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SMEs don’t deserve lower tax rates: Economist

SMEs don’t deserve lower tax rates: Economist

Taxes, cut

A prominent Australian economist has said that lower taxes for small businesses have done nothing to boost employment, with the sector actually creating less jobs despite receiving more in their pockets in recent years.

Renowned economist Saul Eslake, himself a small business owner as an independent economic adviser and speaker, suggested there is nothing “more noble or worthy” about running a small business than working in the corporate world, nor are they treated unfairly under the current political and tax system.

“People like to say things like small business is the engine room of the economy, or they appear to believe that there’s something inherently more noble or worthy about running a small business than working for a big one, or indeed for a government agency, or something like that,” he said speaking to My Business’ sister publication Nest Egg.

“While people do obviously strongly believe that, there's actually no evidence for it. Small business, according to ABS statistics, employs about 44 per cent of the private sector workforce. Although in those figures, for some reason, employees at the major banks aren't included. But that share of employment has actually gone down.

“Small business has created less than 5 per cent of the increase in the employment over the last 10 years, and in fact, the reduction in the tax rate paid by small companies since 2015 has not resulted in any increase in employment among small businesses at all.”

Mr Eslake also said that ABS data showed small businesses to be, generally, less innovative than their larger peers.

Such data, he said, proves that small business is not the nation’s growth engine, and as such, tax cuts to the sector have been misdirected.

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“If you actually believe that cutting company tax rates is a way to encourage employment or innovation, then based on the evidence, you would actually cut tax rates for big businesses rather than small ones, because that would be much more likely to have the desired effect,” he said.

Despite this, Mr Eslake said he doesn’t believe in either approach, advocating instead for uniformity in tax rates without separate rates for small business owners.

“I think people in small business need to get away from the sense that they're somehow special, or that they are morally superior, or doing something extraordinary for the economy,” he said.

“I mean, they're good people in the most case, but I don't see any reason why they should pay less tax on the same amount of income than someone who earns that through a wage and salary.”

SMEs don’t deserve lower tax rates: Economist
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