Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

The Labor Party supports the Tax Laws Amendment (Small Business) Bill 2007. The burden of regulatory compliance on small business is huge, and governments of all persuasions must work actively to reduce that burden. The burden of tax compliance is one of the biggest issues that needs to be addressed. An OECD paper, Business views on red tape: administrative and regulatory burdens on small and medium-sized enterprises, six years ago identified tax compliance as the largest regulatory burden on small business in Australia. This was confirmed by a survey by the Institute of Chartered Accountants in Australia, which found that the complexity of tax legislation is the No. 1 issue that the federal government needs to address. That is the view of accountants servicing small business around this country. The chair of the Institute of Chartered Accountants’ small and medium enterprise division, Sue Prestney, said:

These repeated frustrations expressed by small businesses, year after year, over Federal tax legislation sends a clear message to the government: reduce red tape ...

She goes on to say:

... until this changes, tax legislation will continue to impose onerous compliance costs for small businesses ...

I was drawn to an article by Peter Switzer, a well-respected commentator, in the Australian on 9 May 2006. The lead item in the article was:

Treasurer Peter Costello has served up a decade of disappointment for small business owners, who hope that each budget night will deliver some relief from excessive regulation.

‘A decade of disappointment’. That article went on to quote a Sydney electrical contractor, Matt Ryan, who talked about how his business could not expand because of the burden of tax regulation: that it just did not make sense to put more staff on and expand because the amount of time that was devoted to compliance with tax laws was just so huge. This is a real-life example of what we are talking about.

We welcome the alignment of definitions for tax purposes contained in this bill. Myriad definitions are throughout the two tax acts and other acts, and there is little consistency or transparency about how those definitions are reached and why there are different criteria for different tax measures.

And on behalf of the Labor Party I welcome the move to a single criterion for receiving small business tax concessions of a turnover of $2 million and an additional assets test for some particular measures. This is a step in the right direction. I would say two things in relation to that. Of course, this aligns definitions in the tax act but, across government, there are a range of other definitions of small business and other criteria that small business have to meet either to gain concessions or to meet legislative requirements. For example, the Corporations Law says that a business must comply with two out of the following three: it must have gross operating revenue of under $10 million, assets under $5 million or fewer than 50 employees. The Privacy Act defines a small business as a business with a turnover of less than $3 million, as opposed to $2 million in this act. And, of course, the Workplace Relations Act defines a small business as a business with fewer than 100 employees.

It could well be the case that there is good reason for those different definitions. It could well be the case that it is appropriate that different government concessions and different programs have different criteria. I am not saying it is not the case, necessarily; I am pointing out that this is simply an alignment of definitions for the purposes of the tax acts. It does not align the definition of small business across government. Should we form a government later in the year, something we would be interested to look at is whether there could be a more broad alignment of the definition of small business across different acts. I stress, that may or may not be the case. But it is something that we would have a look at, and I am sure my colleague the shadow minister for small business would be looking at that with me should we form the government later in the year.

I also note that this bill sets a threshold for turnover but does not index that threshold. If that threshold is not indexed then from time to time the government of the day is going to have to come back with refreshed legislation to increase that threshold to ensure that, as businesses grow, we are not stopping businesses which are, under any definition, small businesses from accessing tax concessions. Again, indexing the threshold is something that we would examine. It is something that we would look at to see if that makes sense. It may or may not make sense. It is something that we would examine and that we would be interested in. It may be that it is more appropriate for the government to come back with regular increases in the threshold every couple of years, but it may be that an indexation is the right way to go. That is something that we will consult with small business on and will look at, should we form the government.

While this bill is a step in the right direction, it needs to be stressed that there is still much more to do in reducing the compliance burden on small business generally, including reducing the compliance burden on small business in relation to tax. The simplified tax system was introduced, as the name suggests, to simplify the tax arrangements for small business. This bill in part relaxes some of the eligibility criteria for the simplified tax system. The amendments reflect that the simplified tax system has not been overly useful to many businesses.

The Certified Practising Accountants examined this issue last year. The major reasons provided by the respondents to their survey was that the simplified tax system was ‘too complex’ and ‘of little value’. The Institute of Chartered Accountants, a separate organisation, estimates that only 20 per cent of eligible businesses have become involved in the simplified tax scheme. Clearly there is a need to further examine simplification of the STS to ensure that it is open, accessible and available to as many small businesses as possible.

I also note that, as Mark Pizzacalla of HLB Mann Judd has pointed out—and as an aside I would like to compliment him on the quality of his work on small business tax issues; I think he makes a good contribution to the debate—the tax consolidation regime has meant that it is likely that many small and medium enterprises have not consolidated, due to the complexity of the regime and the cost of seeking specialist advice on tax consolidation. Again these are two areas that perhaps the government needs to look at to ensure that the tax system is as simple as possible for small business, who do not have the resources that big business have to engage outside advice—to have a constant stream of accountants on tap—but are often trying to run their small business and do the books at the same time, who from time to time will engage outside accountants but often are not able to engage full accounting advice on how they should structure their operations.

The biggest compliance burden in relation to tax is the GST and the BAS. The Ralph review of 1999 noted that small business would suffer the compliance burden of the GST but in many instances would not gain the benefit of the reduction in the corporate tax rate because many small businesses are unincorporated. And of course the Labor Party has been releasing policy on reducing the compliance burden of the GST and the BAS.

In his address to the National Press Club, the Leader of the Opposition announced that a Labor government would increase the threshold from $50,000 to $75,000 for GST reporting purposes, as recommended by the Banks review of regulation. The government responded in the budget by matching that policy. As I have said previously, I am not sure that would have occurred had not the Labor Party announced our policy of increasing that threshold, something which has been welcomed by small business and small business groups. At the same time, the Leader of the Opposition flagged BAS Easy. In the same speech he announced that Labor would move down the road of introducing BAS Easy. The government, I have to say—if I dare say it—have been walking both sides of the street on this issue. On 26 April this year an article appeared in the Financial Review headlined ‘Costello sour on Labor’s BAS sweetener’. It said:

But Mr Costello said the government had already introduced simplified accounting methods to restaurants, cafes and caterers ...

But what it did not point out is that Labor’s policy is that this should be applicable to all businesses who have a mixed GST regime between GST being taxable and GST not being taxable. So first of all they said, ‘We’ve already done it,’ and then in the budget they came out and said: ‘We’ve already done it but we’re going to do it again. We’re going to now apply it to all businesses which have a mixed product regime between GST being taxable and GST being free.’ The announcement from the Treasurer said:

The Government will allow more simplified accounting methods for small businesses. This will give more small businesses the option of using a simplified method to calculate their GST obligations if it suits their requirements. From 1 July 2007, any small business that makes mixed (taxable and GST-free) supplies or mixed purchases will be able to approach the Australian Tax Office (ATO) to discuss the development of a simplified accounting method for their use.

I must say that on budget night I thought, ‘I’ve heard that before.’

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