Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I would like to ask Senator Cormann what measures the tax department will put in place to prevent rorting of this package.

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

The government does not expect any additional rorting as a result of this package because the eligibility requirements in terms of what is an allowable tax deduction or what is an allowable investment into an asset that can be depreciated remain the same. All we are doing with this package when it comes to the $20,000 immediate asset write-off is to accelerate the period within which the value of an asset can be depreciated. So we bring the tax deduction forward in effect and we are increasing the value of the threshold where that can take place, the value of the asset to $20,000 up from $1,000. All other things remain the same. So all of the compliance arrangements to prevent rorting, as Senator Whish-Wilson refers to, remain the same and the tax office would ensure compliance with the usual conditions that apply to applicable tax deductions for small business, and other businesses for that matter, in the usual way.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Can the minister outline whether there has been any extra expenditure allocated to the tax department to administer the system, whether it is going to be under current—

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

No.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Can the minister outline why $20,000 was picked as a threshold per asset, per item?

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

We went through this at great length during Senate estimates and the answer remains the same. The government obviously, as we always do, considers a whole range o2f information and obviously assesses and considers various options. We made a judgment that the $20,000 threshold was the appropriate threshold in the circumstances based on what was affordable within the budget and based on what would provide an appropriate incentive for small businesses with annual turnover of up to $2 million to encourage them to invest in their future success more Australians in the future.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Can the minister outline the take-up rates under the previous scheme where $6,500 was the instant asset threshold before your government took it away. I did ask this question at Senate estimates and there was no answer. I am interested to see what kinds of take-up rates we have had previously on $6,500 per item, was it a successful or popular measure and why the minister has confidence that there will be small businesses spending $20,000 per item.

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

That is the sort of question that is appropriately dealt with through the Senate estimates process. I would obviously have to take that sort of question on notice. I suspect in the ordinary course of events that answers to these sorts of questions will be provided to the relevant committee of the Senate consistent with the deadlines determined by the relevant committees which, on this occasion, is the Senator Economics Legislation Committee ably chaired by Senator Edwards.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Unfortunately, we are passing this legislation today without that information. I would have presumed that a lot of thought had gone into setting that threshold and that you would have been confident at least in a large uptake. No doubt the fact that you are spending money on television advertisements to promote this is because you are trying to get the best possible uptake for this issue but considering it has been in place now for a number of years and small businesses are aware of asset thresholds and are aware of what they can and cannot depreciate, I still feel it is very important that you explain to us today why you believe this will be successful and why you believe it will stimulate the economy.

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

The government obviously has considered a whole lot of information and a whole lot of advice. We made a judgement on what we believed was the best way forward to strengthen growth, create more jobs and help ensure that everyone across Australia had the best possible opportunity to get ahead. We are very confident that this measure, which invests in the future success of Australia's small businesses, will be successful but of course, as with all of these things, ultimately Senate estimates committees will have the opportunity down the track to review performance against forecasts, and against the objectives that we have outlined. I suspect that we will have that conversation at a later day. Having said that, I do not think that any of this should be an excuse to delay consideration of this bill; none of this should be an excuse to not facilitate the efficient passage of this very important package through the Senate today.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Does the minister anticipate an increased uptake of this instant asset write-off from new businesses? Have you predicted, for example, registrations for ABNs or tax file numbers, or do you expect it to come from existing businesses?

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

The government believes that this will be a very successful measure. Obviously all of the relevant information about what we expect the impact on the budget bottom line to be, on the revenue side, is published in the budget papers. We have gone through all of these arguments at great length during the Senate estimates process. There is nothing I can add today to the exhaustive and detailed information provided during the Senate estimates process.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Can the minister outline to the chamber why he did not consider the loss carry-back provision in the package that he took away from small business only 12 months ago?

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

The government considered a whole range of information and pieces of advice. We made a judgement on both what was desirable and what was affordable, and we made a judgement that the measure that we are debating today and that is reflected in the budget papers was the appropriate way forward.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Did the minister or the department consider a cap on cumulative expenditure on assets under the threshold—and if not, why not?

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

The government considered a whole range of different options and possible ways forward. In the end, having considered all of the relevant information, having considered all of the relevant advice and having made a judgement on what was desirable and what was affordable in the budget, we decided on the package that is before the Senate today, which we believe will be very successful in boosting growth and helping create more jobs.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Minister, you have not been able to give any information to me today around the potential uptake of the instant asset write-off by new or existing businesses, and you have not been able to give any information about why you set that at an optimal level for small business. So how did you cost this measure through Treasury without that information?

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

I think we are going round and round in circles. As I have indicated, the government has obviously made some assumptions in relation to the uptake of this measure in order to determine the impact on the budget bottom line. The government never considers second round effects—you only ever consider the first round effects in relation to these sorts of measures for budget purposes. The discussion that Senator Whish-Wilson wants to have here today is a discussion that is more appropriately had once the measure has been in place for a period and we can review how, essentially, this measure has performed against forecasts. That is not a conversation for today; that is a conversation for this time next year and even further down the track. As Senator Whish-Wilson has already indicated, this is a measure that is now proposed to be in place until 30 June 2017, so it is for a period of just over two years initially. At the end of that period we will be able to review how successful it has been in practice and we will be able to make informed judgements on what the appropriate way forward might be from that time onwards.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I just want to make a note here today that we wanted to raise these issues in the Senate rather than at Senate estimates, particularly at this committee stage before the bills are passed. We do have concerns about potential rorting and unintended consequences, which I outlined in my speech. We want to find out what the thinking was behind setting an essentially uncapped contribution to assets and a $20,000 per asset threshold, given that it has come up from $1,000 to $20,000. The Henry review recommended $10,000 and previously the Labor-Green government settled on $6½ thousand. Was it simply that the budget could not afford the bigger amount or was it that we actually think this is going to be a productive package for small business?

Senator Cormann, could you just quickly outline to us what the expected expenditure will be in the budget, particularly on the asset depreciation part of the measure?

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

The problem with the Labor-Green government and the Labor-Green coalition on the opposition side these days is that they do not understand the difference between revenue and expenditure. There will be no expenditure in relation to this because this is a measure which reduces tax. What this measure does is to leave people with more of their own cash today in order to encourage them to invest that money, which is their money, in their future success. And by targeting it towards profitable small businesses with an annual turnover of up to $2 million, obviously, you are encouraging profitable and successful small businesses to invest in their future success and encouraging them to pursue an ambition to be the most successful that they possibly can be. And by being more successful into the future those small businesses will be able to employ more Australians who, in turn, will be able to pursue opportunities to be successful and get ahead.

So, there is no expenditure linked to this measure. We have already indicated to you that from a tax office point of view the administration of this measure will be managed from within existing resources. So the impact on the budget bottom line, which is of course reflected in black and white in the budget papers, is an impact on revenue, because effectively it is a tax cut. The $20,000 immediate asset write-off brings forward the capacity to deduct tax and it helps improve cash flow for profitable small businesses.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I will rephrase that: what is that number then, in terms of tax forgone, that has been brought forward? What are you expecting in terms of the impact further down the track?

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

Just to go back to the original question. As I said, there is no expenditure linked to this, as is clearly identified in the budget papers. Budget Paper No. 2 is where I would refer Senator Whish-Wilson to. The cost impact in terms of lower revenue from the $20,000 immediate asset depreciation measure is $1.8 billion and the overall impact of the small business tax cut is $3.3 billion over the forward estimates.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Thank you, Minister. In your previous statement you alluded to this package being targeted to profitable small businesses. Could you tell the Senate how many small businesses across this country are profitable?

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

Obviously, that changes from year to year and, obviously, in order to be able to benefit from a tax deduction you have to have taxable income. If you provide somebody with a capacity to more quickly depreciate the value of an investment in an asset of up to $20,000, then obviously the only way that is going to be of benefit to you is if you have taxable income against which you can depreciate the value of those assets. As I have indicated in my summing up speech, potentially up to 780,000 incorporated small businesses will be able to benefit from various measures in this budget. All up, the small business package, targeted at small businesses with a turnover of up to $2 million dollar, potentially will benefit—up to 96 per cent of businesses across Australia. Obviously, to a degree, their level of profitability is something we will review after the event, after this financial year is finalised.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Does the minister expect an increasing debt for small business to capitalise—pardon the use of that word—on the use of the instant asset write-off thresholds and is this something you have considered in terms of risks?

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

That is a question, with all due respect, which ignores some of the practical realities. Obviously, in order to benefit from in particular the $20,000 immediate asset write-off you have to be profitable, you have to have a level of taxable income and obviously the businesses will have to meet the cost of the upfront investment. That is not a change compared to current circumstances except that of course we have increased the threshold that applies enabling people to still access that immediate asset write-off. Instead of having that apply to assets of up to $1,000 it now applies to assets of up to $20,000. Fundamentally in terms of the architecture of the capacity to make that immediate deduction, nothing changes. The only thing that changes is the threshold up to which it applies.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Obviously, economics is all about incentives and governments have a role in legislation providing those incentives, but you have significantly enhanced the incentives for small business to spend on capital over a short period. So I am interested in what risk factors you may have seen in terms of small businesses overspending in the next two years.

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

Small businesses are obviously the same—last year, this year and next year. They are the best judges of what is a sensible commercial investment into their future success as a business. The government does not second guess the investment decisions of individual small businesses. Obviously individual small businesses, as they have in the past, will in the future have to make judgments on whether particular investments make sense for them, whether they can afford to make a particular investment. What we are doing here very simply is to provide an incentive for those businesses that are profitable with an annual return of up to $2 million, to immediately write-off an investment into their future success as a business to a value of up to $20,000. So all of the other commercial judgments that small businesses across Australia make on a daily basis will continue to have to be made. Nothing changes as a result of what the government is doing.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I want to follow up on Senator Cormann's comment with respect to the assumptions underpinning the government's calculation in this regard. Senator Cormann said a moment ago that the revenue loss was expected to be in the vicinity of $1.8 billion forgone. Can the minister explain what are the assumptions underpinning the calculation of $1.8 billion as the cost to Treasury.

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

I would make the point again that these sorts of questions are the reason why we have a Senate estimates committee process and why, after the budget is delivered, for two weeks from nine in the morning until 11 o'clock at night, we sit down in however many different committees looking in very fine detail at every single one of the budget measures that the government has put forward—in order to drill down on these sorts of issues.

The important point to make here is that when we talk about a cost to the budget in terms of revenue forgone over the forward estimates, that is because of a bring-forward of a tax deduction that would have been able to be claimed in any event. Over time and eventually, businesses would have been able to claim the deduction for any such investment—but it would have been over a longer period of time. So I guess, over time, it will balance itself out.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Notwithstanding the budget estimates process, I am informed by my colleague that no amount of questioning necessarily generates answers in that process.

In terms of your assumption that the revenue loss will be 1.8 billion, you are saying that it is based on nothing other than the assumption that, if it were a longer period of time, that would be the cost and you have brought it forward. Given that this is now available to a much greater extent and in a shorter possible time, is there no change to your assumption about the fact that you will see a greater number of businesses take it up? And secondly, what are the risk factors you took into account for people starting a small business with a view to being able to try and take account of this? That is notwithstanding the fact that if they do not make a profit, then obviously they cannot write this off; that is clear. You are saying that your assumption is no change of behaviour in terms of small business. What I am asking is, did you take into account changed behaviour of small business by bringing it forward in the manner you have? And, if that is the case, why have you just calculated the same amount as you would have written off over time—or the same amount as it would have cost the government in expenditure over time?

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

Firstly, I have not said that we did not assume any change in behaviour; that is, with all due respect, Senator Milne seeking to verbal my previous answer. Of course we assume that there will be an increased level of investment as a result of this measure and into the future success of small businesses across Australia—that is the whole purpose of this measure. And so of course we have assumed that there would be an increased level of investment in future growth—future small-business-driven growth—as a result of the measure that we are discussing here today; otherwise why would we do it? In terms of some of the other questions: small business always has and always will have to make their own judgements, in terms of what makes sense for them as a commercial investment—a private investment—in their future success.

Senator Milne asked me about the uptake by new businesses: well, obviously, if a new business is immediately profitable so that it makes sense for them to access this sort of opportunity, good luck to them—that is great. We want more new businesses to be successful, and we want more new businesses to take advantage of this opportunity to be even more successful into the future. But I guess the inbuilt protection in the system, and the inbuilt protection in this measure, is this requirement to be profitable and to have a liability for a level of taxable income—in order to be able to beneficially access this particular initiative. So, subject to all those conditions—whether you are a new business or an old business, as long as you fulfil all of the requirements; as long as it makes sense for you to invest in a particular asset or piece of equipment to facilitate stronger success in the future, and as long as it is an allowable deduction in relation to all of the other requirements in our tax laws—then, obviously, we encourage small businesses across Australia to take advantage of this particular measure.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I just wanted to know whether it was a coincidence, Senator Cormann, that the new Small Business Package was $5.5 billion and you took away $5.4 billion only 12 months ago.

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

As I have indicated earlier, the government made a judgement based on a whole lot of information: based on considering a whole series of options, we made a judgement on what was both desirable and affordable. As a result of our efforts, over the first year in government we observed that the economy was now strengthening, that jobs growth was strengthening, that the budget position was improving, and that we were now on a credible and believable path back to surplus. We wanted to keep the momentum of stronger growth and stronger jobs growth going—which is why, as part of our focus on facilitating stronger growth in the context of significant structural adjustments in the mining sector and in various other parts of the economy, we made a judgement that this was the best way forward. And we also made a judgement on what was affordable in the context of the current budget position.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Senator Cormann, would you call this a stimulus package? And in relation to the $20,000 threshold that you put forward in the budget—given what you just said then about wanting to stimulate the economy and about the fall-off in mining investment—is this Small Business Package designed to fill that gap in investment spending in this country?

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

This is not your bad old Labor-Greens stimulus package of spending taxpayers' money on overpriced school halls and pink batts. This is an initiative which lets small businesses across Australia have more of their own money in order to make judgements about how best to invest in their future success. It is a key part of our long-term economic plan to strengthen growth, to create more jobs and to bring the budget back into surplus as soon as possible. What the government have been doing since we were elected in September 2013 is implementing our plan for stronger growth. That is why we got rid of the job-destroying carbon tax. That is why we got rid of the disastrous mining tax. That is why we have reduced red tape costs for business by more than $2 billion a year so far. That is why we are investing in economic-productivity-enhancing infrastructure. That is why we are working to improve market access for Australian businesses into key markets like China, South Korea and Japan. That is why we are pursuing an important package like this one: to encourage small business across Australia by having more of their own money at their disposal to invest; to encourage them to invest in their future success; to encourage them to become as successful as they possibly can be into the future so they can employ more Australians.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

On the same question: has Treasury forecast any impact of this stimulus package—or this small business package if you prefer, Senator Cormann—specifically on investment in Australia?

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

As I have already indicated to the chamber, the costings of the government, consistent with all of the relevant requirements, do not include an assessment of second-round effects.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

In relation to the last four to six weeks since the Treasurer announced this and that it would begin at the end of this tax year, can you tell us about feedback that you have received from both retailers and the small business sector? Is this why you are now spending $25 million on advertising this on national TV?

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

Feedback since budget night has been overwhelmingly positive, but of course we do want to ensure that small business proprietors across Australia are well aware of the opportunity in front of them to invest in their future success by being able to take advantage of the immediate asset write-off for investments of up to $20,000 and the various other features of our small business package. You are quite right, Senator Whish-Wilson—we are doing what needs to be done in order to ensure that small businesses across Australia are totally aware of the opportunities available to them.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

With all due respect to you, Senator Cormann, I think you are verballing my question there. I understand from my own circumstances that, if a business is looking at expanding, this could be very useful. But if they are not, is this advertising campaign simply a ruse to get businesses to go out and spend more?

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

That is not a question—I take that as a political comment. Obviously, the government has put before the parliament, and today here before the Senate, a package of measures which we believe is central to our future economic success as a nation. We recognise the importance of small business as a key driver of economic growth into the future. This is a well-considered set of measures. Obviously, it is important to ensure that all those who are eligible to take advantage of this measure have the opportunity to be aware of it and to be aware of how it operates. That is why we are providing relevant information through various channels into the public domain. That is appropriate and it is consistent with past practice by governments of both persuasions. I will leave it there in response to that political comment.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

It was not a political comment. As I mentioned in my speech on the second reading , every dollar that a small business puts towards their capital, and is therefore entitled to a depreciation deduction up-front on this measure, needs to be putting their business on a sustainable footing. Does the Treasurer accept that every dollar that small businesses put into capital should be to support the long-term sustainability of their business?

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

I have actually answered that question in many different ways over the last half hour or so. Small businesses in the past, small businesses today and small businesses into the future will be responsible for their own investment decisions, of course, their own decisions on how best to invest in their future success. As long as the various investments that they make qualify under the applicable tax laws as a tax deduction, then of course they will be able to claim that tax deduction. The government does not second-guess the commercial decisions made by millions of businesses across Australia. That is a matter for them. The reason we are pursuing this measure, the whole purpose of this measure, is to encourage profitable and successful small businesses to invest in their future success, to invest in being even more successful into the future. That is why the measure is structured as it is.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

On that same question, does the minister acknowledge and accept, and has he incorporated, the very high failure rate of small businesses upon establishment into his calculations on this package?

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

Firstly, one of the very encouraging economic green shoots that has been emerging in recent times under this government is that the number of bankruptcies is actually trending down. That is good news, which I am sure is welcomed by senators right across the chamber. The second point is a point that I have also previously made: obviously, in order to be able to benefit from a reduction in income tax or from a measure like the immediate asset write-off for investment in assets of up to $20,000, you need to be a profitable business. So for a new business to be able to access this sort of measure, the new business would have to be immediately profitable in order to be able to practically take advantage of either a tax deduction or the immediate asset write-off. If you do not pay any tax, obviously you are not going to be able to benefit from a tax deduction. You cannot cut tax for people or businesses who do not pay tax. So it is self-evident that this measure is squarely aimed at encouraging and incentivising the future success, the stronger success, of businesses that are already profitable.

Bills agreed to.

Bills reported without amendments; report adopted.