Saturday, August 4, 2018  

JOHN SLATER                     

Small businesses enjoy an untouchable status in Australian politics. But by most measures, they lag behind big companies.  

In the wake of the Super Saturday by-elections, the conventional wisdom is that the Coalition’s company tax package is a non-starter and should be dumped in favour of something with broader electoral appeal. 

To be sure, the "hospitals not banks" slogan spruiked by Labor on polling booths was a perfect message at a time of plummeting public trust in banking after revelations from the Royal Commission into Financial Services. 

The reason for the unpopularity of cutting big businesses company tax rate is neatly summed up in an article by left-wing think tank The Australia Institute, 14 Reasons Why the Case for a Company Tax Cut for Big Business has Collapsed. The first point states: "Giving business a $65 billion dollar tax cut means billions of dollars less for schools, hospitals and other services. In other words, the company tax debate comes down to a binary choice between wealthy vested interests, and the welfare of the general public."

 

By contrast, the Coalition’s tax cuts for small to medium sized businesses enjoy broad political support. Even Bill Shorten has backflipped on a pledge to repeal existing tax cuts for businesses with turnover of between $10 million and $50 million. Small business occupies a privileged position in Australia’s political culture.

The Queensland Greens agree. Their policy says small business is an important mainstay of the Queensland economy, employing half of workers in the private sector, supporting their local community and economy, and adapting quickly to new challenges. These same words wouldn’t look out of place in the policy manifestos of the Liberal Party, ALP or even One Nation. 

In fact, the only disagreement on small business tax cuts between Labor, the Coalition and the Greens is on how small a company needs to be before it qualifies for a lower tax rate. 

The paradox at the heart of the Government’s company tax dilemma is that the naysayers have it back to front. It’s big businesses, not small, that are far more likely to invest in productivity-enhancing innovation and create new, permanent jobs. 

According to the ABS, businesses with fewer than 20 workers employed 45 per cent of the workforce, yet produced only 5.2 per cent of new jobs between 2010 and 2015. On the other hand, businesses with more than  200 staff accounted for just 32 per cent of the workforce, yet were responsible for two thirds of new jobs over the same period. Moreover, ABS figures also reveal that businesses with 200 or more employees

August 3 podcast - MRC
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are significantly more likely to innovate in areas such as organisational or operational processes and marketing methods, than their smaller counterparts. 

But what about the claim that big businesses rake in billion-dollar profits which are mostly shipped off to overseas tax havens?

Here’s another inconvenient truth: big businesses are far less likely to engage in tax avoidance than their small and medium counterparts.

Last month the Australian Taxation Office released new figures suggesting that tax avoidance by individuals cost the budget over three times more than the estimated loss from large companies, which at $2.5 billion, is around 10 per cent of the annual interest bill for the Commonwealth’s public debt. 

Nor do the billion dollar profits accrued by Australia’s biggest businesses exist in a vacuum. They are reinvested or paid out as dividends to the overwhelming majority of Australians who own shares, either personally or through their superfund. Indeed, research from Credit Suisse earlier this year found that super funds now account for almost half the stock market. 

None of this is to diminish the fact that managing a small business in Australia is a difficult and noble enterprise. But from an economic policy standpoint, the antipathy so often directed at tax cuts for big business just doesn’t stand up to scrutiny. 

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2019 by Menzies Research Centre