A 1994 Four Corners program shows a Melbourne worker accusing union official Bill Shorten (“Machine Man”) of taking undue credit for his pay rise and of “polarising the workers against the management”.
For the opposition leader, Bill Shorten, nothing much has changed. Shorten does not frame the government’s planned decreases in corporate tax and Labor’s plans to end negative gearing on existing housing in terms of the effect on average Australian businesses or housing investors.
Instead, he exaggerates the effect with the intention of polarising voters by linking $50bn tax breaks to “the big banks”, by talking about billion dollar companies being classified as small business, and of negatively gearing as a “tax subsidy for people who own 10 houses to buy their 11th”.
None of this is true. It’s cynical hyperbole, deliberately designed to confuse.
In terms of policy costings, Labor uses figures from either the forward estimates (the four years from 1 July after the 2016 budget) or 10–year projections in a mix-and-match to suit their argument.
In terms of small business, it’s a definitional mess. Currently the Australian Taxation Office defines a small business as one with a turnover of less than $2m; the Australian Bureau of Statistics says a small business is one with fewer than 20 employees; Fair Work Australia says a small businesses has fewer than 15 full or part-time employees; the Privacy Act says less than $3m turnover; and the states have varying definitions for payroll tax purposes.
By comparison, the European Union says a small business is one with fewer than 50 employees and a turnover less than €10m ($A15.3m).
The government will change the ATO definition of small business to any business with a turnover of less than $10m . These are the companies that will get an immediate drop in company tax to 27.5% from 28.5%.
According to the ATO, this will mean 870,000 Australian businesses, employing 3.4 million people, will be on the lower tax rate. But that’s where the ATO’s small business definition will stay. There won’t be any billion dollar small businesses.
The rest of the graduated corporate tax cuts for medium and large businesses proposed by the government are about making Australia’s rate competitive with other OECD countries, something that former Labor treasurer Wayne Swan thought, in 2010, would “create new jobs and grow the economy” and that current shadow treasurer Chris Bowen was espousing as recently as September last year.
The average OECD company tax rate has dropped from 32.5% in 2001 to 25% now – Australia’s has remained at 30% for businesses with turnover above $2m.
Under Scott Morrison’s plan, businesses with higher turnovers will gradually be brought into the 27.5% bracket with businesses with a turnover of $1bn included in 2022-23. Then the company tax rate will be reduced 0.5% a year until it reaches 25% in 2026-27.
It will be quite a while until the “big banks” get their share of the tax cut and the alternative is to become internationally uncompetitive. At the end of 2015, 82% of Australia’s capital flow came from domestic savings and 18% from overseas. All up, direct foreign investment reached $3,024.4bn in 2015.
As Labor recognised until recently, we can’t grow the economy and therefore jobs without making business in Australia attractive to overseas investors.
But it’s fairly safe to say that Australia’s small businesses, other than a few start-ups, are not relying on foreign investment.
The Council of Small Business Organisations has recently released some modelling of Australian small businesses in which they feel the need to point out that turnover does not equal profit. They point out that rent, wages, the cost of inputs, delivery, and training all need to come out of that $10m turnover before the business owner gets a profit out of which he/she pays interest and tax. The ABS says labour costs currently average 87% of business costs.
Irrespective of the size of the company, profit can only go to two places: dividends to investors, including Australian workers through their superannuation; or investment, generally reinvestment designed to grow the company and therefore jobs.
And while we’re used to hearing lots about the less than 1% of Australian businesses who employ more than 200 people – the “big” companies with “billion dollar profits” – we hear next to nothing about the dominant business structure for Australians.
According to the ABS, 61% of Australia’s 2.12 million actively trading businesses have no employees and another 37% have between one and 19.
Every one of these 2.12 million businesses buys from other businesses and sells their goods or services to other businesses. It’s this trade that keeps the economy growing. The government tax cut is designed to give them more available cash flow quickly.
In terms of negative gearing, 67% of Australian property investors who use negative gearing on property earn less than $80,000 a year – they’re employees or people running their own micro-businesses (fewer than five employees). The majority of these investors have only one investment property. There is a tiny minority out there with 10 (or even more) investment properties but it’s not the norm that Shorten would have us believe.
Fewer than one in five Australian workers is currently a member of a union and the structure of Australian business, with its large number of self-employed and micro-businesses, helps to explain why.
But that’s not Shorten’s world. Of Labor’s senior economic team – Shorten, Bowen, Anthony Albanese, Tony Burke, Tanya Plibersek and Penny Wong – only one has run their own business, although all have worked for unions, local government or as staffers to Labor MPs.
Only the shadow finance minister, Tony Burke, has run his own business before becoming an MP, co-founding an advocacy and training organisation after university before taking a job with the Shop Distributive and Allied Employees’ Association (SDA), Australia’s largest union with 23,000 members. For the majority of Labor frontbenchers, their only experiences of private enterprise are short stints in legal firms.
So the problem for Shorten is that the Australia he sees – divided into downtrodden poor workers and supercilious rich manager-owners – doesn’t exist and no amount of hyperbole can create it.
*Sue Boyce is a former Liberal party senator for Queensland.
