Jan McLucas (Queensland, Australian Labor Party, Shadow Minister for Mental Health) Share this | Link to this | Hansard source

I rise today to speak on behalf of the opposition on the Tax Laws Amendment (Small Business Measures No. 3) Bill 2015, which Labor will be supporting. Labor will support these small business measures, as we have done with other measures for small business announced in the 2015-16 budget, as we recognise the need for assistance to this significant sector of the Australian economy.

The bill has three parts: a tax discount for unincorporated small businesses, immediate deductibility for small business start-up expenses and fringe benefits tax exemptions for portable electronic devices for small businesses. Schedule 1 covers the tax discount for unincorporated small businesses. As we can see from the explanatory memorandum, schedule 1 of the bill amends the Income Tax Assessment Act 1997 to provide a five per cent tax offset—commonly known as the small business tax offset—to individuals who run a small business. Businesses with an aggregate annual turnover of less than $2 million are regarded as small businesses for the purposes of this legislation. The tax offset is five per cent on the income tax payable on the portion of the individual’s income that is small business income. The maximum amount of the tax offset available to an individual in an income year is capped at $1000.

Schedule 2 of the bill amends the Income Tax Assessment Act 1997 to allow small businesses and individuals to immediately deduct certain costs incurred when starting up a business, including government fees and charges as well as costs associated with raising capital, that are presently deducted over five years. Schedules 1 and 2 apply from the income year 2015-16—that is, the current financial year that commenced on 1 July—and later income years.

Schedule 3 of the bill amends the Fringe Benefits Tax Assessment Act 1986 to extend the fringe benefits tax, FBT, exemption that applies to employers that provide employees with work related portable electronic devices such as mobile phones, laptops and tablets. The amendments extend the exemption to small businesses that provide employees with more than one work related portable electronic device, even where the devices have substantially identical functions. Schedule 3 amendments apply for the 2016-17 fringe benefits tax year and later fringe benefits tax years. The 2016-17 fringe benefits tax year commences on 1 April next year.

Let me remind the chamber of the support that Labor provided to the small businesses of Australian when we were in government. These are facts the current government conveniently likes to ignore when it portrays itself as the sole parliamentary champion of small businesses, which is a convenient but incorrect characterisation. Labor increased the tax-free threshold for unincorporated small businesses, such as sole traders and partnerships, from $6,000 to $18,200 in July 2012. Labor also increased the instant asset write-off threshold for small businesses from $1,000 to $6,500 via the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011. The number of assets this applied to was unlimited. Labor also introduced accelerated deductions for motor vehicles. This measure allowed small businesses to instantly write off $5,000 plus 15 per cent of additional costs for new or used vehicles costing more than $6,500 in the income year that it is first used or installed ready for use. This increase in the instant asset write-off represented a boost to small business of $3.55 billion over the forward estimates and a boost from the accelerated depreciation for motor vehicles of $550 million over the same period. In addition, with the introduction of loss carry-back for companies, these three tax assistant measures for small business provided a boost of more than $5 billion to the small business sector. Labor's record on small business is a good record—one we can be proud of. And we are.

By contrast, the current Prime Minister and the current Treasurer promised before the last election that they would cut not just the Minerals Resource Rent Tax but also those associated measures, including the small business tax assistant measures. These were the instant asset write-off, the tax loss carry-back for companies and the accelerated depreciation for motor vehicles. Then, in 2014, what happened? The Prime Minister cut these small business assistance measures when the Minerals Resource Rent Tax Repeal Bill passed through both houses of parliament. This bill reduced the instant asset write-off threshold to $1,000 and cut the loss carry-back for companies and the accelerated depreciation for motor vehicles. Further, they made the cuts retrospective. How did this help small business? Now, less than 12 months later and in a desperate attempt to save his own political skin, Mr Abbott has brought back Labor's instant asset write-off and has introduced a small tax discount for unincorporated small businesses. We welcome the return of measures that should never have disappeared in the first place, but what we will not hear from the government is how much the withdrawal of these measures cost to the economy, to small businesses and to jobs.

In his remarks on this bill in the other place earlier this week, Labor's shadow minister assisting the leader for small business, Mr Ripoll, outlined some of the challenges that are currently present in the Australian economy. He drew the parliament's attention to sluggish wages growth and a government intent on attacking the wages of some of our lowest paid workers, which is not the answer. If this government were really serious about small business and really honest about jobs and growth, then why is it that the Australian Bureau of Statistics data confirmed that unemployment last month rose to 6.3 per cent? That is a substantial figure. It is a terrible figure because of what it means for ordinary people and their families, as well as what it means for confidence in small business and in our economy. And because of what it means for people's ability to manage their own smaller economies—their household budgets, their household economies.

What we see before us is that, for the first time in 20 years, there are now more than 800,000 Australians who are unemployed—for the first time in two decades. That is 114,000 more people who have joined the jobs queue since the Prime Minister and his government were elected and since Mr Billson was appointed as Minister for Small Business. This is not something that this government ought to be proud of. When you hear the government members talk, they are going to crow about this in some way, but it will be interesting to see how they spin that. The last time the unemployment data was 6.3 per cent was in 2002 when the now Prime Minister, under a previous government, was responsible for employment. The unemployment rate is higher now than it was under Labor during the global financial crisis. Unemployment, believe it or not, is higher today under the supposed genius stewardship of the Liberal government than it was under Labor during the global financial crisis. And last week, while the Prime Minister and his party were fixated on saving the job of the former Speaker of the other place, 40,000 Australians joined the jobless queue in July. The figures also show a disturbing 0.4 per cent spike in youth unemployment, with 13.8 per cent of 15- to 24-year-olds unable to find work. That is almost 300,000 young Australians who are currently unemployed. These are really shocking numbers. These are numbers that the government should be focusing all of its attention on rather than the other things that it is finding itself preoccupied with this week.

Australia needs a plan for jobs and it needs a plan for the future. Sadly, it is not getting either from this government. It is clear that the Liberals do not have a plan. They do not have a plan for jobs, let alone a plan for the jobs of the future. It seems that they can always come up with a plan for their own jobs, but they are not so good at finding a plan for jobs for ordinary Australians. The Minister for Small Business is well known for his enthusiasm and his theatrics, but these performances will not help small business or get people off the unemployment queues. The government has presided over the closure of the car industry and seems intent on exporting our future submarine jobs overseas—they almost seem determined to have that aim. You have to look at this carefully and ask: Why are they so determined, at every turn and at every corner, to give these things away?

Labor believes Australia has an unprecedented opportunity to appropriately manage and encourage a transition from an economy based on resources, primary industries and domestically-focused businesses to one that is based on high growth, on knowledge and on intensive businesses that can compete globally. Why should we not be able to compete like the rest of the world does? There is no point in saying that now wages are too high or something else. That is just not the case, because in comparable economies where wages are just as high and where the competitive environment is just as strong, they do well. We do not do well in those areas. Maybe there are other things in play—and that is what I would like this government to think about.

We also need a government that understands that R&D actually helps our economy—it is not a cost, but an investment. We need a government that understands that the jobs of the future are not about shutting down wind energy; they are about promoting renewable energy. It is about sustainability. It is not about destroying, through one comment, the renewable sector in wind power generation because the Prime Minister does not like the 'awful look' of them, or that perhaps they make a noise. Come and speak about noise to some of my constituents who live next to major roads and highways—they will tell you a thing or two about noise. When it comes to cheaper electricity and making sure in the future that Australia is just keeping up, then let us talk about those things.

This government is not comfortable with these words—mathematics, science, engineering, entrepreneurship, start-ups, crowd-sourced equity funding. They think these are terrible thoughts and concepts from an era they do not understand. They are a government from another era, that is for sure. But Labor does recognise there is much more that governments can do. You can do that through support. You can support small business and encourage those who want to go out and have a go and grow their businesses. That is exactly what Labor did in government; we did not just talk about it. We did it through substantial tax assistance and good measures which supported small business. In fact, as soon as the Liberal government got into power, they completely wiped out these measures. Small business, as I am sure colleagues know, is not happy. Small-business representatives, medium-business representatives and large-business representatives are unhappy about it. The government now, after it has seen the damage it has done, is trying to repair some of this by reintroducing some of those Labor measures, which is, of course, why Labor are supporting them. In effect, they are just a reintroduction of Labor's policies.

Many small businesses are desperately trying right now to find, for example, access to finance because they are constrained by difficulties in the methods that exist in getting traditional funds through banks and through other methods—it is either too expensive, too difficult, they may not have the balance sheet strong enough or they may not be capitalised enough. Again, these are probably all foreign concepts to the Liberals. The Liberals, when it comes to small business, have only two tired old lines—that small business people mortgage their home is one. We know people do that, but it is not the only way. Some do; some cannot get money because they do not have the capital or equity, so they look for other sources of financing. If a government is smart enough, it will put in place schemes to assist them. That is what Labor are proposing to do.

Under Labor's plan, we will work with the banking and financial services industry to develop 'start-up finance', a partial guarantee scheme which will support the development of Australian microbusinesses by improving their access to finance. Currently Australian microbusinesses either struggle to get a loan or may borrow via residential mortgages. There is no great science or analysis in that. They do that in the absence of cheaper, more appropriate financing alternatives.

There are some well-established credit guarantee schemes supporting start-ups, micros and small businesses in the UK, the US, Canada, France and Germany, as well as in 46 other countries around the world that we could compare ourselves to. This is where we should be turning our eyes and looking for some innovation ourselves. Australia is one of the only countries in the developed world without such a scheme and, as a result, we risk being left behind. I would say that we are being left behind.

Labor proposes to create a new $500 million smart investment fund which will back-in great Australian ideas and help convert those ideas into businesses, jobs of the future and a stronger economy and, at the same time, support revenues to government which, in turn, will support ordinary Australians. Our smart investment fund will partner with venture capitalists and licensed fund managers to co-invest in early-stage and high-potential companies, providing a Commonwealth investment of up to 50 per cent of the start-up capital needed to help Australian companies commercialise innovations.

This is part of Labor's plan for the jobs of the future. That has to be the basis from which we start, if we are going to be serious about long-term economic growth. Economic growth is not that great at the moment. We have to realise that the numbers are not just going to magically go up unless government takes a proactive approach to growing the economy and making sure that we transition our economy from old-style manufacturing and resources to the high-skilled jobs of the future. That transition will take a long period of time. We need a government that supports that. You do it through skills and training and a whole range of other methods and investing in the right places.

Another important role for government is in assisting small business to provide certainty on the provision of the relevant skills and training opportunities. That is something Labor put in place and invested money in, including in apprenticeships, in traineeships and in a whole range of other incentives around how that works. Again, sadly, when the Liberals got elected the first thing they did was cut all that—they saw it is a saving. I say it has had a detrimental, negative impact on small business and on the economy.

Labor's policy is to provide guaranteed funding to TAFE so that businesses can get the skills they need. That is what businesses say they want and that is because it works. Our TAFE system is strong. It is proven. The infrastructure is in place. We have the right people as part of our TAFE network, but we have to fund that. It is like anything in life: if you starve something, eventually it will wither. We have known for a long time that the Liberal Party simply hate the TAFE system; they just do not like it. It is ideological hatred.

Over a million Australians every year participate in skills training. Labor are very proudly the party of skills, training and apprenticeships. We are committed to providing a quality TAFE system. I want to take this opportunity to remind the government that it was the Prime Minister and the Treasurer who cut more than $2 billion from skills and training programs just over a year ago in their first budget. That is what they decided to do in an economy that needs to grow and needs skills. If I were to ask ordinary Australians, 'If you were going to grow the economy and develop skills and training, what would you do?', I do not think they would say, 'We'd cut $2 billion from the programs that help provide skills and training.'

Labor has a proud record in providing tax assistance for small business and helping the economy. It was a Labor government that introduced a range of measures to help small business. It was the Liberal Party who cut those assistance measures, only to realise how effective they were. They are now trying to restore them a couple of years later. I reiterate Labor's support for these measures and, most importantly, for the small businesses of Australia.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

Excuse my voice. I have not been shouting at Labor or Nats people today; I have got a bit of a cold. I will try to keep it nice and silky. I am here to speak on the Tax Laws Amendment (Small Business Measures No. 3) Bill 2015, and I am excited. I am excited because we have a Minister for Small Business, Bruce Billson, who was described in the party room as messianic—not just evangelical and not just hot but messianic—when it comes to spreading the message about small business. I share his enthusiasm for small business. The Liberal Party shares Bruce Billson's enthusiasm for small business. It is in the DNA of the Liberal Party to be strong supporters, promoters and protectors of small business.

When John Howard regained the leadership of the Liberal Party in 1995 in his first speech he talked about the importance of families and the importance of small business as part of the core constituency of the Liberal Party and our side of politics. He did that because when the party was established in the 1940s it was established to represent all those in the community who did not necessarily have an organised voice of their own. There were big businesses that could project their own voice and had the resources to do things for themselves. They do not have the protection of being some part of some organised group in society—some corporate group, union group or whatever. It picked up all of those who wanted to be responsible for themselves and fend for themselves and did not want other people telling them what to do. Within that group were the people of small business—the independent contractors, the people who started a business on their kitchen bench or in their home office and the trades men and women who start off employing one or two people and when business is going well they employ four or five people, or maybe nine or 10 people.

These are the people we need to encourage in our society. Yes, a lot of employment comes from big business and a lot of employment comes from the more organised part of the economy but it is in that turbulent, chaotic world of disruption of markets where you find the start-ups and the small businesses coming forward with new energy, new vision and new ideas. The role of parliamentarians on all sides of the parliament should be to promote the best of those start-ups and small businesses.

A series of bills have come before the parliament—and there are more to come—that encapsulate the small business measures put together by the coalition in the last budget to help promote small business. My colleagues on the other side were right to say that in the past, because of budgetary reasons, we have taken away some measures that were dedicated to small business. The reason for that was clear. Some of them were linked to things like the mining tax that never raised the money it was said to raise. We have seen billions of dollars of reductions to forecasts of that revenue. We could not have afforded all of the spending that was linked to those sources of revenue that were not coming forward, so it was important for us to take some hard budgetary decisions.

Small business also has to live in a macroeconomy. It is not just about what you do for small business itself; it is what you do to create a macroenvironment in which small businesses can thrive and succeed. That does mean being responsible about the overall balance between supply and demand in the macroeconomy. It does mean having a fiscal policy which over time gives people certainty that we are on a path to have the federal budget under control. It means having a fiscal policy that is consistent with monetary policy so that we do not have the arms of policy at that macro level pushing in different directions. You do not want an expansionary fiscal policy causing you to have a restrictive monetary policy where you are putting the brakes on the economy and raising interest rates.

Seared into the consciousness of small business are the recessions of the late 1980s and the early 1990s, particularly the interest rates. The late 1980s and early 1990s were the precursor to the very big recession we had to have, according to Paul Keating, who lost control of that economy. He let it expand for too long and he let the Reserve Bank keep interest rates too low for too long and then, when the damage was done, interest rates had to be raised to swinging levels and the result was a catastrophic decline in economic output and activity. The people who paid for that were the employees, trade union members and small businesses.

I do not say it was all his fault, because really he was at the mercy of the advice he received. He received advice that there would be a soft landing in the economy. I remember that very well. I was in Treasury. I remember it was the Reserve Bank that first belled the cat. But what happened in that period? Those interest rates were seared into the consciousness of small business. So you have to get the macroeconomy right. You cannot just focus on measures for small business alone. To this day I do not think that Labor has sufficiently embraced the need for a credible path back to budget surplus as a way of creating that favourable environment for small business. One of the mistakes Ed Miliband made when he became the leader of Labour in the United Kingdom was he failed to distance himself from the economic legacy of the Gordon Brown era. So from day one he appeared to be going further to the left on economic policy instead of tacking to the centre, and the centre is a credible path back to surplus, taking the pressure off monetary policy—

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Austerity.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

No, it is not austerity. That is wrong.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Austerity—that's what you lot do.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

It is not austerity to stop borrowing money you do not have.

Senator Cameron interjecting—

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Senator Cameron, the senator will be heard in silence.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

It is not austerity to stop borrowing money you do not have. That is very important.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Mr Acting Deputy President, I rise on a point of order. This man should not be lecturing the Labor Party after that first budget.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

That is a debating point. There is no point of order.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

I welcome the contribution of Senator Cameron because he took out of this House someone that Paul Keating accused of having 100,000 workers around his neck.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Tell us about your first budget.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Senator Cameron.

Arthur Sinodinos (NSW, Liberal Party) Share this | Link to this | Hansard source

Without that first budget, there could not have been the second budget, which provides these generous measures for small business. That is the point.

We heard earlier about Labor's love for innovation. Where were they when Chris Bowen emasculated employee share ownership schemes and took away incentives for start-ups? When you have a start-up, you cannot afford to put people on high salaries but you can give them some sweat equity, some hope that, if their ideas succeed, they will get a return. Those ideas, that initiative was crushed by what Chris Bowen did in 2009. Again, in this budget we are taking measures to reverse that damage to employee share schemes. We are taking measures to promote crowdfunding in a responsible way.

What we are also doing in this particular bill before us today is taking a number of measures which will improve the cash flow for small business, reduce red tape and encourage innovation. There are a number of measures here. I will quickly go through them. They are part of a $5.5 billion package. They complement the company tax cut of 1.5 per cent and accelerate the depreciations for small business that were passed by the House in the Senate. There is a further bill to come which will allow small businesses to restructure without incurring a capital gains tax liability, and that is important too because there are too many situations where the operation of the capital gains tax can stop restructuring and then freeze the mobility of resources.

Just as we took measures on capital gains tax when we first came to power in 1996 to support small business, including rollover into retirement funds and the like, we are taking measures which make it easier for small business to restructure. We are allowing the immediate deductibility of professional expenses instead of depreciating them at 20 per cent per annum. With immediate deductibility we are making it easier to get the advice you need to set up a small business. And we are expanding the FBT exemption for work related portable electronic devices because these days we need more and more of these devices and the rules were restricting people in terms of the similarity of the devices and how many multiples of those devices they could have.

So we will provide a five per cent tax discount for approximately 70 per cent of small businesses which are not incorporated. We have cut the company tax rate for those that are incorporated but here we are doing it for those which are not incorporated by providing a tax discount capped at $1,000 per taxpayer per year. This approach means that the benefits of cutting tax are extended to those who are unincorporated. Currently, unincorporated business income is taxed at its owners marginal rate of personal income tax.

A company tax cut will not benefit unincorporated businesses. All those tradies who operate as sole traders, the mum and dad business partnerships and the family business operating through a trust would miss out. This bill will ensure all small businesses are entitled to a tax cut irrespective of how they are structured. And that reflects the new economy that is involving across the country, where people are increasingly doing things from home and so on and so forth. So with a tax cut of up to $1,000 for each business owner, small businesses will have more cash flow. This increased cash flow can be reinvested in the business, helping it to reach its full potential.

I talked about the immediate deductibility of professional expenses for small business. Currently there are some expenses related to starting a business that have to be depreciated at 20 per cent of the original cost over five years. These include professional advice on starting a business such as legal advice or costs associated with raising capital, including those occurred in accessing crowd sourced equity funding. This bill allows these expenses to be immediately deducted instead of depreciated over five years. The benefit here is not just for business's cash flow but for the record keeping—small businesses will not have to track these expenses over five years as previously required. They will now claim the deduction from the entire amount and get on with running their business and growing Australia's economy. This will be available from the start of the 2015-16 income year.

I also mentioned the FBT exemption for all portable electronic devices that are provided for work purposes. This exemption will be available even if multiple devices with substantially similar functions are provided by the employer to their employee for work purposes. As you know, the FBT applies to certain non-cash benefits provided by an employer to an employee. FBT is levied on the employer. The FBT maintains the fairness and integrity of our tax system by taxing non-cash benefits provided by an employer to its employees. It also facilitates the inclusion of fringe benefits in an employee's income for the purposes of means testing benefits such as such as family tax benefits.

These categories apply to portable electronic devices, items of computer software, items of protective clothing, briefcases and tools of the trade. These are the five categories of work related items that are used primarily for their employee's employment. Within the portable electronic devices category, a FBT exemption can currently be provided for more than one device provided the devices do not have substantially similar functions. So what we are doing here is allowing people to have more portable electronic devices so that is not a constraint on their capacity to do their business and expand their business.

There have been many examples of businesses seeking clarification from the ATO regarding whether multiple items can be exempt in the same FBT year. So we are going to simplify the rules, provide employees and employers with more flexibility in the number and nature of items given to employees by disregarding overlaps in the functions of items. I think that is another important red tape measure.

It is estimated that around 30,000 businesses will initially benefit from this measure. Yes, for budgetary measures to support small businesses you create a macro environment to support those small businesses. The years and the decades of 10 and 17 per cent interest rates have to be put behind us forever. We have to create an environment which is favourable on that macro level and also provides supportive measures that continue to reduce red tape.

The government has already had two red-tape days. We have reduced red tape by over $2 billion, and we are also promoting other measures which will involve developing a proper innovation ecosystem. Where we still have a challenge is with venture capital funding. I heard Senator McLucas talk about that before. It is fine to put up the ideas, but in his budget reply Bill Shorten was full of ideas but did not explain how he was going to pay for them, and this is the problem. You can have all the ideas in the world, but when you are the government you are accountable and you have to find a way of paying for them. He did not outline ways to credibly pay for the billions of dollars of expenditure that he was talking about. You have to be able to square that circle if you want to be taken seriously as the alternative government.

We also need to keep doing more to promote collaboration in science and research and in innovation between business, academic institutions and research institutions. It is not good enough. If you go to a country like Germany, someone like the chief scientist or technologist at BMW will also be tenured as a senior professor at the local university. Dual appointments create that physical bridge between business, academia and research institutions. My good friend and colleague Senator Cormann has been chairing the Australia-Germany Advisory Group. He has come back with quite a few ideas. I was speaking to Brian Schmidt, Vice-Chancellor of the ANU who was on the delegation. He is very keen to find ways to promote that collaboration so that we get that translational research going in which we get the good ideas and we find ways to fund them to their commercial potential in Australia. We do not want all of our ideas going offshore. We cannot commercialise them all here as we are not a big enough market, but we can do more to commercialise our ideas in Australia. That is a challenge going forward.

We also need, as a parliament, to confront change in the industrial relations space. There is an interim Productivity Commission report which provides some ideas in that regard. It builds on the commitments we made in the campaign around reinstating a proper building and construction commission and also a registered organisations body to regulate employer and employee associations in a more transparent manner. In the case of industrial relations, it is not about throwing the baby out with the bathwater and saying, 'Everything is perfect, you don't need to change anything'. It is about intelligently debating where there are possibilities for change and recognising, in particular,—if we return to the case of small business—that small businesses do not have the human resource departments and they do not have the overheads to cope with dealing with some of these measures. That is why finding ways in which we can make it easier for small business to be part of the formal industrial relations system means that they resist the temptation to become part of the informal labour market. The more rigid you make the formal labour market the more you create incentives for people to try to do stuff through the informal labour market. We must never reach that stage. We must have a set of transparent, flexible rules which allow small business to meet its obligations in the industrial relations space in a way which also recognises its particular challenges. We also need to protect those people who want to be independent contractors, those who want to be tradies.

One of the biggest challenges that Paul Keating laid down to the Labor Party when he left was to gather unto it all those enterprise workers who he claimed had been created by his policies of opening the economy. And what happened? Labor turned its back on them. And those aspiring workers know that the natural home for them, in the years ahead, is on this side of the House. It is in the Liberal Party. We are the party of aspiration, we are the party of small business and we are the party for all those who want to get ahead.

Honourable senators interjecting—

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Senator Sinodinos, for your contribution. Just before Senator Lambie starts, I do remind senators that the senators will be heard in silence. Senator Lambie.

Jacqui Lambie (Tasmania, Independent) Share this | Link to this | Hansard source

I rise to contribute to the debate on the Tax Laws Amendment (Small Business Measures No. 3) Bill 2015, and also indicate that I will support this legislation without any reservations. This legislation will benefit all small businesses of Tasmania and other states, and therefore will increase the job security of their employees. It will also increase the profitability and prosperity of those businesses and will increase the likelihood that they will be able to grow, and employ more workers, and that can only be a good thing for Tasmania's and Australia's economy.

I will briefly outline the purpose of this legislation as summarised in the Bills Digest, and then I will use this opportunity to outline a policy which will also guarantee the profitability and prosperity of Tasmanian businesses. This bill amends the Income Tax Assessment Act 1997 to provide a five per cent tax offset capped at $1,000 per income year to individuals who run small businesses with an aggregate annual turnover of less than $2 million or who have a share of a small business income included in their assessable income, and it enables small businesses and individuals to immediately deduct certain costs incurred when starting up a business. Amendments to the Fringe Benefits Tax Assessment Act 1986 extend the fringe benefits tax exemption that applies to employers who provide employees with work related portable electronic devices.

The Minister for Small Business, Mr Billson, in his second reading speech told the lower house on Wednesday 24 June 2015:

Small business is the engine room of our economy. The contribution of the hardworking women and men of small business cannot be understated. They account for 96 per cent of all Australian businesses. They employ over 4.5 million people and they produce over $330 billion of economic output each year.

And he introduced this legislation by saying:

This bill amends various taxation laws to provide tax relief and reduce red tape for small business.

I have a better plan to provide tax relief, reduce red tape for Tasmanian small businesses, stimulate the economy and boost employment—namely, the establishment, the creation, of special economic zones in regional and rural areas to help boost business profitability and job creation.

As part of the special economic zone, I propose the effective removal of payroll tax from all our businesses. I acknowledge that payroll tax is a state tax and should have been removed when the GST was introduced to Australia. However, in a special economic zone, the federal government could reimburse any businesses which were forced to pay state payroll tax.

My research shows that the Tasmanian private business sector could employ approximately an extra 5,000 full-time workers on an average wage of $60,000 per year if our state government scrapped the payroll tax. The employment opportunities would soar and Tasmania's record unemployment rate of 6.7 per cent would come under serious attack if our politicians had the courage to scrap this unfair annual payment totalling approximately $340 million.

Official figures show that about half of all Tasmanian businesses, or approximately 2,400, are forced to pay payroll tax. In addition to all the other government taxes—income tax, provisional tax, fringe benefits tax, GST and stamp duty, and the list goes on—a business becomes eligible to pay the hated state government charge after its wages bill exceeds $1.25 million. For the average business, if more than 21 full-time workers are employed, that means your boss qualifies for the extra tax. Thanks for employing! It means that each year your employer must find between $14,000 and more than $100,000 in order to keep their doors open, keep Tasmanian workers in a job and pay this hated state government tax. The top 53 businesses in our state each year pay on average $2.5 million.

It is no wonder that the state payroll tax is called an unfair tax on employment. It is no wonder that, when combined with over-the-top freight and sea-travel charges, Tasmanian jobs are under threat and businesses are in jeopardy. A real solution to Tasmania's unemployment crisis is to make the state—the whole state—payroll tax free. There are 5,000 good reasons to scrap the tax: 5,000 new jobs which could immediately be created if the tax were scrapped. Scrap the tax! If you ask where the funds will come from to fill the payroll tax hole in the state budget, look to Australia's $4 billion to $5 billion annual foreign aid budget. Charity begins at home.

Australian politicians are scared of special economic zones. There has been some ad hoc provision of tax relief for selected companies but never a national coordinated approach. I call on the Australian federal and state governments to stop the ad hoc granting of special economic incentives for certain companies and to develop an organised plan to establish special economic zones in rural and regional areas where the worst social indicators and unemployment rates are being recorded.

I acknowledge that, because of consistently high unemployment and falling business confidence, an economic zone which guarantees for all Tasmanian businesses (1) a payroll-tax-free zone, (2) dramatically reduced Bass Strait freight, vehicle and passenger charges and (3) the cheapest electricity and gas prices in Australia and indeed the world is the first essential step our state must take on a long journey to recovery.

My research through the Parliamentary Library shows that approximately 2,301 special economic zones in 119 countries have been very successful at stimulating financial growth, lowering unemployment and creating community wealth for a range of countries and communities, and they have been used as an important tool to remedy fiscal crisis. It is time to look at some of these examples.

In Great Britain, on 17 August 2011, Prime Minister David Cameron, Chancellor George Osborne and the Secretary of State for Communities and Local Government, Eric Pickles, announced the location of 11 new enterprise zones. These new zones were expected to generate 30,000 new jobs by 2015. Some of the incentives used to attract investment to the British zones were over 150 million pounds in tax breaks for new businesses over the next four years. As of 2012, some businesses operating within the enterprise zones in assisted areas were to be eligible for enhanced capital allowances available for plant and machinery investment. There was also a business rate discount of up to 275,000 pounds per eligible business over a five-year period.

In the US, like the UK, the US empowerment and enterprise programs involve a range of spatially targeted tax breaks and grants designed to encourage economic and social investment in disadvantaged areas. The federal government administers two such programs, the Federal Empowerment Zone, or EMPZ, and the Federal Enterprise Community, or ENTC, programs. As two researchers at Yale University, Busso and Kline, observed, the empowerment zones are:

… one of the few social welfare programs popular on both sides of the congressional aisle. In an era where non-entitlement spending on social welfare programs has been scaled back dramatically, the federal Empowerment Zone program has enjoyed rapid growth.

The state-run programs are called state enterprise zones, or ENTZ. These programs vary dramatically from each other. For example, some states may offer only subsidies for investment to business while others may also offer employment tax breaks. Some zones are only created in particular neighbourhoods while others cover hundreds of square miles. Federal incentives include businesses being eligible for a tax credit of up to 20 per cent of the first $15,000 in wages earned by each local worker they employ; $100 million per zone to be spent on training, emergency housing assistance and promotion of homeownership; and $2,400 in tax breaks for hiring local residents between the ages of 18 and 24.

Since the economic reforms of 1978, China has been setting up SEZs and providing them with financial, investment and trade privileges as well as encouraging them to test innovative policies that, if successful, could then be implemented in the wider economy. In 1980 the first SEZ was established in Shenzhen. It is often highlighted as a success story for turning a small fishing village into a vibrant economic hub, which is now home to a number of high-tech companies. In 2003, the Shenzhen zone attracted US$30 billion in foreign direct investment, exported $48 billion worth of goods and directly employed three million people. In June 2012 The Economist reported that the zone would be further expanded to attract more modern service industries. The plan is to attract finance professionals, lawyers and accountants and to impose no income taxes on them.

In closing and in repeating my support for the legislation, I note that Parliamentary Library research indicates that, despite regular calls to create special economic zones in Northern Australia and in the Northern Territory, there have never been special economic zones—as formally defined—in Australia. It is now time to fix that problem and introduce special economic zones to regional and rural areas that are suffering from high unemployment and social disadvantage—meaning that Tasmania should be declared a zone today.

Scott Ryan (Victoria, Liberal Party, Parliamentary Secretary to the Minister for Education and Training) Share this | Link to this | Hansard source

I thank those senators who have contributed to this debate. Small business is rightly said to be the 'engine room of Australia's economy'. Small business provides the goods and services that we use every day. It is difficult to count the number of times over the past day or week that you may have interacted with a small business. You might have purchased your morning coffee from a small business, as I am sure we in here all have at Aussies; travelled in a taxi or indeed used Uber, as I first did last weekend; or even had your hair cut. There are more of them than most people take into account: 96 per cent of all businesses are small businesses. These businesses and the people who own and run them serve the community by operating their businesses as best they can, and they do it well. They generate over $330 billion of Australia's economic output each year. However, there are a number of fixed costs associated with running businesses, and small businesses face a higher relative regulatory burden than larger businesses.

This government has announced a $5.5 billion package of measures to reduce the regulatory burden and increase the cashflow of small businesses. The Tax Laws Amendment (Small Business Measures No. 3) Bill 2015 introduces three more measures from this package, and follows on from the 1.5 per cent company tax cut and expanded accelerated depreciation measures for small business that were introduced in the Tax Laws Amendment (Small Business Measures No. 1) Bill 2015 and the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015.

Schedule 1 of this bill will broadly mirror the benefits of the 1.5 per cent tax cut for small businesses. It will provide a five per cent discount for approximately 70 per cent of small businesses that are not incorporated, capped at $1,000 per taxpayer. This measure, along with the 1.5 per cent company tax cut, will ensure that all small businesses will be eligible for a tax cut, no matter how the business is structured. This measure will apply to income from businesses with an aggregated annual turnover below $2 million from the 2015-16 income year and beyond.

Schedule 2 will help to improve the cashflow of small businesses and reduce the regulatory burden imposed on these businesses. It will provide immediate deductibility of professional services for small businesses with turnover below $2 million. The costs of professional advice and payments made to government agencies will be immediately deductible instead of having to be depreciated over five years. This measure will apply to expenses incurred from the 2015-16 income year and beyond.

Schedule 3 of this bill will benefit small businesses by reducing red tape within the fringe benefits tax system. It will expand the FBT exemption for work related portable electronic devices. The government has acknowledged that, with the development of new products and increasing overlaps in function, it is becoming increasingly difficult for employers to determine with certainty which devices can access the existing FBT exemption. With evolving technology being used for work purposes, the legislative provisions that allow for an FBT exemption for portable electronic devices and computer software have not kept pace. The government will remove the uncertainty that is stemming the use and availability of a critical tool of the trade for small businesses—that is, portable electronic devices. Therefore, under this bill, small businesses with an aggregated turnover of less than $2 million will be able to access an FBT exemption for all portable electronic devices that are provided for work purposes. This exemption will be available even if multiple devices with substantially similar functions are provided by an employer to their employee for work purposes. The new simpler arrangements will be easier for employers to understand, and as a result this bill will reduce red tape and compliance costs within the FBT system. Employers will no longer need to determine whether such items as a laptop or a tablet have substantially similar functions. This benefit will potentially increase in the future as the range of items such as smartphones or smart watches increase in use and function.

This bill reinforces the government's position that the tax system should not impede innovations by companies hoping to grow and to employ people. Reducing red tape and regulatory costs for small businesses is crucial, as they tend to face proportionally higher costs than larger businesses because of their inability to take advantage of economies of scale in understanding and complying with regulation. Moreover, small businesses typically have fewer resources with which to specialise in meeting their compliance obligations. To this end, removing and simplifying the FBT portable electronic devices exemption will provide proportionally greater benefits to small business. This change, which is estimated to initially benefit 30,000 businesses, will come into effect on 1 April next year at the beginning of the next FBT year. It will provide encouragement and certainty for small businesses to provide their staff with all the necessary tools to grow and build their business and to have a go. The government has listened to the concerns of stakeholders and is committed to making it easier to do business in Australia.

I had the privilege of serving as the shadow parliamentary secretary to the shadow minister for small business when the government was in opposition in the last term of parliament. It was an opportunity to travel right around Australia and to understand many of the non-economic factors that are so important to small business. One of the things that are often forgotten in this place is simply observed by going to any suburban sporting ground or any country football club. When you look around the hoardings that make those community organisations so important—it could be a Rotary club, a netball club, a soccer club, a rugby league club, a footy club—what you see are the small businesses of that community; what you see are the people who employ other people in that community. So often for so many of us our first opportunity in work is actually in a small business, as it was for me in a supermarket in Essendon pushing trolleys when I was 15 years old. What makes our community so important are the small businesses that provide local leaders. So often you will find the local country fire authority. You will find the local head of the Rotary club, the school board president. You will often find they are local small business people—male and female.

Small business is not just an economic building block; it is the glue that holds many of our communities together. That is why these measures are so important from a community level. They will strengthen the sector that suffered so much under the previous government. One of the key statistics that is truly shocking from the previous regime is that, when the Howard government left office, more than 55 per cent of employment in this country was in small businesses. When the Abbot government came to office, it was near 45 per cent. That is not just a massive economic transition; that is a substantial social transition where so many fewer people are working for people they know, people they socialise with and friends. We are losing that personal connection in businesses in our community. That is something that this government is committed to turning around and, once again, seeing small business not just provide a first job, a job for our children or our friends but also provide opportunities for people in local communities, and so many of those local leaders.

I might just comment on a few of the observations made by the previous speaker, Senator Lambie. When it comes to special economic zones, they are in essence in Australia, when it comes to the states, unconstitutional. A number of people have proposed these over the years, including some of my friends. I happen to think they are not a very good idea. I do not necessarily like the idea that a government may decide to reduce the tax burden so dramatically in one part of the country. I do not think such powers are a good idea to place in the hands of any minister, lest they be at risk of patronage. But they are unconstitutional, and it is not necessarily possible. It is a bit like trade: it is possible to be better off when you do something small with one nation but it is better to be multilateral in trade outcomes and, where that is possible, that is the desired outcome. However, with special economic zones, there is the risk that you will see misdirected resources and, as I said, the growth of patronage, which is something this side of politics has always been particuarly concerned about. As it is, special economic zones are not an option anyway. They are simply not an option for this parliament to be able to put forward.

When it comes to payroll tax, I agree with Senator Lambie. With the introduction of the GST and the property boom over the last 15 years, all our state governments have seen substantial increases in revenue and substantiation increases in own source revenue. Billions and billions of dollars have poured into state coffers, particularly from the property boom and things like stamp duty and land tax as well as from the GST legislated by the Howard-Costello government.

Sadly, the state governments have not used those increases in revenue to reduce the burden of payroll tax and, in particular, their real challenge with payroll tax in an economic sense is of course the thresholds where it cuts in at certain levels of payroll. If payroll tax was a flat one per cent across the economy, it would simply serve as a flat tax on income paid by the employer. It would not have any employment effect but, as it is structured at the moment where several states have narrowed the base and made it apply upon certain thresholds, it can have that factor. We have remained consistent since the GST was introduced on this side of politics that the states should be using the increases in revenue the GST provides and the massive increases they have had in own source revenue to reduce taxes and disincentives on employment. I note some states have done that more than others, but it is a continuing challenge. With those comments, I commend the bill to the Senate.

Question agreed to.

Bill read a second time.