The majority of small business owners face a vicious “double whammy” revenue hit if Tony Abbott proceeds with a mooted debt levy on income tax to repair the budget.
Prime Minister Tony Abbott has failed to rule out tax increases in next month’s budget after speculation his budget razor gang was considering a temporary income tax hike modeled on Julia Gillard’s contentious $1.8bn “flood levy”.
The temporary tax would be targeted to hit higher income earners, but business groups and tax specialists have warned the move would have an unfair impact on small business owners.
Chief operating officer at the Australian Chamber of Commerce and Industry, John Osborn, told Dynamic Business such a move by the government would be an unwelcome surprise.
“The levy or tax would be particularly hard on small business owners who pay income tax and not company tax,” he said. “This move, if the government decides to proceed, is inconsistent with their other laudable moves to abolish the carbon tax and abolish the mining tax and eventually reduce the company tax rate.”
The majority of Australian small businesses are not incorporated, meaning they do not pay a reduced rate of taxation and will miss out the eventual 1.5 per cent cut in the company tax rate pledged by Mr Abbott.
Senior tax counsel at the Tax Institute, Robert Jeremenko, told Dynamic Business that any increase to income tax went against the spirit of the Henry Tax Review which urged government to gear more of its revenue collection towards consumption taxes.
“It’s a double whammy for them. They miss out on an company tax cut and their income tax rate would go up,” he said.
“It’s only something like 30 per cent of businesses that are incorporated. So 70 per cent of small business would feel the impact of an income tax levy and they’ve certainly been doing it tough in recent years and will continue to.
“An income tax levy or a debt levy – it really shines the spotlight on the need for us to make our tax base sustainable.”
Michael Croker, Head of Tax Policy at the Institute of Chartered Accountants Australia told Dynamic Business that it was necessary to consider the economic impact the levy would have on consumer purchasing power and any flow on impacts in the retail sector.
“Some business owners may be able to use their operating structures to lower or negate the impact of any levy. For example, through discretionary trust distributions to family members who are on a lower tax bracket which does not attract the levy,” he said. “A debt levy is not a sustainable solution to an unsustainable structural problem.”
Mr Abbott has failed to rule in or out individual budget proposals, but has indicated he will not shirk hard decisions.
“We will tackle the fiscal disaster that we have inherited. Now we are going to do it in ways which are faithful to the commitments that we made to the Australian people, but we are not going to squib the challenge,” he said on Sunday.
Mr Abbott used a speech on monday night to the Sydney Institute to outline the enormity of the savings task ahead of the Commission of Audit which will be released on Thursday.