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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Small business budget redefines the Coalition

Wednesday, May 13, 2015

This is a highly political budget, as are all budgets. But this time it’s political in a different way.

The Labor Party brand themselves with their century-long moral mantra of the ‘working man’. Liberals historically have allowed their branding to be defined by the negative ‘bosses party’ image. This budget breaks that mould. For the Coalition it’s a brand re-positioning budget.

It’s definitely not a big bosses’ budget. The government claims it’s “the biggest small business initiative in our nation’s history”. It’s a claim probably justified on the detail of the package.

A fair bit was already known. The 1.5 per cent incorporated small business tax deduction was announced some time ago. Last week, I detailed the government’s small business start-up package (Small business policy is greater than the sum of its parts, May 6). This included capital gains tax rollover relief when businesses change legal structures, expanded tax concessions for employee share schemes, a streamlined business registration process, removing obstacles to crowd-sourced equity funding and more. These are repeated in the budget.

What’s new is the 5 per cent tax discount for unincorporated small business people.

This brings in the generally ignored one million ‘nano-businesses’, those business entrepreneurs who don’t employ anyone, the independent contractors. This is a breakthrough response to the fast changing economic and workforce structures, heavily driven by the rush of new disruptive technologies. It recognises that businesses of ‘one’ are a reality and need accommodating.

What will spur small business investment from the budget is the ability to fully and immediately deduct for tax purposes every asset a small business person acquires that is valued up to $20,000. This is a common sense aligning of the tax system to the cash flow realities of small business people. When a small business buys a business asset, say a new machine, invariably they are paying on the spot. Being able to claim the tax deduction immediately, instead of it being delayed over several years, means that more small business people will consider spending to improve their business.

Expanding fringe benefits tax exemptions for work-related portable electronic devices is another sensible step. On its own it might seem minor but so much of small business now is ‘mobile’. People don’t have an office. Their portable electronic devices are their office and their invoicing, billing, accounts, marketing, selling and problem solving tools. They work in coffee shops, on client premises, in their car and at home. To view these devices as fringe benefits is very ‘yesterday’s economy’. The budget change is a step into reality.

The small business package is expansive. Thankfully the government’s small business budget explanatory booklet is refreshingly easy to read. Reading the full package gives a sense of a big shift in government economic and budget focus to small business. Presumably, the belief is that the huge numbers that constitute the small business sector will be a major jobs driver. There’s a lot of politics in this with interesting possible parallels to the United Kingdom.

Over the last five years, the Conservative Cameron government implemented a strong pro-small business agenda, including in the tax area. Maybe it’s coincidental, but in the last four years the UK has had the greatest growth in self-employment in its history, adding 570,000 positions. It’s been this 14.2 per cent increase in self-employment that’s dominated the UK jobs growth whereas Europe has been stagnant.

While the UK Conservatives were running a pro-small business agenda, UK’s Labour vocally returned to its ‘working class’ roots. There was a sharp re-delineation between the parties.

The Abbott Coalition’s ‘small business’ budget looks to have picked up on this UK trend. What it does is step the Coalition out of the usual left-right ideological space in which much of Australian politics is conducted and which most voters now find irrelevant. It allows the Coalition to conduct its positioning in a fresh space of its choosing.

Shorten’s Labor has a problem. The Australian unions are doing a UK Labour act and reasserting Labor’s working class roots in both policy and public campaigning. If Federal Labor rejects the budget small business package, they push themselves into an anti-small business corner.

But the Coalition also has a problem. It’s called the Australian Taxation Office and the ATO’s persistent determination to keep declaring individual small business people to be employees. Every time the ATO does this, they deny individual entrepreneurs access to the government’s small business tax policies. In this respect, what the Abbott government creates, the ATO deconstructs.

Whatever the politics, for small business people themselves, the budget is a significant positive.

[First published in Business Spectator, May 2015]

 

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