The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

26 July 2011

NO.025

Small Business Tax Reform - Meeting the Nation's Challenges Head On

Address to the Council of Small Business of Australia

Sydney

26 July 2011

Thank you for that welcome – what a tremendous honour to be here tonight representing the Prime Minister, along with Minister Nick Sherry, talking to a group that is just so crucial to our national economy.

I want to thank Joseph Healy (NAB) for that introduction and I also want to acknowledge Geoff Fader, Chair of COSBOA, the many other business people here, and of course my Parliamentary colleagues. I also want to acknowledge the sponsors tonight, companies like NAB and Optus, as well as the dinner sponsors, Driving Business Online, and the many others showing their support for the Council.

And let me add my congratulations to Mark Brennan for taking out the Small Business Champion Award tonight. I know he has helped thousands of small business people over the years, and we're now seeing other states create similar Small Business Commissioner roles. So it is an award well-earned for a job well done.

The importance of small business

There is a special place in my heart for small business especially for the small businesses in my own community in the northern suburbs of Brisbane. My regard for small business comes from the respect I have for the hard workers in our community, the people who value effort and enterprise.

Like you, I know what it's like to have life dominated by the early alarm clock, getting you up before the sun, the late nights of paperwork, the meetings with suppliers and all that comes with your jobs and with mine. And whether you spend the day behind a counter or behind a sewing machine or a desk or a workbench, there's a quiet satisfaction that comes from a rewarding, productive day.

Now, I'm fortunate to be the beneficiary of some of the best advice in the country – from the Treasury, from advisory groups like the panel on older Australians I set up, from our regulators, and from all kinds of other sources. But I tell you this very sincerely – some of the best, most grounded information I get about conditions in our economy comes from our small businesses. From the coffee shops like the Nundah Coffee Club in my own community. Or Batemans Bargain Butchers in Ipswich, where they told me about tough conditions when I was up that way earlier this year - they were closed by the floods, and only reopened in May. Or tourist operators in Cairns who have seen first-hand the impact of the changing dollar on their industry.

I've lost count of the amount of times I've injected into policy briefings in Canberra some piece of information I gathered from a Saturday morning in Nundah or Kedron, getting around talking to your members. Indeed one of the reasons we acted so decisively during the GFC to keep customers coming through your doors was this invaluable information I and other senior ministers were getting on the ground from businesses both big and small.

I want to get the full story, and that's why I have been picking up information and observations from local small businesses for decades now. You can't piece together the full story of our patchwork economy without hearing from the people who live it and breathe it every day. But you're more than a source of advice or a source of jobs.

As our society changes, one constant in our suburbs, cities and towns are the community-focused small businesses. Like Northgate News in my own area, a small business run off their feet like many of you, but who found the time and energy to host a flood relief fundraiser earlier this year.

And COSBOA of course was such a crucial part of the business taskforce I set up to help advise us on the rebuilding of Queensland – I want to personally thank Geoff Fader for that tonight

The national economy and small business

You occupy a crucial place in communities right around Australia. But tonight I want to focus on your place in our national economy, and what we're doing to help get you through some pretty choppy conditions at the moment and help set you up for the future.

I begin this by acknowledging that our economic story is often dominated by discussion of the mining boom. The boom is important – the high terms of trade and massive investment will create jobs, boost incomes and increase our national wealth.

But as important as mining is, we know it accounts for around two per cent of jobs in this country whereas small business creates almost half of the jobs in Australia. I acknowledge and understand that the tremendous investment flowing into the resources sector in our country is a bit of a mixed blessing for small business.

The emerging middle class in Asia will create opportunities beyond the things we dig out of the ground, with growing demands for other goods and services. But I know it's hard to make the most of these opportunities when you have more pressing concerns like a cautious consumer, a high dollar, or workers lured away by the wages on offer up north and out west.

I know you hear us talk with optimism and excitement about the opportunities of the Asian Century and it doesn't really accord with the pressures you're under in the here and now. I have come here to assure you that we fully understand these pressures – they are exactly why I've been describing our economy as a patchwork economy for some time now.

We understand what the high dollar means for those of you in the tourism industry, for example.

A higher dollar means more and more Australians holiday overseas and can make it harder to attract foreign tourists here, despite everything Australia has to offer.

I know what the dollar does to those of you exporting into overseas markets, or competing with imports that become a lot cheaper in relative terms and therefore more attractive for your customers and clients.

We understand the lingering effects of the global financial crisis are still making business conditions tough, and that it scared Australians enough to make them far more cautious and more likely to save than to spend.

We know that in the wake of the crisis household saving has risen to 20 year highs. Households saved 11.5 per cent of their disposable income in the March quarter this year, compared to saving rates that were sometimes negative in the early part of this decade.

And I understand credit is a bit tighter and a bit tougher to get, that sentiment is more fragile, and that all of these factors combine to create a real softness in the economy for most of you here tonight.

Our economy has faced some pretty steep challenges in recent years, with the global financial crisis, continuing uncertainties abroad and natural disasters. And though we still face patchy conditions, we've got an economy with bright prospects and one that's outperformed most of our peers.

During the GFC we put in place stimulus to keep customers coming through your doors. Now we're undertaking a rapid fiscal consolidation, while also finding room for historic investments in skills and infrastructure that will deliver the productive businesses and workers our economy needs.

In the Budget, we put in place substantial reforms to ensure our training systems better match the needs of business and that our apprentices have the support and incentive they need to complete their training.

Along with other key nation-building investments like the NBN, these are all important parts of the Government's broader economic agenda to lift productivity after a decade of neglect which saw productivity growth go into long-term structural decline.

Tax reform for small business

We're also delivering measures tailor made to help small business adjust to the changing economy and boost their productivity. I have always been a believer in tax reform – that's why I commissioned the Henry Review in the first place. And that's why we are delivering on significant tax reforms for small business. Tax reforms that provide cash-flow relief for small business, while also encouraging investment and innovation.

We are making it easier and simpler to instantly write-off against your tax more of the investment goods you need to run your businesses. Earlier this month I announced we'd increase the write-off to $6,500 from the 2012-13 income year, and in this year's budget I announced we'd also let people instantly write off up to $5,000 of a vehicle.

A combination of factors meant the write-off didn't get the attention it deserved, announced as it was with a suite of reforms. So the write-off probably doesn't have the understanding that it should among your members.

Many of you would know that if a small business spent $6,000 on a computer system at the moment they could deduct $900 in the first year which could reduce their tax bill by $270, at the 30 per cent company tax rate. But I don't think enough small businesses know that the change from 2012-13 will mean the same business will be able to claim the whole $6,000 up-front and could reduce their tax bill by $1,740, at the 29 per cent company tax rate that will apply then. That's a $1,500 cash flow advantage for small businesses and one way to reward businesses that invest to grow.

Of course, the exact numbers will be different for many of you, because you don't run your business through a company. It is also important to know that the $6,500 instant asset write-off isn't a cap: it applies to as many assets as you buy, where each is individually under $6,500.

We're also streamlining the depreciation arrangements for assets worth $6,500 or more. Combined, this means something like an extra $1 billion of extra cash flow for small business in 2013-14 alone, and less time accounting for depreciation. It's another way this year's Budget sought to spread some of the benefits of the mining boom.

On top of that we're also cutting the company tax rate for the 720,000 small businesses that do operate as companies, and we're giving you a year's head start on the big companies for that.

In the meantime, we've also got $700 million of cash flow benefit on the way that comes from lower quarterly income tax instalment payments for small businesses and other eligible tax payers this year.

Plus we're increasing the tax benefit for R&D from 37.5 cents in the dollar to 45 cents in the dollar for small and medium sized businesses. Allowing for the normal tax deduction that would otherwise be claimed, this represents a doubling of the existing 7.5 cent in the dollar concession. We will also pay the R&D cash quicker, to help you innovate and compete.

So we've got some good initiatives in place – some of them in place now, some coming in next year, all of them important. They haven't dominated the front pages, but we're confident they'll give you a bit of help as you navigate these choppy waters. And we want to know what more we can do to assist you in the years ahead.

It's important that your voices are heard at the tax forum in October. I will be releasing a paper in the next few days to help that discussion. I've said before that tax reform would be a gradual process, something not for the next few years but for the next decade and beyond.

The tax forum is about what we do next, and – most importantly for you here – making sure businesses of all sizes can compete, and aren't burdened by unnecessary complexity.

Small business and the carbon price

There's another thing I wanted to say tonight about our agenda that has also escaped the attention of many analysts and commentators. With all the commentary of softness in our economy, especially focussed as it is on retail, there has not been enough focus on the assistance we are providing to households through our carbon price reforms.

The fact is that nine out of every ten households, your customers, will have assistance in their pockets. Some of this assistance will go on things like electricity and gas bills. But after you account for increases in spending on electricity, gas, and things like rent arising from the carbon price, consumers will still have about $1.9 billion of assistance to spend down at the shops, to help with other changes in consumer prices. And you shouldn't forget that over four million households, just under half of all households, get assistance that is 20 percent more than their average costs

To show you what this means, take for example a family with a couple of kids on around median household earnings of $85,000. The assistance means they can pay their bills and buy everything they currently buy, even with higher prices from carbon pricing, and they will have about $378 extra left over at the end of it. We are also paying the benefits early, with $1.5 billion of household assistance to be paid this financial year, before the start of the carbon price.

I think these are important considerations amidst all of the scare campaigns being put around, which are worrying consumers. With consumers already cautious in the wake of the GFC, the last thing Australian businesses need is a dishonest scare campaign designed to scare the pants off Australian consumers.

We all agree that we need to tackle dangerous climate change and cut our emissions – in fact there's bipartisan support in this country to reduce emissions by 5 per cent of 2000 levels by 2020. We're putting a price on carbon pollution because that's the least cost and most efficient way to reduce emissions. We're doing it in a way that assists households so they can keep spending in small business across Australia. And we're protecting our most exposed businesses, while providing the certainty businesses need to make long term investment decisions.

The alternative to pricing carbon would be a regulatory disaster for small business and impose a massive fiscal cost on the budget.

Conclusion

We worked with you during the GFC to keep people in jobs, we worked with you to rebuild Queensland, and we want to do more.

Now, I know that we won't always agree on everything. There will always be parts of the business community who agree with us and parts who don't. There will be times when some businesses need to speak for their sectoral interests, in the same way that the government needs to pursue the national interest. But we saw during the Global Financial Crisis what can be achieved when we work together. Because of our joint efforts, our economy is in better shape than virtually every other developed economy, we have more people in work, and businesses are investing for the future.

Yes, we have a patchwork economy with many of you facing challenges. But you only have to look overseas to our peers in the developed world on both sides of the Atlantic to get a sense of our underlying strength. Along with the raft of measures I've talked about tonight to help small business, keeping the economy strong is fundamental to the health of Australian small business.

Our relative strength could not have been achieved if the government and business had not been willing to work together to tackle the big challenges and keep the doors of Australian business open. That's why we'll keep working closely with the business community to deliver tax breaks and support the transition to a clean energy future.

And I'm confident that if we keep getting the policy settings right, we won't just adapt to the challenges of our patchwork economy, we'll grow and thrive into the future.

So thank you again for having me here and enjoy your night.