Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I move:

  That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

TAX LAWS AMENDMENT (SMALL BUSINESS MEASURES NO.1) BILL 2015

This Bill amends the tax law to lower the company tax rate by 1.5 percentage points to 28.5 per cent for incorporated small business.

Many would agree that small businesses make an important contribution to the Australian economy.

Around 96 per cent of all Australia's businesses are small businesses. Small businesses produce over $330 billion of Australia's economic output and there is no doubt small business is at the forefront of Australia's jobs and growth. They employ over 4.5 million people, which accounts to around 43 per cent of non-financial private sector jobs in Australia. But this would have been more, if it were not for 6 years of Labor where 519,000 jobs were lost in small business.

While small businesses have a significant role in the Australian economy, they face a unique set of operational challenges, and as a consequence typically have higher failure rates than larger companies. These unique characteristics make small businesses more vulnerable to shocks and changes in economic conditions than larger businesses.

We know from the Intergenerational Report that there will be a significant challenge to maintain Australia's current rate of income growth. Future growth in living standards must be driven by higher levels of Australian productivity.

It will require productivity growth to increase to around 3 per cent a year. This is well in excess of what Australia achieved in the past 50 years, and more than doubles that of the past decade. Put simply, growth in productivity will require more or better quality goods and services to be generated from the resources available.

Australians are well known for their enterprising spirit and their willingness to have a go. The hard working women and men of Australian small businesses are the engine room of our economy. In 2013-14 Australians started over 280,000 small businesses.

Small businesses are often the entities that test and pioneer innovative ideas and business practices, which are critical to future economic growth, job prospects and improved living standards.

This makes it particularly important that the policy settings support small business growth and innovation.

As elected members of this Parliament, we need to understand and recognise where the impediments and headwinds are in every square of the economy and do our best to address them, so that those enterprising people with an idea, an aspiration, a sparkle in their eye and a fire in their belly can turn their ambition into economic activity to benefit themselves and the nation.

For a long period, we have been blessed by nature with resources that give us a competitive advantage and we see that we have benefited from that. However, as we look at the over the economic horizon we cannot bank on that to sustain our living standards and our quality of life.

The Australian economy is in the midst of a major economic transformation, moving from growth led by investment in resources projects to broader-based drivers of activity in non-resources sectors.

We need entrepreneurial spirit, innovation, drive and risk taking to find new markets, develop new products, and establish new businesses. To achieve that, we need the ambition of enterprising women and men.

This Government sees energising Australian enterprises as its priority. The Government's $5.5 billion Jobs and Small Business package in the 2015-16 Budget will create the right conditions for Australian small businesses to thrive and grow. It will help employers create new jobs and assist Australia's unemployed to access these jobs.

The Budget delivers the biggest small business package in Australia's history. It is about putting in place improved incentives for entrepreneurial behaviour.

Since the 2015-16 Budget announcement, I have had much positive feedback on the Jobs and Small Business package.

Comsec has said "The measures in the federal Budget to support small business would have been a key driver of the lift in confidence."

COSBOA Chief Executive Peter Strong has said "This is a fundamental and positive change that sends the right message to people looking to start a business."

Australian Newsagents Federation has said "This will definitely create further impetus and incentive for our members to invest in their businesses."

This Bill reduces the corporate tax rate from 30 per cent to 28.5 per cent for small businesses with annual turnover under $2 million. This change is the centrepiece of the small business package. Because on this side of the House we are the best friends of small business.

Small business companies will pay less tax for income years that commence on or after 1 July 2015. This change delivers on our election commitment to small business.

Providing incorporated small businesses with a reduced rate of company tax will enable them to retain more earnings and improve their cash flow; a critical issue for small businesses. It is estimated that up to 780,000 companies could potentially benefit from this measure.

New company registrations in the last financial year were the highest on record. This measure will help all new and existing small companies grow, thrive and compete.

Helping more small businesses become more profitable will give them greater capacity to invest and innovate by adopting new and improved ways of doing business, improving our nation's productivity and resulting in more jobs and higher wages for Australian workers. That means better living standards for all.

We understand that not all small businesses are incorporated so we will bring forward legislation to provide tax relief for unincorporated small businesses. In addition, later today I will introduce legislation to deliver assistance for all small businesses, including accelerated depreciation arrangements.

This Bill will also ensure that the maximum amount of franking credits a small incorporated business can attach to its dividends in a year will not be reduced along with the tax rate. This additional benefit will allow small companies to distribute surplus franking credits accumulated in previous years; reducing the tax their owners pay when they receive dividends.

This will benefit owners of small business and effectively reduce the shareholders' overall tax paid regardless of their marginal tax rate.

Full details of the measure are contained in the explanatory memorandum.

This Government is the friend of small business, and the 2015-16 Budget is where we demonstrate our bona fides for that claim. This Bill is the first of several that will implement the small business measures announced in the Budget. This measure is appropriate and it is affordable, and I call on all to give it their full support.

TAX LAWS AMENDMENT (SMALL BUSINESS MEASURE NO. 2) BILL 2015

This Bill amends the tax law to help small businesses and primary producers to invest, grow and innovate.

It provides accelerated depreciation arrangements as outlined in the Growing Jobs and Small Business package and the New Framework for Drought Preparedness, both of which were announced in the 2015-16 Budget.

A budget which has been widely welcomed. ACCI CEO Kate Carnell said "Small business is the engine room of the Australian economy, so support for these businesses will boost overall jobs and investment. The government's measures will help to restore confidence among small businesses." NSW Business Chamber CEO Stephen Cartwright said "These measures will be particularly well received in regional Australia where unemployment is at its highest and job opportunities are limited."

Small businesses play a significant role in the Australian economy, particularly as a major employer and contributor to the economy.

Small businesses make an important contribution to the Australian economy. 96 per cent of all Australia's businesses are small businesses. They employ over 4.5 million people. They are adaptable and able to respond profitably to changing circumstances.

Small businesses are often the entities that test and pioneer innovative ideas and business practices which are critical to future economic growth, job prospects and improved living standards.

Small businesses produce over $330 billion of Australia's economic output. While this is a significant role in the Australian economy, small businesses face a unique set of operational challenges, and as a consequence typically have higher failure rates than larger companies. This makes it particularly important that the policy settings support small business growth and innovation.

This is why the Government announced the biggest jobs and small business package in the nation's history as a centrepiece of the 2015-16 Budget. The package included a tax cut for incorporated small businesses, tax relief for unincorporated small businesses and accelerated depreciation arrangements. These measures were designed to help small businesses grow, compete and employ more Australians.

Farmers too play a pivotal role in the Australian economy, and are at the heart of the Australian identity. 115,000 businesses report -agriculture as their main business activity. A further 13,900 report it as a secondary activity.

Farmers are a significant employer, particularly in regional areas. These businesses make up 52 per cent of Australia's land mass. 99 per cent of agriculture businesses are Australian owned.

The value of agriculture production was worth over $50 billion in 2013-14, contributing to around two per cent of Australia's gross domestic product and 15 per cent of total Australian merchandise exports.

In 2013-14, agriculture exports were worth around $40 billion, with over 60 per cent of production exported to more than 100 countries.

The agriculture industry plays an important role in the social fabric of Australia, being recognised by the Government as one of the five pillars of the Australian economy; the industry has prime place in our nation's future.

Agriculture is one of the sectors on which the prosperity of our nation is increasingly reliant. The Government has laid the foundations for a stronger agricultural sector. We have reduced regulation, removed the carbon tax, increased export market access, invested in infrastructure, refined the settings for foreign investment and secured FTAs with China, Korea and Japan.

Stronger farmers mean a stronger economy and we are focused on strengthening the competitiveness of the sector.

Boosting the competitiveness of the agriculture sector will contribute to Australia's broader economic growth, jobs, trade, innovation and productivity.

However, farmers have to cope with significant challenges, including severe weather events. Currently, some parts of the country are subject to unprecedented drought and large parts of the north have experienced a third failed wet season. This affects the financial position and wellbeing of farmers, their families and the surrounding rural communities. Helping farmers through times of drought is in our national interest.

Considering the significant role farmers play in our economy, it is important they are provided with support and encouragement to better manage their risks and prepare for extreme weather events.

The Government is committed to providing the necessary support to Australia's farmers to help them prepare for drought, and to provide them with a better tax system.

In addition to providing farmers with a simplified accelerated depreciation regime, the Government is providing more money to:

Schedule 1 to this Bill amends the small business simplified depreciation rules in the tax law, to increase the threshold for immediately deductibility for capital assets.

The schedule will significantly increase this threshold from the current level of $1,000 to $20,000. This will mean that any small business buying an asset costing less than $20,000 will be able to immediately deduct the full cost of the asset. This measure is available for any business asset purchased and installed, ready for use, between 7:30pm (Australian Eastern Standard Time) on 12 May 2015 and 30 June 2017.

This is a massive increase in the threshold and a massive gain to cash flow for small businesses. CPA Australia CEO Alex Malley said "By allowing small businesses to immediately deduct assets costing less than $20,000 is a positive move which will support vital and much needed business investment."

Currently, small businesses purchasing assets above $1,000 have to depreciate these assets over multiple income years. –In some cases this imposes complex record keeping requirements on small business, but it reduces their cash flow.

This Government is returning small business's profits to its owners and allowing them to make the decisions which best suit them; the decisions that allow them to grow their business and employ more Australians.

As part of the threshold increase, any assets that individually cost $20,000 or more can be pooled together in the general small business pool and depreciated at 15 per cent in the first year, and 30 per cent each year thereafter. Once an asset is placed in the pool, there is no requirement to track the item. This reduces paperwork and frees small business to get on with doing what they do best.

The pool itself may also be deducted entirely if its value is below the $20,000 threshold at the end of any financial year between 7:30 pm 12 May 2015 and 30 June 2017.

The law currently includes 'lock-out rules' that stop businesses that elect out of the simplified depreciation scheme from re entering for five years. To ensure fairness and the broadest availability of this measure, this schedule relaxes those rules so that the higher threshold is available. This will allow all small business entities to access this measure.

Consider an electrical business that purchases tools and other equipment for their small business. These tools can be expensive and the rules around depreciating them can be time consuming to understand. Under the expanded accelerated depreciation measure, this business can write-off each and every item under $20,000 that is purchased before 30 June 2017.

Schedule 2 to this Bill amends the tax law to provide a more simplified accelerated depreciation regime for all farmers, in three ways.

Firstly, the schedule will allow all primary producers to immediately deduct capital expenditure on fencing.

The current depreciation treatment for fencing is complex, and can vary depending upon the type of fencing asset. For example, currently, a general farm fence may be depreciated over 30 years. An electric fence, on the other hand, may be depreciated over 20 years. An energiser for this electric fence is depreciated over a different period again.

If the fence is used in landcare operations, for example, to segregate a section of land which may be affected by land degradation, its cost is immediately deductible.

If a farmer makes a repair to an existing fence, the repair costs are immediately deductible.

From 7:30 pm (Australian Eastern Standard Time) 12 May 2015, rather than repairing an existing fence which can be costly and time consuming, farmers can instead immediately deduct the cost of installing a new fence. This will reduce red tape and complexity.

Farmers will no longer need to keep track of expenditure over extended periods of time. Farmers will have more cash in their pockets to spend, invest or pay off debt. New investment may also boost farm productivity.

Consider Jake who installs 25 kilometres of new fencing, at a cost of $25,000 on his cattle farm. Under the current system, Jake is able to depreciate his fencing costs over a period of 30 years. Jake claims a depreciation deduction of $833 each year.

Now, Jake will be able to deduct the full cost of $25,000 immediately.

These additional deductions mean that Jake will pay less tax if he makes a profit. Assuming Jake's marginal tax rate is 39 per cent, including the Medicare Levy, his tax liability would be reduced by $14,742. This means Jake will have more to spend, invest or pay off debt.

The second and third amendments under this schedule will encourage primary producers to better prepare for and manage drought risks.

Extreme weather events, such as drought, are an unavoidable reality for many farmers. Farm preparedness, such as having available sufficient feed and water, is vital to surviving extended periods of drought.

Under this schedule, capital expenditure on water facilities, such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills will now be immediately deductible.

Currently, water facilities are depreciated in three equal amounts, over three years.

Farmers will now be able to invest in a new irrigation system, build a new dam or install a new pump and be able to immediately deduct for tax purposes the cost.

The schedule will also allow for capital expenditure on fodder storage assets, such as silos to store animal feed, tanks to store liquid feed supplements and hay and grain storage sheds, to be depreciated over three years.

Having fodder on hand is important for farmers during drought periods. Currently, a farmer wishing to prepare for drought who invests in a steel silo would need to depreciate and track the expenditure of the asset over a period of up to 30 years. Under the amendments, this is reduced to three years.

Consider Rob, a farmer who purchases a steel silo, at a cost of $21,000, for storing animal feed on his farm. Currently, Rob is able to depreciate the steel silo over 30 years and claims a depreciation deduction of $700 each year.

Now, Rob will be able to depreciate the silo cost of $21,000 over three years giving him $6,300 more in deductions in each of the first three years.

These additional deductions mean that Rob will pay less tax if he makes a profit.

Assuming Rob marginal tax rate is 34.5 per cent, including the Medicare Levy, his tax liability would be reduced by $4,127 in each of the first three years, meaning that he will have additional funds to invest, pay off debt or spend.

Accelerating the depreciation on water facilities and fodder storage assets will mean more money in farmers' pockets for investment in drought preparedness; a simplified depreciation system and an increase in farm productivity.

Full details of the measures are contained in the explanatory memoranda.

This Government is the best friend of small businesses and farmers, and the 2015-16 Budget is where we demonstrate our bona fides for that claim. This bill is one of several that will implement the small business and primary producers measures announced in the Budget, thereby putting in place further significant acknowledgment and recognition in the tax law of the importance of small business, and of farmers, to our economy.

The measures are appropriate and they are affordable, and I call on all members to give it their full support.