Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I move:

  That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

TAX LAWS AMENDMENT (SMALL BUSINESS MEASURES NO.1) BILL 2015

This Bill amends the tax law to lower the company tax rate by 1.5 percentage points to 28.5 per cent for incorporated small business.

Many would agree that small businesses make an important contribution to the Australian economy.

Around 96 per cent of all Australia's businesses are small businesses. Small businesses produce over $330 billion of Australia's economic output and there is no doubt small business is at the forefront of Australia's jobs and growth. They employ over 4.5 million people, which accounts to around 43 per cent of non-financial private sector jobs in Australia. But this would have been more, if it were not for 6 years of Labor where 519,000 jobs were lost in small business.

While small businesses have a significant role in the Australian economy, they face a unique set of operational challenges, and as a consequence typically have higher failure rates than larger companies. These unique characteristics make small businesses more vulnerable to shocks and changes in economic conditions than larger businesses.

We know from the Intergenerational Report that there will be a significant challenge to maintain Australia's current rate of income growth. Future growth in living standards must be driven by higher levels of Australian productivity.

It will require productivity growth to increase to around 3 per cent a year. This is well in excess of what Australia achieved in the past 50 years, and more than doubles that of the past decade. Put simply, growth in productivity will require more or better quality goods and services to be generated from the resources available.

Australians are well known for their enterprising spirit and their willingness to have a go. The hard working women and men of Australian small businesses are the engine room of our economy. In 2013-14 Australians started over 280,000 small businesses.

Small businesses are often the entities that test and pioneer innovative ideas and business practices, which are critical to future economic growth, job prospects and improved living standards.

This makes it particularly important that the policy settings support small business growth and innovation.

As elected members of this Parliament, we need to understand and recognise where the impediments and headwinds are in every square of the economy and do our best to address them, so that those enterprising people with an idea, an aspiration, a sparkle in their eye and a fire in their belly can turn their ambition into economic activity to benefit themselves and the nation.

For a long period, we have been blessed by nature with resources that give us a competitive advantage and we see that we have benefited from that. However, as we look at the over the economic horizon we cannot bank on that to sustain our living standards and our quality of life.

The Australian economy is in the midst of a major economic transformation, moving from growth led by investment in resources projects to broader-based drivers of activity in non-resources sectors.

We need entrepreneurial spirit, innovation, drive and risk taking to find new markets, develop new products, and establish new businesses. To achieve that, we need the ambition of enterprising women and men.

This Government sees energising Australian enterprises as its priority. The Government's $5.5 billion Jobs and Small Business package in the 2015-16 Budget will create the right conditions for Australian small businesses to thrive and grow. It will help employers create new jobs and assist Australia's unemployed to access these jobs.

The Budget delivers the biggest small business package in Australia's history. It is about putting in place improved incentives for entrepreneurial behaviour.

Since the 2015-16 Budget announcement, I have had much positive feedback on the Jobs and Small Business package.

Comsec has said "The measures in the federal Budget to support small business would have been a key driver of the lift in confidence."

COSBOA Chief Executive Peter Strong has said "This is a fundamental and positive change that sends the right message to people looking to start a business."

Australian Newsagents Federation has said "This will definitely create further impetus and incentive for our members to invest in their businesses."

This Bill reduces the corporate tax rate from 30 per cent to 28.5 per cent for small businesses with annual turnover under $2 million. This change is the centrepiece of the small business package. Because on this side of the House we are the best friends of small business.

Small business companies will pay less tax for income years that commence on or after 1 July 2015. This change delivers on our election commitment to small business.

Providing incorporated small businesses with a reduced rate of company tax will enable them to retain more earnings and improve their cash flow; a critical issue for small businesses. It is estimated that up to 780,000 companies could potentially benefit from this measure.

New company registrations in the last financial year were the highest on record. This measure will help all new and existing small companies grow, thrive and compete.

Helping more small businesses become more profitable will give them greater capacity to invest and innovate by adopting new and improved ways of doing business, improving our nation's productivity and resulting in more jobs and higher wages for Australian workers. That means better living standards for all.

We understand that not all small businesses are incorporated so we will bring forward legislation to provide tax relief for unincorporated small businesses. In addition, later today I will introduce legislation to deliver assistance for all small businesses, including accelerated depreciation arrangements.

This Bill will also ensure that the maximum amount of franking credits a small incorporated business can attach to its dividends in a year will not be reduced along with the tax rate. This additional benefit will allow small companies to distribute surplus franking credits accumulated in previous years; reducing the tax their owners pay when they receive dividends.

This will benefit owners of small business and effectively reduce the shareholders' overall tax paid regardless of their marginal tax rate.

Full details of the measure are contained in the explanatory memorandum.

This Government is the friend of small business, and the 2015-16 Budget is where we demonstrate our bona fides for that claim. This Bill is the first of several that will implement the small business measures announced in the Budget. This measure is appropriate and it is affordable, and I call on all to give it their full support.

TAX LAWS AMENDMENT (SMALL BUSINESS MEASURE NO. 2) BILL 2015

This Bill amends the tax law to help small businesses and primary producers to invest, grow and innovate.

It provides accelerated depreciation arrangements as outlined in the Growing Jobs and Small Business package and the New Framework for Drought Preparedness, both of which were announced in the 2015-16 Budget.

A budget which has been widely welcomed. ACCI CEO Kate Carnell said "Small business is the engine room of the Australian economy, so support for these businesses will boost overall jobs and investment. The government's measures will help to restore confidence among small businesses." NSW Business Chamber CEO Stephen Cartwright said "These measures will be particularly well received in regional Australia where unemployment is at its highest and job opportunities are limited."

Small businesses play a significant role in the Australian economy, particularly as a major employer and contributor to the economy.

Small businesses make an important contribution to the Australian economy. 96 per cent of all Australia's businesses are small businesses. They employ over 4.5 million people. They are adaptable and able to respond profitably to changing circumstances.

Small businesses are often the entities that test and pioneer innovative ideas and business practices which are critical to future economic growth, job prospects and improved living standards.

Small businesses produce over $330 billion of Australia's economic output. While this is a significant role in the Australian economy, small businesses face a unique set of operational challenges, and as a consequence typically have higher failure rates than larger companies. This makes it particularly important that the policy settings support small business growth and innovation.

This is why the Government announced the biggest jobs and small business package in the nation's history as a centrepiece of the 2015-16 Budget. The package included a tax cut for incorporated small businesses, tax relief for unincorporated small businesses and accelerated depreciation arrangements. These measures were designed to help small businesses grow, compete and employ more Australians.

Farmers too play a pivotal role in the Australian economy, and are at the heart of the Australian identity. 115,000 businesses report -agriculture as their main business activity. A further 13,900 report it as a secondary activity.

Farmers are a significant employer, particularly in regional areas. These businesses make up 52 per cent of Australia's land mass. 99 per cent of agriculture businesses are Australian owned.

The value of agriculture production was worth over $50 billion in 2013-14, contributing to around two per cent of Australia's gross domestic product and 15 per cent of total Australian merchandise exports.

In 2013-14, agriculture exports were worth around $40 billion, with over 60 per cent of production exported to more than 100 countries.

The agriculture industry plays an important role in the social fabric of Australia, being recognised by the Government as one of the five pillars of the Australian economy; the industry has prime place in our nation's future.

Agriculture is one of the sectors on which the prosperity of our nation is increasingly reliant. The Government has laid the foundations for a stronger agricultural sector. We have reduced regulation, removed the carbon tax, increased export market access, invested in infrastructure, refined the settings for foreign investment and secured FTAs with China, Korea and Japan.

Stronger farmers mean a stronger economy and we are focused on strengthening the competitiveness of the sector.

Boosting the competitiveness of the agriculture sector will contribute to Australia's broader economic growth, jobs, trade, innovation and productivity.

However, farmers have to cope with significant challenges, including severe weather events. Currently, some parts of the country are subject to unprecedented drought and large parts of the north have experienced a third failed wet season. This affects the financial position and wellbeing of farmers, their families and the surrounding rural communities. Helping farmers through times of drought is in our national interest.

Considering the significant role farmers play in our economy, it is important they are provided with support and encouragement to better manage their risks and prepare for extreme weather events.

The Government is committed to providing the necessary support to Australia's farmers to help them prepare for drought, and to provide them with a better tax system.

In addition to providing farmers with a simplified accelerated depreciation regime, the Government is providing more money to:

Schedule 1 to this Bill amends the small business simplified depreciation rules in the tax law, to increase the threshold for immediately deductibility for capital assets.

The schedule will significantly increase this threshold from the current level of $1,000 to $20,000. This will mean that any small business buying an asset costing less than $20,000 will be able to immediately deduct the full cost of the asset. This measure is available for any business asset purchased and installed, ready for use, between 7:30pm (Australian Eastern Standard Time) on 12 May 2015 and 30 June 2017.

This is a massive increase in the threshold and a massive gain to cash flow for small businesses. CPA Australia CEO Alex Malley said "By allowing small businesses to immediately deduct assets costing less than $20,000 is a positive move which will support vital and much needed business investment."

Currently, small businesses purchasing assets above $1,000 have to depreciate these assets over multiple income years. –In some cases this imposes complex record keeping requirements on small business, but it reduces their cash flow.

This Government is returning small business's profits to its owners and allowing them to make the decisions which best suit them; the decisions that allow them to grow their business and employ more Australians.

As part of the threshold increase, any assets that individually cost $20,000 or more can be pooled together in the general small business pool and depreciated at 15 per cent in the first year, and 30 per cent each year thereafter. Once an asset is placed in the pool, there is no requirement to track the item. This reduces paperwork and frees small business to get on with doing what they do best.

The pool itself may also be deducted entirely if its value is below the $20,000 threshold at the end of any financial year between 7:30 pm 12 May 2015 and 30 June 2017.

The law currently includes 'lock-out rules' that stop businesses that elect out of the simplified depreciation scheme from re entering for five years. To ensure fairness and the broadest availability of this measure, this schedule relaxes those rules so that the higher threshold is available. This will allow all small business entities to access this measure.

Consider an electrical business that purchases tools and other equipment for their small business. These tools can be expensive and the rules around depreciating them can be time consuming to understand. Under the expanded accelerated depreciation measure, this business can write-off each and every item under $20,000 that is purchased before 30 June 2017.

Schedule 2 to this Bill amends the tax law to provide a more simplified accelerated depreciation regime for all farmers, in three ways.

Firstly, the schedule will allow all primary producers to immediately deduct capital expenditure on fencing.

The current depreciation treatment for fencing is complex, and can vary depending upon the type of fencing asset. For example, currently, a general farm fence may be depreciated over 30 years. An electric fence, on the other hand, may be depreciated over 20 years. An energiser for this electric fence is depreciated over a different period again.

If the fence is used in landcare operations, for example, to segregate a section of land which may be affected by land degradation, its cost is immediately deductible.

If a farmer makes a repair to an existing fence, the repair costs are immediately deductible.

From 7:30 pm (Australian Eastern Standard Time) 12 May 2015, rather than repairing an existing fence which can be costly and time consuming, farmers can instead immediately deduct the cost of installing a new fence. This will reduce red tape and complexity.

Farmers will no longer need to keep track of expenditure over extended periods of time. Farmers will have more cash in their pockets to spend, invest or pay off debt. New investment may also boost farm productivity.

Consider Jake who installs 25 kilometres of new fencing, at a cost of $25,000 on his cattle farm. Under the current system, Jake is able to depreciate his fencing costs over a period of 30 years. Jake claims a depreciation deduction of $833 each year.

Now, Jake will be able to deduct the full cost of $25,000 immediately.

These additional deductions mean that Jake will pay less tax if he makes a profit. Assuming Jake's marginal tax rate is 39 per cent, including the Medicare Levy, his tax liability would be reduced by $14,742. This means Jake will have more to spend, invest or pay off debt.

The second and third amendments under this schedule will encourage primary producers to better prepare for and manage drought risks.

Extreme weather events, such as drought, are an unavoidable reality for many farmers. Farm preparedness, such as having available sufficient feed and water, is vital to surviving extended periods of drought.

Under this schedule, capital expenditure on water facilities, such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills will now be immediately deductible.

Currently, water facilities are depreciated in three equal amounts, over three years.

Farmers will now be able to invest in a new irrigation system, build a new dam or install a new pump and be able to immediately deduct for tax purposes the cost.

The schedule will also allow for capital expenditure on fodder storage assets, such as silos to store animal feed, tanks to store liquid feed supplements and hay and grain storage sheds, to be depreciated over three years.

Having fodder on hand is important for farmers during drought periods. Currently, a farmer wishing to prepare for drought who invests in a steel silo would need to depreciate and track the expenditure of the asset over a period of up to 30 years. Under the amendments, this is reduced to three years.

Consider Rob, a farmer who purchases a steel silo, at a cost of $21,000, for storing animal feed on his farm. Currently, Rob is able to depreciate the steel silo over 30 years and claims a depreciation deduction of $700 each year.

Now, Rob will be able to depreciate the silo cost of $21,000 over three years giving him $6,300 more in deductions in each of the first three years.

These additional deductions mean that Rob will pay less tax if he makes a profit.

Assuming Rob marginal tax rate is 34.5 per cent, including the Medicare Levy, his tax liability would be reduced by $4,127 in each of the first three years, meaning that he will have additional funds to invest, pay off debt or spend.

Accelerating the depreciation on water facilities and fodder storage assets will mean more money in farmers' pockets for investment in drought preparedness; a simplified depreciation system and an increase in farm productivity.

Full details of the measures are contained in the explanatory memoranda.

This Government is the best friend of small businesses and farmers, and the 2015-16 Budget is where we demonstrate our bona fides for that claim. This bill is one of several that will implement the small business and primary producers measures announced in the Budget, thereby putting in place further significant acknowledgment and recognition in the tax law of the importance of small business, and of farmers, to our economy.

The measures are appropriate and they are affordable, and I call on all members to give it their full support.

Jacinta Collins (Victoria, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

Labor supports these bills. We have been saying this since budget night when our Shadow Treasurer said it, but let me say it again: we are supporting these bills. The Tax Laws Amendment (Small Business Measures No.1) Bill 2015 amends the Income Tax Rates Act 1986 to reduce the company tax rate from 30 per cent to 28.5 per cent for companies that are small business entities with an aggregated turnover of less than $2 million. It retains the company tax rate at 30 per cent for all other companies over the threshold.

There are two parts to the Tax Laws Amendment (Small Business Measure No. 2) Bill 2015. Schedule 1 deals with the $20,000 accelerated depreciation for small businesses and schedule 2 allows for accelerated depreciation for primary producers. In the No. 2 bill, schedule 1 amends the accelerated depreciation rules for small businesses—businesses with an aggregate annual turnover of less than $2 million—by temporarily increasing the threshold under which certain depreciating assets, costs incurred in relation to depreciating assets and general small business pools can be written off.

An increased threshold of $20,000 applies from 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2015 until 30 June 2017. From 1 July 2017 the threshold reverts to $1,000. The increased threshold is available to all small businesses, including those who previously opted out of the simplified depreciation rules. Schedule 2 to this bill amends the Income Tax Assessment Act 1997 to allow primary producers to claim an immediate deduction for capital expenditure on water facilities and fencing assets and to deduct capital expenditure on fodder storage assets over three years. This will assist primary producers with drought preparedness and cash flow and encourage investment in productivity enhancing assets.

We saw in the other place the embarrassing situation of the government, after saying time and time again that Labor must get out of the road and support the budget's tax measures and small business package, voting against a motion from the Leader of the Opposition to bring the bills to a speedy vote. Repeatedly we hear the government espousing its credentials in this area, saying that it wants to support small business. On our side, we say, 'Let us get on with it.' Instead, in the other place, there was the spectacle of hours and hours of speakers from the government lining up at the same time as the government was criticising Labor and claiming we were creating uncertainty. Our position remains clear. We will support this legislation, because we do support small business. And let us hope that in this place we do not see, as in the House, speaker after speaker from the government delaying progress here.

On the Tax Laws Amendment (Small Business Measures No. 1) Bill 2015, Labor will support the company tax cut of 1.5 per cent for small businesses with an annual turnover of less than $2 million given the serious economic impacts of the government's significant cuts to the sector since the last election. So, what we are doing here is remedial. The impact of this government's overall budgetary position and the loss of confidence for small business is what needs to be repaired.

Let us put on the record that the Prime Minister and the Treasurer cut more than $5 billion of tax assistance for micro and small businesses in last year's budget. They also slashed the instant asset write-off for small businesses—the very measure the government is now bringing back. These cuts have hurt small business's cash flow, and consumer sentiment and small business confidence has crashed because of this government's first budget. When we look at the other dire effects of this government's first budget, people often forget the impact on business confidence, and this has hit small business significantly. Now, in an effort to save their jobs, though, the Prime Minister and the Treasurer are proposing assistance measures for small business. The Australian community rightly marked the government down following last year's disastrous budget, yet the Prime Minister and the Treasurer continue to talk down the economy and blame everyone else for their problems. As a result, there was a direct hit to consumer and business confidence. In addition, this budget has doubled the deficit from $17 billion to just over $35 billion. And, according to the government's own budget papers—budget paper No. 1—under the leadership of the Prime Minister and the Treasurer general government sector net debt has gone from 12.8 per cent of GDP in the 2013-14 year to 17.3 per cent of GDP in 2015-16, and it is climbing, and it is unprecedented.

The Leader of the Opposition, Mr Shorten, and the shadow Treasurer, Mr Bowen, and others made clear from budget night onwards that Labor will support the small business measures in the budget given the urgent need for assistance to this significant sector of the Australian economy. Small business contributes annually in excess of $330 billion to our GDP and it is responsible for around 47 per cent of private sector employment. However, Labor notes the recent comments from respected chief economist for Bank of America Merrill Lynch, Saul Eslake, who points out that almost 63 per cent of small business companies will derive no benefit from a 1.5 per cent company tax rate because they are neither profitable nor taxable. Labor also notes stakeholder concerns such as those of the Australian Chamber of Commerce and Industry regarding the introduction of a two-tier tax system for small business and will monitor the change going forward to see if there are additional complexities and compliance issues arising from these new tax arrangements. I highlight the compliance issue. I have observed significant commentary on this issue since the announcement. It does not appear that the government has seriously thought through these measures, and we will wait, as we monitor those issues, as the arrangements go forward.

Regarding the Tax Laws Amendment (Small Business Measures No. 2) Bill 2015, Labor will support the No. 2 bill to introduce accelerated depreciation for small business entities and primary producers. The $1,000 threshold for the cost of depreciating assets, costs incurred in relation to depreciating assets, and the low pool value deduction under the small business entity capital allowance provisions is temporarily increased to $20,000. As I identified at the outset of my speech on the second reading, the increased threshold applies only to assets that were first acquired at or after 7.30 pm, legal time in the Australian Capital Territory, on 12 May 2015, and first used or installed ready for use on or before 30 June 2017. Assets that do not satisfy these timing requirements will be subject to the $1,000 threshold.

Labor increased the instant asset write-off threshold for small business from $1,000 to $6,500 via the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011. The number of assets this applied to was unlimited. Labor's bill also introduced accelerated deductions for motor vehicles. This measure allowed small businesses to instantly write-off $5,000 plus 15 per cent of additional costs for new or used vehicles costing more than $6,500 in the income year that it is first used or installed ready for use. This increase in the instant asset write-off represented a boost to small business of $3.55 billion over the forward estimates and a boost from the accelerated depreciation for motor vehicles of $550 million over the same period. In addition, with the introduction of loss carry-back for companies, these three tax assistance measures for small business provided a boost of more than $5 billion to the small business sector.

Labor's record on small business is a good record and one of which we can be proud. This contrasts with the Prime Minister and the Treasurer's appalling record on small business. On coming to government, their first actions were to cut the instant asset write-off, tax loss carry-back for companies and the accelerated depreciation for motor vehicles—measures which were vitally important to the sustainability and success of small business. Further, they made the cuts retrospective. The instant asset write-off threshold reduction was backdated to 1 January 2014, creating a red-tape nightmare for small businesses, many of whom may have already filed their annual tax return. For some, they would have had to file an amended return to the ATO and may even have incurred a tax liability.

Now, less than 12 months later and in a desperate attempt to save his own political skin, Tony Abbott has brought back Labor's instant asset write-off and increased it to $20,000—remedial and, indeed, responding to damage that should never have occurred. Again, Labor made our support for the measures contained in this bill, particularly given the urgent need for assistance to this significant sector of the Australian economy. However, Labor is concerned that the tax assistance measure is for only two years. These concerns have been also noted by stakeholders, who have raised the issue of the impact on the small business sector and broader economy when the threshold reverts back to $1, 000 from 1 July 2017. Labor will monitor the actions of the small business community, including any negative consequences resulting from a sudden drop in the threshold—$20,000 down to $1,000—following 1 July 2017.

In conclusion, Labor believes in small business and has a great record in government on delivering significant tax assistance measures and reducing regulatory burdens for small business. We support small business because they support private sector jobs and because of their overall contribution to the Australian way of life and economy. For these reasons, we support these bills.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

The Greens, also, will be supporting this package for small business, and this is a very good opportunity to remind the Senate and the Australian people that the Greens went to the last federal election with a very clear policy for a two per cent tax cut for small businesses with a turnover of under $2 million. This was debated amongst the Greens' membership and was supported across the board as an initiative that our party should be leading on—and I do believe that we have led on this tax cut for small business. Along with Labor, we are very involved in negotiations around the mining tax measures which support small business not just in terms of the instant asset write-off but also loss carry-back provisions and other measures.

We have always supported stimulating small business. We recognise the importance of small business not just to the economy—the two million small businesses and the contribution they make to employment—but also for there contribution to communities, to states such as Tasmania, where I am very proudly from. Dynamic small business is absolutely critical to our communities as well as to our economy. It gives people the flexibility to control their own destiny. It is hard work and often leads to higher risks. You are risking your capital and your time, without any guarantee of success, often in a very competitive industry. It is a segment of industry in this country that we should be supporting. Small businesses in my state of Tasmania—and I know the statistics are quite alarming right across Australia—have very high failure rates in the first three or four years of establishment. It is tough. It is hard. To give them a bit of a leg-up—whether it is through a tax cut or through other concessions such as the instant asset write-off—is the right thing to do. But we need to be very careful about how we do that.

We took our guidance on the instant asset write-off from the Henry review, which recommended a $10,000 cap on asset depreciation in perpetuity. We support that; that was our policy. But we do have very real concerns, which we have expressed in the media and to our members, about what is essentially a two-year stimulus package for small business. I have asked Senator Cormann these questions in detail at Senate estimates. We have concerns that capping the time frame on this to two years will lead to unintended consequences—and, standing here now, I would even say they are entirely predictable consequences. We will see a surge, a rush, to get access to these deductions in the next two years, especially for this tax year. That might bring expenditure forward, which is going to have budgetary implications. More importantly, it takes away certainty for small business in how they plan for the future. As I said, they have very high failure rates when they initially set up in business, so perhaps encouraging them to overspend in a two-year period could be counterproductive. We feel that, rather than having a lumpy item in their cash flow and in how they manage their cash flow, it would be better to give them an ongoing instant asset write-off so they can better plan for the capital that is required for their business.

I also want to make it very clear here today that if we do care about the sustainability of small business and want them to employ more Australians and grow our economy then they should be expecting a return from every single dollar they put into capital in their business. We do not want to see them going out and buying equipment that they do not necessarily need. For example, if you are a sole trader or in a partnership, it might be something that you want for your utility at home, it might be something that you want that you can write off against your income. It is absolutely critical that every dollar directed towards the instant asset write-off, towards capital in their business, needs to have a productive purpose. Otherwise, we are not going to achieve what this package should be setting out to do, and that is to put small business in this country on a long-term sustainable footing.

From the moment this measure was announced on budget night, it looked to me like a stimulus package. Forgive me for being cynical but, the week before this package, we had also had data suggesting that investment spending in this country was falling off a cliff. Investment spending is of course a critical component of gross domestic product; economic growth comes out in the national accounts. Investment spending was falling off a cliff for a number of reasons that are well understood, including the wind-back in the mining boom. This cannot be a short-term package simply to stimulate investment in this country to make the accounts look good. It has to be to put long-term businesses on a sustainable footing. It must address the issue of helping businesses survive those critical periods when they are at high risk of closing down and allow them to invest in their business not for one or two years but for five or 10 years.

We also believe this package should have included the loss carry-back provision. Senator Collins has made it clear this morning that the Greens and Labor, as the previous government, did have a package in place for small business. We had a $6½ thousand instant asset write-off threshold per item and a loss carry-back provision. A loss carry-back provision also helps small businesses manage their cash flows, and it is something that is missing from this package. It is actually very important. If you are going to be encouraging up-front spending in capital via a much larger instant asset write-off threshold of $20,000 it is especially important that you include loss carry-back provisions so if businesses do not get it right, if they do overspend, they have the potential to go back to previous years where they made profits and paid tax and get compensated for that. That is a really important part of this package that is missing from this.

The Greens would like to have seen the $20,000 limit for capital expenditure as a cumulative measure; we would like to have seen that as a cap across all asset classes, not $20,000 per item. I can speak from personal experience. My wife has a medical practice in Launceston, where we live. She employs 15 people. We have been looking at buying a laser for her business—the Clerk is looking at me, so I have to declare a conflict of interest. We will, no doubt, use this $20,000 provision for my wife's business. We have been looking at buying a laser for scar surgery, especially for breast cancer patients that we deal with. My wife's business turns over slightly less than a seven-figure sum; it is not a high-margin business. For my wife's business, $20,000 is a lot of money. We have been looking at this for seven months. We have not committed to it yet, but we will do so under this package. For a business our size—we are not quite a medium sized enterprise; we are a larger small business—$20,000 is a lot of money, even for one item. But to have no cap in place—so that business can go out and spend $200,000 or $300,000 on different items—is a real concern. We would like to have seen a cap but, to compensate small businesses, we would like to have seen it in perpetuity, we would like to have seen the figure extended into the future.

Senator Cormann, in estimates, did give the impression that the government might review this measure after two years. That would be a sensible thing to do given the concerns we have about small businesses overspending in the short term. But it would also be worth reviewing because it might be something that needs to be extended into the future beyond those two years. So, apart from the budgetary implications, the clear message today is that this package has to encourage productive spending. We do not want it to be just a stimulus to help Harvey Norman and the other retailers—and, incidentally, most of that money will probably go directly overseas to the exporters of goods and services to this country. We actually want the money to stay in this economy and we want businesses to be very careful about how they plan for their capital.

It is widely acknowledged that proprietary limited companies are not the largest component of small business in this country. Therefore, when sole traders and partnerships can write off these kinds of deductions against their other income it presents the potential for rorts of the system. I have gone through in a lot of detail the measures in place to prevent that, and I am still concerned. I can still see some very valid scenarios where someone who is a sole trader—it is very easy to set it up: you go and get yourself a tax file number or an ABN and set up a partnership—could set up a business, buy $100,000 worth of capital over one or two years and then, after three or four years, say, 'I didn't do my business plan well enough. Sorry, I'm going to have to close my business down.' They are then left with items that they can sell or that they can use for themselves. There are a lots of situations I can see where that would be very realistic within the guidelines and within the rules. So we have to be very careful that the system is not rorted and ensure that this money is used for productive purposes.

In terms of the tax cut, we would like to have seen a bigger tax cut for small business. We did get the Parliamentary Budget Office to cost a tax cut of five per cent across the board, as the Leader of the Opposition, Bill Shorten, outlined in his budget in reply speech. But that would cost $6 billion in the forward estimates. In the end, we felt that the other provisions that were in place—the instant asset write-off and the loss carry-back provisions—were more important for businesses across the board so they should come as a package. A tax cut to small business is something that the Greens Party have led on. We have been very engaged with Labor to support small business in the last five years.

I must point out how cynical it is that this government took away the package to small business last year and then, 12 months later, gave it back, albeit with a few small changes. There are some other good things I would like to acknowledge in this small business package such as the laws around franchising, and I commend Minister Billson for his work on this. But how cynical it is that the government took away packages for small business. When they brought down the axe on the mining tax, they brought down the axe on small business. That led to considerable uncertainty for small businesses in terms of how they go about planning their future. And now the government are trying to claim credit via a $25 million advertising campaign on national TV for a small business package that in dollar terms is exactly the same as the package put in place by the Greens and Labor. The government took away $5.4 billion from the budget last year and they have brought back $5.4 billion in a package this year.

Small businesses should be aware that they have been supported previously by the Labor-Greens government just as they are being supported by this government. Let's make that very clear. Politics is very cynical and it is very ruthless, but this package we are seeing here today, in dollar terms, is almost identical to what was taken off you last year by the very same government. It is good that we have tripartisan support—or wider than that if we include the crossbench—for stimulus for small business for productive investment and giving small businesses a leg-up with a two per cent tax cut to proprietary limited companies and a five per cent deduction for other entities. It is good that this country has come together to help support the small business sector, but we have to be very clear here today that all of us have contracted to helping small business in this country. If you want to be entirely correct about this, then you would say that small businesses are just as well off today as they were 12 months ago when this government axed the benefits that were provided under the mining tax legislation. Senator Cormann, would no doubt say that that was not properly funded and that that was a reason to take them away. But we argued at the time that they could have been well funded if we had just actually fixed the mining tax.

I learnt at university—and I used to teach my students this—that a good tax system taxes bad things such as pollution and health risks. A good tax levies taxes fairly across common pool resources that are owned by all of us such as superprofits on minerals. If necessary, and if it can, a good tax reduces tax on the good things such as work and effort. And that is what this is; this reduces a tax on the work of small business. What the Greens have always stood for is a very simple and basic philosophy that is well understood and well accepted by most economists: tax the bad things, the common pool resources, and reduce taxes on work and effort were possible. Of course, we also have the issue of bracket creep, which no doubt will need to be addressed by Senator Cormann in future.

This is the kind of thing we should be doing for small business. I would like to make it really clear here today that while we do have concerns—concerns that I would like to get on the record—around the $20,000 per item for only two years, we will be supporting the package. If we had had our way, we would have seen this capped at $20,000 per business, not per asset, and we would have liked to have seen it in perpetuity. We would also like to have seen a package in place—which I hope Senator Cormann will consider after two years—which helps small businesses have certainty, which helps them plan and which helps them get a productive return on their capital so that they can employ more Australians and create more wealth and prosperity, especially for our small communities, such as the one where I live in Tasmania. The Greens will be supporting this package.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Thank you to those senators who have contributed to the debate on these two important bills. The Australian economy is facing significant structural adjustments, and small businesses will play a very important role in that structural adjustment. Small businesses are adaptable, flexible and able to respond quickly and profitably to changing circumstances. Small businesses are often the entities that test and pioneer innovative ideas and business practices which are critical to future economic growth, job prospects and improved living standards. As such, the government's small business and jobs package that we are asked to vote on today is a central part of the government's long-term economic plan for stronger growth and more jobs and is designed to ensure that every Australian has the best possible opportunity to get ahead.

All of this makes it particularly important that the policy settings that we have put in place support small business growth and innovation. The Tax Laws Amendment (Small Business Measures No. 1) Bill 2015 amends the tax law to lower the company tax rate by 1.5 percentage points to 28.5 per cent, potentially helping up to 780,000 incorporated small businesses to retain more earnings and improve their cash flow. The lower tax rate will apply from 1 July 2015 for incorporated small businesses. These amendments will also enable small companies to distribute surplus franking credits accumulated in previous years, reducing the tax their owners pay when they receive dividends.

The Tax Laws Amendment (Small Business Measures No. 2) Bill 2015 amends the tax law to raise the immediate deductibility threshold under the small business simplified depreciation rules from $1,000 to $20,000 from 7.30 pm on 12 May 2015 budget night until 30 June 2017. This will allow small businesses to immediately deduct assets costing less than $20,000. Small businesses that purchase assets of $20,000 or more can use the simplified pooling arrangements and depreciate these assets at 15 per cent in the first year and 30 per cent per year thereafter. The usual lock-out rules will also be suspended for the same period so that businesses that may have opted out of those simplified depreciation rules in recent years can choose to use them now that the threshold will be significantly higher.

These amendments will also provide a significant benefit to many primary producers with 97 per cent of primary producers being small businesses. To provide further assistance, the bill will also amend the tax law to allow all primary producers to access accelerated depreciation rates on fencing, water facilities and fodder storage assets from 7.30 pm on 12 May 2015. Primary producers can immediately deduct expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills, as well as fodder storage and assets such as silos and tanks used to store grain and other animal feed. These expenditures can be depreciated over three years. The amendments will improve farmers' cash flow, resilience and the need to track expenditure over time. Supporting small businesses and farmers in the hard times is essential to the success of the nation's economy at large. I commend these bills to the Senate.

Question agreed to.

Bills read a second time.