Economic modelling from the Council of Small Business Organisations Australia (COSBOA) has found reducing the small business company tax rate would boost the economy by up to $11.4 billion dollars and provide up to 3,370 permanent jobs.
The independent modelling based on a small business tax rate cut from 25% to 20%, found the move was “fiscally prudent” and “good economic policy,” stimulating cashflow and business growth to provide a “net benefit to the Australian community.”
COSBOA CEO Luke Achterstraat said the modelling clearly illustrated the proposal would lead to economic growth, innovation, higher productivity and more opportunities for Australian small businesses.
“The modelling confirms what we have heard from countless small businesses across the country: a tax cut would boost small business cashflow, re-ignite investment and increase output, wages, jobs and economic growth. In aggregate, national income would rise appreciably, indicating that the policy provides a net benefit to the Australian community,” Mr. Achterstraat said.
“Under this modelling, GDP would be boosted by up to $10 for every $1 in foregone tax revenue – that’s a compelling return. The flow-on effects of higher incomes and job creation assist in significant tax clawback and minimal impact on the budget. It is not just a win for small business, it’s a win for all Australians.”
Mr. Achterstraat said the 2025 election campaign has so far been devoid of any significant economic reform.
“With two weeks of campaigning left, this policy is free to be adopted by the major parties as a clear path forward for small businesses across Australia. The numbers are in – we can’t afford not to cut the small business tax rate to 20%. It is fiscally prudent, targeted and will produce a growth dividend in uncertain economic times,” he said.
“Moreover, this is good economic policy because it addresses a significant burden on small business — especially after the GFC and Covid periods: it improves access to cashflow and credit on reasonable terms.”
The economic impacts of the tax cut were modelled using three policy scenarios:
- an immediate 5% reduction to 20% in 2025-26
- a phase-in approach where the rate reaches 20% in 2027-28
- a phase-in approach where the rate reaches 20% in 2029-30.
Across all scenarios, the modelling shows the tax rate reduction would boost small business cashflow, increase post-tax retained earnings, loosen credit constraints, reignite investment and spur productivity, wages, jobs and economic growth. In aggregate, national income would rise, with the boost to GDP significant relative to the low cost of replacing the foregone revenue.
Under the first scenario, in which the tax rate cut is immediately implemented, Australia’s GDP would be boosted by about $11.4 billion over five years, with about 3,370 permanent jobs created. Over the period, foregone tax revenue would total $800 million, meaning GDP would ultimately be improved by $10.6 billion. This equates to a net GDP gain of about $10 for every $1 in lost tax revenue.
For states and territories this would equate to $3.4 billion in NSW; $2.5 billion in Victoria; $2.3 billion in Queensland; $620 million in South Australia; $2 billion in Western Australia; $177 million in Tasmania; $151 million in the Northern Territory; and $232 million in the ACT.
“Small businesses comprise 97.7% of all Australian businesses, employ more than 5.1 million people in our communities and contribute $500 billion a year to the economy. In regional and remote Australia, areas more reliant on small businesses, they are the heartbeat of the community,” Mr. Achterstraat said.
“This tax cut is the one policy that can provide instant respite to Australian small businesses and let them focus on what they do best – running their businesses and serving our communities.”
Economic modelling was prepared by Tulipwood Advisory Pty Ltd (Tulipwood Economics), Qaive and Bellchambers Barrett for the Council of Small Business Organisations Australia (COSBOA).
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
