with a hefty price tag.
According to Treasury costings obtained by media, the federal government is looking to bring small business tax cuts into effect by 2022, four years earlier than planned, which will cost the government an estimated $3.6 billion.
Established while Malcolm Turnbull was still prime minister, the government’s original tax cut plan meant to drop the corporate tax rate for SMEs with annual turnovers of up to $50 million from 30 per cent to 25 per cent over a 10-year period, with the first drop to 27.5 per cent coming into effect on 1 July 2018, and to 25 per cent by 2026–27.
It is expected that 3.3 million SMEs would be the beneficiaries of the tax cuts.
However, the industry had lobbied for the government to bring forward the already legislated enterprise tax cut, and the leaked document shows that the Morrison government is seeking to drop the rate to 27 per cent in the 2019–20 financial year, to 26 per cent in 2020–21, and to 25 per cent in 2021–22.
An alternative and less-preferred plan, according to the internal government documents retrieved by media outlets, would be dropping the tax rate to 27 per cent in 2019–20 and 0.5 of a percentage point annually until the rate comes down to 25 per cent. This would fast-track the tax cuts by two years and cost the government about $2.4 billion, it was reported.
The leaked documents reportedly further reveal that the cost of both plans would be partially offset by the $1.3 billion in savings made from scrapping tax cuts for large businesses, allowing the government to reach its tax revenue cap of under 23.9 per cent of GDP a year earlier than expected.
However, according to the documents, the government would need to legislate further personal and company tax cuts in 2020 to remain below the cap.
The documents also indicate that the government has been considering extending the $20,000 instant asset write-off threshold to businesses with annual turnovers of $2 million to $10 million or expanding the $20,000 limit.
However, the government had changed the definition of a small business to one with annual revenues of up to $10 million, meaning that tax concessions would be available to businesses that fall in this category.
Senator Michaelia Cash, who was appointed as Minister for Small Business, Skills and Vocational Education following the Liberal Party leadership spill, had flagged last week that the government was committed to tax cuts for SMEs.
In her first official speech as Small Business Minister, Ms Cash told attendees at the National Small Business Summit in Sydney that the government maintains its commitment to the sector and would pursue a policy agenda that would “create the right economic environment” for SMEs.
“As a government, we will be behind you [small business] every step of the way. Thank you for providing millions and millions of Australians with jobs. Thank you for being the bedrock of our local communities,” the Small Business Minister said.
“When small and family businesses prosper and grow, Australia as a nation prospers and grows.”
Ms Cash added: “My role is to represent small business views in cabinet, take on your feedback and continue to create the right economic environment for you to prosper and grow so you can continue to be the engine room of the Australian economy.
“Government needs you to be successful, because when you are successful, our nation prospers, and that is what we all want.”
The Morrison government’s SME tax cut plan was reportedly set to be announced in the mid-year budget before the end of the 2018 calendar year.
Tas Bindi is the features editor for The Adviser magazine.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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