TAX CUTS A GOOD START WITH MUCH MORE TO DOG’day Beast readers, I’m Andrew Bragg from the Menzies Centre. We’re a think tank backing Australians prepared to take a risk: to start a business, to grow a business, and to create opportunities for others.
I’m going to be writing a regular piece for The Beast about public policy issues that impact enterprising types in Sydney and beyond.
I’ll start with the Senate passing tax cuts for small and medium sized businesses.
Cutting tax is a good idea. From 2018-19, 3.2 million small and medium sized businesses employing 6.5 million Australians will pay 27.5 per cent tax. This will apply to all businesses with a turnover of less than $50 million and is instead of the 30 per cent rate for large companies.
As anyone who has spent their Sundays sending invoices and filling in business activity statements knows, every dollar not going to the taxman can be invested into the business.
Dean Willemsen of PrimeBuild says, “I’ll be using any tax cut we get to employ more people, train them better and buy new equipment.”
Two reasons the tax cuts should be revisited are: 1. Australia needs more investment; 2. All businesses needs the cut.
First, Australia has relied on foreign investment since the First Fleet and we need more of it. An incorrect old Australian saying is “we’re selling the farm”. This is often uttered by people in Sydney.
But there is simply not enough capital in Australia to develop out vast continent, which has caused us to require the $3 trillion foreign investment stocks.
When Chinese company Moon Lake purchased Van Diemen’s Land dairy farms, Queensland MP Bob Katter said just that: we’re selling the farm.
Ironically, the National Farmers Federation’s Tony Mahar has said “industries like agriculture struggle with a gaping hole in the capital required to build on the vast market opportunities presented by a cashed-up and quality-conscious consumer…” Here he’s referring to the Asian middle class: expected to number 3 billion by 2030.
The head of the Farmers Federation encouraging foreign investment should put the “selling the farm” thesis to bed.
Secondly, the cut should apply to all businesses.
Elsewhere, tax cuts apply to all companies. The UK cut its rate from 30 to 20 per cent with an agenda to get to 15 per cent. Singapore is down to 17 per cent and Canada is now hitting 26.5 per cent.
In Australia, Parliament decided that ‘big business’ doesn’t deserve a tax cut. Yet. But big business employs millions, pays billions in tax, and is owned by us.
Lower taxes deliver higher profits for companies and returns for investors. But the boost doesn’t go to a ‘strawman’ of big business. The returns go to shareholders, because companies are owned by people.
Profitable corporates provide higher returns to super fund members – i.e. all workers. The average super fund has 30 per cent of its assets in Aussie equities.
This isn’t fake news. For example, the Commonwealth Bank is mainly owned by Aussie mums and dads (54 per cent).
We should therefore cut tax for all business to 20 per cent in a global business environment.
Andrew Bragg is head of research at Menzies Research Centre – @ajamesbragg