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Most firms pocket tax cuts rather than add jobs

Adam Zuchetti
Adam Zuchetti
03 May 2018 1 minute readShare
Tax cuts, taxes, scissors

Contrary to claims that business tax cuts promote growth in jobs and employee wages, research by a major accounting platform suggests that most SMEs simply pocket the extra cash.

As speculation about business tax cuts reaches fever pitch just days out from the federal budget, the Xero Small Business Insights survey found that, from the 2015 cut in the company tax rate for SMEs, 51 per cent of businesses retained the money in cash, lifted dividends or paid down debt.

This is in stark contrast to the claims being pushed that company tax cuts result in higher wages.

Just 3 per cent of firms admitted the extra money generated from the tax cuts went towards lifting the wages of their staff. A further 19 per cent said the funds were invested in hiring more workers.

The remaining 27 per cent said the funds were used to boost investment.

Even one of the biggest proponents of corporate tax cuts, Jennifer Westacott, chief executive of the Business Council of Australia, let slip that higher wages will not be the end result for the majority of larger companies.

Speaking on ABC radio about company tax cuts, Ms Westacott said: “Our own survey showed that 30 per cent of our large corporations would start to pay people more”.

At such a crucial time for the tax cut debate, the finding that most funds derived do not directly support employment and wages – with flow-on effects to the broader economy – is likely to fuel the push for tax cuts to be directed to individuals rather than businesses.

On the flip side, though, the survey results suggest wage growth within SMEs has been much higher than official figures.

“Small business employees saw median wage growth of 5.3 per cent in 2017, based on anonymised data for full-time workers,” the report said, noting that it uses a different methodology from the Bureau of Statistics to calculate the direction and size of wage changes.

It found that wage growth was strongest in the real estate sector, where salaries increased by 7 per cent over the year, closely followed by financial services (up 6.6 per cent).

The slowest rate of growth, the report noted, was often found in the industries with the highest median salaries, including mining (up 2.7 per cent) and professional services (up 2.6 per cent).

Most firms pocket tax cuts rather than add jobs
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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