The Prime Minister has offered a sweetener to small business with his pledge to reduce the number of business activity statements required each year.
Photo: Andrew Meares
The battle for the small business vote is heating up, and Prime Minister Kevin Rudd’s promise to cut small business GST reporting obligations from quarterly to annually is attracting a generally supportive response from business lobby groups across the nation.
Under Rudd’s plan, any business with an annual turnover of $20 million or less would only have to file a Business Activity Statement annually. The change, if Labor is re-elected, would start on July 1, 2014, and benefit about 1.35 million small and medium-sized businesses.
Opposition Leader Tony Abbott has for months been talking about the need to cut red tape for business, pledging he will cut $1 billion worth of red tape if elected on September 7.
“What business wants is a government that listens to them,” Abbott said in an exclusive interview with BRW about the Coalition's business policies published in July.
Now it seems Rudd is out there spinning the same type of message to try to secure the crucial small business vote.
“Small business formation is fundamental to Australia’s future and it’s fundamental to me as well,” Rudd declared on Thursday when he promised to extend the Small Business Superannuation Clearing House to businesses with fewer than 100 employees. He also pledged businesses with fewer than 20 employees would have their parental leave administered through Centrelink, instead of having to do the paperwork themselves.
“I used to have a small business,” Rudd boasted at the launch. “I ran it for a few years and I know something of the challenges involved in getting yourself started.”
“Bidding war” for the small business voteAustralian Chamber of Commerce and Industry chief executive Peter Anderson says he’s pleased there’s a “bidding war” for the small business vote. He says while the Rudd announcement on GST returns is a positive one, Labor also needs to make the process of collecting company tax simpler for small business. Under former prime minister Julia Gillard Labor announced it would be collecting company tax on a regular monthly basis.
“In moving to monthly company tax returns the government acted with a heavy-hand without consultation with industry and without awareness of the impact on cash flow of businesses.”
He says Labor also needs to change that decision. “We call for the decision by government that required company tax collections to be monthly, to be returned to quarterly or made yearly,” he says.
COSBOA chief executive Peter Strong has also welcomed Labor’s recent focus on small business, including today’s GST returns policy.
“A lot of people will say thank you,” he says. “It’s the start of changing the game for the small business vote. But Labor is going to have to make more announcements . . . that are small business focused.”
He says so far the Coalition is well ahead of Labor in terms of favourable policies for small business, and sees opposition small business minister Bruce Billson as a true friend.
“If one party is more geared towards small business this election, it’s certainly the Liberal party,” he says. “Their policies on contract law and competition policy are the big ones for us.”
CPA Australia’s head of business and investment policy Paul Drum says Labor is playing catch-up, waiting until the third week of their campaign to announce their red tape reduction ideas, “whereas the Coalition have long articulated their policy in this area”.
“This Johnny-come-lately approach to this critical area is being politely received by business,” he says.
Small business will still have to pay quarterly
On the GST, Drum says it’s an “incremental change” rather than the big reform to reduce the regulatory burden.
Given that small businesses with $2 million are really the ones where cash flow is a problem, the policy won’t make much difference for medium-sized businesses.
“I don’t think larger businesses will be too phased by the suggestion as larger businesses will want to lodge quarterly so that they can better manage their cash flow and their compliance obligations,” he says. “Moving to annual reporting does not remove the ongoing need for business to keep and maintain records to do annual reporting. Further, they will still need to pay GST quarterly.”
He says even if businesses takes up the annual option, they should still be tracking how their business is performing, as it may be advantageous for them to lodge full quarterly BAS.
Institute of Public Accountants senior tax adviser Tony Greco also doesn’t see any huge value from bringing in yearly instead of quarterly reporting obligations.
“Any business that does not keep on top of its financials, including the GST, is playing with fire,” he says.
“Whilst not having to actually calculate the actual GST may sound attractive it’s a backward step in encouraging businesses to keep up to date with their financial records. Businesses will still need to track GST in case they are in a refund scenario, otherwise they end up being short-changed.”
The Institute of Chartered Accountants Australia’s general manager of leadership and quality, Yasser El-Ansary, is a little more positive on Labor’s GST return policy.
“GST compliance costs for small and medium businesses is good policy and a win for common sense,” he says.
“This measure would allow eligible businesses to align annual income tax and GST return preparation, helping them reconcile the two returns. Most importantly, it means less administrative work throughout the tax year which will free up these businesses so they can get on with doing their job.”
Still, El-Ansary also points out how “there is plenty more red tape to be cut and it cannot be done on an ad-hoc basis”.
“The next federal government needs to deliver real reform of Australia’s tax system, instead of cherry-picking,” he says.
Tax Institute tax counsel Stephanie Caredes says: “Allowing businesses with an annual turnover of $20 million or less to prepare and lodge their BAS once a year would go some way to assist easing the compliance burden on businesses in respect of their BAS obligations.”
Leading economist Saul Eslake today released a report for Bank of America Merrill Lynch clients saying the Coalition will have to find a further $30 billion in savings to make good on its promise to improve the budget bottom line.
Eslake’s report says there is a gap of almost $30 billion between the size of the tax cuts and new spending the Coalition has promised, and the savings it has unveiled so far. The Rudd government has long been pointing to a $70 billion funding hole.
In the report Eslake also reiterates his position, which was revealed in BRW earlier this year, about “significant and ongoing tensions” in an Abbott government between its “genuine economic liberals” such as shadow treasurer Joe Hockey and shadow communications minister Malcolm Turnbull, against those who are market sceptics like Abbott himself.
Anderson says while he will not comment on the Eslake report estimate, whichever party wins government will have a huge challenge repairing Commonwealth finances. “The degree of difficulty of that task is accentuated by the level of spending promises, funded or un-funded, during this campaign. “Both sides of politics need to ease back on spending commitments.”