#Budget2016 landed yesterday and small business, the backbone of our economy, was at the forefront of the agenda. The community rejoiced as tax breaks and hiring incentives were announced just for them.
As expected the initial response was positive particularly from the industry associations. But as the dust began to settle many were left wondering if the initiatives went far enough.
The rationale behind the tax cut is a simple one: by alleviating the tax burden on SMEs we will encourage reinvestment in business. But just how much cash are we talking and is it enough to encourage spending on the business?
Yesterday Mark Bouris came out swinging questioning whether a one per cent tax cut would do anything at all to help SMEs or the wider economy. He explained businesses with an annual turnover of $100,000 would only be $1,000 better off with this initiative. Some have argued that thanks to the extended small business threshold, the tax break will be applied to businesses with higher turnover, and will therefore yield greater return.
Bouris’ comments struck a chord with us and got to the heart of why this budget is problematic – we haven’t agreed what it means to be small.
Why size matters
Historically businesses were considered ‘small’ with an annual turnover of less than $2 million. The government will raise that threshold to $10 million later this year.
As a small business lender, Spotcap has seen the most demand for business credit lines and loans from SMEs which turnover between $100,000 and $1.5 million. These are the businesses which need the most support from our government, and yet they’ll yield the smallest return.
The government believes a one per cent tax cut will encourage businesses to hire staff and to grow – after all the catch cry of this budget is “jobs and growth”. The problem is, the kind of money businesses can expect from this cut isn’t enough to make a meaningful reinvestment in their own operations.
When our customers come to us for a line of credit or small business loans because they want to run a marketing campaign, hire staff or open a new store, they’re asking for upwards of $100,000 on average. It costs time and money to grow a business.
Why size will continue to matter
Things will become even more problematic as the government continues to incrementally raise the threshold to $25 million in 2017-18, $50 million in 2018-19 and $100 million in 2019-20.
At that point, a business turning over $100 million dollars will receive the same taxation benefit as your local butcher or baker. As a supporter of micro, small and medium sized business we find this sliding scale problematic. Neither Labor, nor the Greens support this policy. In fact Greens leader Richard Di Natale called it “liberal corporate welfare”.
For the time being small business will receive a welcome break. Compared to last year, more than 900,000 ‘small’ businesses are now eligible for the lowest possible tax rate and we can’t deny that is a good thing. However we need to get clear on what it means to be ‘small’ before we move forward.
Are you a small business? How do you classify a business as ‘small’?
Originally published May 5 2016 , updated January 18 2017