One area of the 2010 election campaign that hasn’t been particularly discussed thus far has been election policies specifically addressing small business to be implemented over the next parliament.
This is a brief review.
The ALP
The ALP is generally standing on what it has done for small business in the life of this parliament – things such as a superannuation clearance house within the ATO, the creation of a small business advisory committee and a handbook to assist independent contractors.
Prospectively, the ALP proposes giving small business the ability to instantly write off assets costing up to $5,000 and cut the corporate tax rate from 30 per cent to 29 per cent as from 1 July 2012 - one year earlier than larger companies.
However, this would appear to be subject to the passage of what is now called the Mineral Resource Rent Tax applicable to iron ore and coal projects.
Moreover, another part of the suite of measures to be funded by the MMRT is an increase in the superannuation guarantee from 9% to 12%.
The supporting documentation indicates the increase in superannuation will ‘affect… wage negotiations between employers and employees’, an observation implicitly recognising that employers are ultimately responsible for funding superannuation.
If it comes to pass, it will be interesting to see how much of the reduction in the tax rate will be retained in the business if during these negotiations the reduction is identified as a source supporting an increase in overall employee remuneration (including the rise in superannuation).
However, reductions in company tax rates will be of little interest if a business is caught up by a possible change to personal services income laws.
Personal services income
On 19 December 2009 the Assistant Treasurer (Senator Sherry) received a Board of Taxation review on the area.
Releasing the report, he said the Board had found:
‘a low level of compliance and a degree of uncertainty or ‘greyness’
around the rules, such that it has found the alienation of personal services income rules in their current form do not provide acceptable levels of integrity and equity…. This means that ordinary workers may be missing out on proper pay, proper super entitlements and a range of other employment conditions such as long-service and other leave entitlements.
It concluded:
The use of sham contractors is a threat to the integrity of the taxation system and a threat to working conditions of employees – and the Rudd Government is determined to see an end to its inappropriate use.
The Government decided it would wait for the final report of the Henry Review into taxation before deciding what to do.
Recommendation 10 of the Henry Review was:
Consideration should be given to a revised regime to prevent the alienation of personal services income that would extend to all entities earning a significant proportion of their business income from the personal services of their owner-managers, whether in employee-like or non-employee-like cases. This regime may also apply an arm’s length rule to deductions arising from payments to associates to ensure deductions reflect the value of services provided.
This would appear to require businesses to distinguish between income earned from capital as opposed to labour, adversely affecting all ‘knowledge professionals’ from consultants to barristers, and from accountants to computer consultants.
It would certainly appear capture most home based micro businesses – which many in the bureaucracy have never accepted as ever being ‘real’ businesses.
In our experience its view is if you can’t see stock or staff you are not in business but either (depending on your taste) a ‘true’ employee in an arrangement to rort the tax system or a simpleton ripe for exploitation.
The Coalition has said that it will not change the current personal service income laws as ‘no case has been made or evidence provided to justify changes to force independent contractors and self employed people into more ‘employee-like’ arrangements’.
This appears to be a solid commitment. However they are also considering how they are going to respond to the Henry Review.
It would therefore remove all doubt if the Coalition would expressly confirm that Recommendation 10 will not be considered as part of the response to Henry Review.
Otherwise be interesting to see if it will get new life once the Treasury starts providing them with advice, should they win.
Gotta protect the integrity of the tax base y’know. And so forth.
It will be interesting if the ALP will make any commitments about its treatment of PSI during the election.
The Coalition
The Coalition have countered Labor’s proposed company tax cut with a 1.5 per cent cut in the company tax rate from company tax from 30% to 28.5% on July 1 2013.
It is to be hoped that this commitment can be afforded, and is not a cynical ‘meet and beat’ commitment to retain the mantle of being ‘the party of small business’ during the election campaign, to be discarded in the name of fiscal responsibility once in government.
The Coalition has made a number of other commitments.
Proposed coalition changes to government structure
There will be a cabinet level ‘small business’ minister. This is symbolically important although the more valuable component of this promise is the requirement for cabinet submissions to address how proposals impact small business.
The mere fact of having to write something requires those having to prepare ‘cab subs’ to at least think about the issue.
A proposed ‘small business’ representative on the Taxation Board of Review is also symbolically important, although it will be interesting to see how the impact of having this proxy representation can be measured in practice.
Government agencies will have to use procedures and practices to ‘that do not disadvantage small business participation and instead, actively encourage it.’
Governments of all persuasions promise this.
However, in many circumstances public servants involved in letting tenders have neither the information to make informed decisions in favour of selecting smaller businesses nor the time to gather it. And you can never be blamed for anything if you’ve ‘bought IBM’.
Public sector procurement and prudential rules, which are costly to comply with in their own way for both contract manager and service provider are also unlikely to be loosened.
So it will be interesting to see what will be different this time.
Businesses will also be able to charge interest if payments for any service provided are late - although whether the costs involved (particularly in time) in chasing up the interest amounts that can be charged may make this right somewhat problematic.
A Small Business and Family Enterprise Ombudsman is to be created to ‘provide an advocacy, dispute resolution and support role for the sector’ across the government.
Given that every small business in Australia could contingently be a ‘client’ of this proposed agency, the indicator of how committed the Opposition is to this initiative will be how well the Office will be funded.
It is noted that whilst the Victorian Small Business Commissioner is reasonably well funded, equivalent offices in the ACT and SA were early sacrifices to budget savings.
It will also publish with a series of ‘better practice guidelines’ to explain and encourage’ fair commercial conduct’.
‘Guidelines’ to become a ‘better corporate citizen’ are all well and good, but mere publication aren’t much practical help to a shopkeeper having a dispute with a supplier or landlord if they have little actual effect, particularly if the proposed Ombudsman is ill-equipped to provide much more than moral support.
It may be better if these proposed guidelines had some legal effect.
The proposed Australian Consumer Law to commence operation on 1 January 2011 will permit small businesses can take action where there has been ‘unconscionable conduct’ in trade or commerce.
The relevant provision sets out things to take into account when considering whether unconscionable conduct has taken place.
It would be better if any proposed guidelines must be taken into account when considering whether unconscionable conduct has been displayed.
This would increase the impact of any guidelines that might be issued.
Changes to trade practices law
The Coalition has promised it will to extend the unfair contracts protections available to consumers to small business.
This will mean that small business will be able to avoid ‘unfair’ standard form contracts in the same way ordinary consumers can under the proposed Australian Consumer Law to commence operation on 1 January 2011 – something the current government removed from legislation immediately prior to its introduction into Parliament.
Finally, the Coalition promises another review of the Trade Practices Act – soon to be called the Competition and Consumer Act - which is to be focussed on ‘giving small business a fair go’.
As The Australian noted on 21 July 2010 there have been 59 different reviews of the old Trade Practices Act in the past decade.
It is difficult to see what will be achieved here that wasn’t achieved by the Trade Practices Act review that gave rise to what was known as the Dawson Report which had terms of reference that included examining whether there was ‘an appropriate balance of power between competing businesses, and in particular businesses competing with or dealing with businesses that have larger market concentration or power’.
This is particularly the case, given that shadow Treasurer said of the review in his budget reply to the National Press Club:
There may not be a need to dramatically change our competition policy and regulatory frameworks, but there is a need to consider what changes could be made so that market efficiencies and productivity enhancements are maximised.
The Australian reports that Bruce Bilson, the relevant Shadow Minister, is ‘keen for it to go along the lines of a Productivity Commission review’.
If the matter goes to the Productivity Commission, there is unlikely to be any real change to the current legislation.
This is because it has consistently confirmed the importance of ensuring that allocative efficiency is maintained – any changes that it considers may affect innovation or market dynamism such as for instance, changing the test that allows a harsh contract to be reviewed from ‘unconscionable conduct’ to ‘unfair conduct’ (as is the test in the Independent Contractors Act) may not win favour.
The Coalition has always had to square the competing interests within its electoral coalition of the Big End of Town, with its eyes on ensuring they maintain the scale to compete internationally with the Small End of Town, which perceives the need for some protection against larger corporations because of inequality of bargaining power – hence the somewhat tortuous drafting of current trade practices law.
The Coalition therefore really needs to indicate whether they are being ‘fair dinkum’ in giving small business a ‘fair go’ in this context.
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