David Coleman (Banks, Liberal Party) Share this | Hansard source

It is wonderful to have the opportunity to speak on these very important measures that have been championed so effectively by the Minister for Small Business. The measures, which touch on taxation, also afford the opportunity to talk more generally about the importance of creating a low tax environment in Australia and so provide a contrast to some different approaches.

In this bill there are three important measures, the first of which is a simple tax cut on the income of unincorporated small businesses. Incorporated small businesses were provided with 1½ per cent tax cut in the budget from 30 per cent to 28.5 per cent. But 70 per cent of small businesses are not in fact incorporated and so it would not be fair not to provide a commensurate benefit to those unincorporated businesses, and that is precisely what this provision will do. There are many hundreds of thousands of sole traders and millions of entities that fit under this provision, and they will receive a five per cent deduction in their annual tax bill up to $1000—that is $1000 that can be reinvested into growing their business, and that is absolutely appropriate.

There is another important provision related to the deductibility of professional services fees. One thing that we can all confidently state is that there is no small business out there that enjoys paying professional services fees, that these are minimum cost of entry and something you have to do in small business. That is particularly so in setting up a small business: there are issues about the structure of the company, the board, insurance, setting up the accounts correctly, making sure all the right forms have been filled out with ASIC. Frankly, none of that is fun, but all of it is required. Under the existing scheme you pay those fees now, but you are only able to deduct those expenses over a five-year period. So you might pay $30-40,000 to your local lawyer, accountant, et cetera to set up your business and then you have to wait five long years to get the money back, effectively as a loss through your tax return. The underlying concept of depreciation is that certain assets which sit within a business should be expended over the time that reflects their useful life—machinery, computers and so on. Professional services fees really have similar characteristics to other expenses which are expended on a cash basis in the year they occur. This is a very good initiative and will assist many small businesses around the country to get more cash back from tax deduction they claim on the cost of those professional services.

There is also an existing provision in the fringe benefits tax rules, which is a hangover from an earlier era, and it only allows small businesses to provide one work related device to employees without attracting the fringe benefits tax. We know now that devices which are provided to employees are not some feature of a nice salary package; they are absolutely core to people's activities in business. We are spending three or four hours a day on mobile devices, and much of that time is business related. The notion that it is a salary-packaging benefit is illogical, and I suspect there are many employees who would not see the provision of a work iPad as of great personal benefit, as it requires constant attention to work activities. In future for businesses with a turnover of less than $2 million these devices and other products provided to employees will not attract fringe benefits tax.

I recently visited Studio Shirts in Padstow in my electorate with the Treasurer. It was a tremendous visit, where we were able to touch on the impact of these various initiatives for small business. Roger Touma and his team do a fantastic job in designing and manufacturing shirts, pyjamas and a range of other clothes. They employ quite a few local residents. Roger told the Treasurer and me that since the budget he had seen a substantial increase in orders for his shirts and other garments; he believed it was a consequence of the confidence engendered by these small business measures. Roger's business has a turnover of more than $2 million and so does not qualify for these measures, but nonetheless it is benefiting from these initiatives because many of Roger's clients are businesses with smaller turnovers—small retailers, mail order companies and so on—that are ordering more shirts now than in May. That is really good news.

There are lots of great small businesses in my electorate. Constance and Alexis Barberakis do a fantastic job at the Spot Cafe at Riverwood. These two young entrepreneurs are sisters in their early 20s, and they are building a business that is much loved by the local community. We want to support those kinds of businesses. We want to support Aaron Mi and his business, Taste of Shanghai, at Hurstville, which probably has the most popular dumplings in Banks. That is saying something, because we have many dumpling restaurants, but the Taste of Shanghai is a fantastic example of a great small business. We are proud to support them.

These measures are about tax, and there is nothing more fundamental to the activities of the federal government than getting the tax system right

It is good to have the Parliamentary Secretary to the Treasurer here for these remarks, but it seems to me that it is important in any construction of tax policy that we look very carefully at what impact it will have on business and households. An obvious point is that we must look very carefully at the impact of tax policy on business and households. It is notable that, according to Credit Suisse, which conducts as global survey of household wealth, the median net wealth in Australia is the highest in the world. As of late 2014, the median net wealth in Australia, according to Credit Suisse, the respected investment bank, was the highest in the world. That suggests to me that it is incumbent upon government to not do anything which puts that status at risk, because the fact that we have high median net wealth is a very good thing indeed.

The largest component of household wealth is owner occupied housing, but the second and third are very relevant to this discussion, because they are two areas where the opposition is proposing to introduce taxes that will have substantial negative impact on our community. According to the ABS, most recently, the average household has about $132,000 in superannuation and has about $129,000 in investment properties. So the second and third largest sources of wealth for Australians are superannuation and investment properties.

So, what should a government sensibly to? A government should sensibly minimise tax and not do anything disruptive that is going to make the accumulation of assets in the second and third biggest asset classes more difficult for Australians. But the opposition is proposing to do precisely that. The shadow Treasurer has said very clearly that the opposition proposes to increase taxes on superannuation for hundreds of thousands of Australians—not only Australians who have already retired and are drawing on superannuation, for whom there will be a tax increase if they earn more than $75,000, but also for Australians who are in the phase of accumulating superannuation, if they should earn more than $250,000. Those are the figures that the opposition says today, but clearly there is every chance of those changing to the detriment of Australians in future. So, it is a matter of significant increases in taxes affecting hundreds of thousands of Australians in the second largest category of assets for Australian households. That just does not make sense, and that is something this government strongly opposes.

The other tax area that is very fashionable to debate in certain quarters at the moment is so-called negative gearing. The opposition has demonstrated a very clear willingness to look at increasing taxes on housing, effectively by changing negative gearing. It is important to understand what negative gearing is, because it seems to me that there is sometimes a lack of clarity about what negative gearing actually means. It actually means that if you lose money on something through the fact that you are paying more in interest than you earn from it, then you claim a tax deduction. That is it—that is all it means. To repeat, negative gearing means that if you lose money on something because the cost of the interest exceeds the revenue you get from it, you get to claim it as a tax deduction. That principle is completely enshrined in the way that all Australian businesses operate, because you can always claim interest costs against revenue. It is also important to point out that negative gearing does not simply apply to housing. There seems to be a sense that negative gearing is some special thing that is just created for housing. It is not. It is a broader principle in our taxation system that, if you lose money on a profit and loss basis because the interest costs and other costs exceed the revenue, you obviously claim tax because you effectively lost money on it in that year. That is the principle. This government is very strongly committed to defending negative gearing, but the opposition is plainly not committed to that at all.

But what does it mean? Investment property is the third-largest source of wealth for Australian households. What the opposition is proposing potentially to do is increase taxes on people who seek to build an investment portfolio. That is basically what it comes down to, despite the fact that the principle of negative gearing is very simple: if you lose money on something because the cost of interest and other things exceeds the revenue, then you get a tax deduction. It is a very important debate, and, as in all things, clarity is important.

The other thing the opposition seeks to do is reintroduce a massive carbon tax. It is going to be very bad for Australia—

See this speech in context