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SMEs deny claims tax cuts are wasted

Adam Zuchetti
Adam Zuchetti
08 August 2018 3 minute readShare

Business owners have angrily defended tax cuts to SMEs, refuting an economist's claims that these have been wasted and that the same tax rate should apply equally to all businesses regardless of size.

Prominent economist and commentator Saul Eslake made the controversial comments to My Business’ sister publication Nest Egg.

“Small business has created less than 5 per cent of the increase in 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,” he said.

“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.”

‘Self-employed would join job queues without assistance’

My Business readers were quick to defend lower tax rates for SMEs, citing a number of factors.

“Small business owners are often the main workers within their business, often working extremely long hours and rarely paying themselves a commercial wage or deducting super. If they weren't running their own business, they would in fact need to become an employee of some other business? Maybe that’s justification enough to help them survive in some way,” said one reader.

Another said: “Small business owner/operators literally have their A on the line. If it goes wrong, many could and have lost everything. No safety nets, no employer contributions, no workers' compensation paid for by the employer, etc.

“Most small businesses generate more income for the [government] than they do for themselves in many ways; the taxes they pay, employees' wage taxes, GST, suppliers and subcontractors' taxable incomes, etc. And then there is the absurd payroll tax that if, for heaven forbid, your business is successful enough to employ more people and exceed the threshold.

Yet another claimed the comments were short-sighted, overlooking the fact that much of Australia is in the grip of intense drought, which impacts “just about every small business in rural and semi-rural areas.”

“Most small businesses are the doers of our society. They do the majority of the actual work. Big business use lots of small businesses to do most of their real work (it's called outsourcing). Most of the big businesses workforce are paper pushers. In order for those paper pushers to not have to do too much work, they will outsource to a slightly smaller company who will outsource again until eventually a small business actually does the real work; or it gets outsourced overseas,” they said.

“It should also be remembered that a small tax cut to a small business does not immediately equate to enough money to employ someone else.”

Others still suggested the comments reflect the views of “a classic big end of towner” and lacked perspective of the realities of running a smaller business.

SME leaders ‘taking pot shots’

One reader, however, took the opposite view and suggested that SME operators are overgeneralising in responding to Mr Eslake’s comments.

“A lot of silly comments here about big end of town – who are subject to so many rules and regulations on tax that they are vastly more honest, as a rule, than SMEs who generally never pay their correct amount,” the reader suggested.

“It's very easy to take pot shots from the ‘burbs, but get some facts or start looking for a new glasshouse.”

How much do tax cuts influence job creation?

At the heart of Mr Eslake’s comments was that small businesses have decreased their share of total jobs in Australia in recent years, despite receiving tax cuts.

While almost uniformly critical of this assertion, My Business readers expressed a range of conflicting views on the matter.

Some suggested this was flat out incorrect, and that funds are being used to create new jobs.

“Mr Eslake obviously lives in fantasy world if he thinks genuine SMEs have not taken advantage of lower tax breaks to employ,” one reader commented.

But another argued that “increasing employee numbers within small business isn’t the only justification or measure by which the success of reduced small business taxes should be accountable to”.

A business survey in the lead-up to this year’s federal budget lent support to the idea that SMEs are pocketing tax cuts rather than using the funds to grow their business.

SMEs deny claims tax cuts are wasted
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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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