The Minerals Rent Resources Tax was passed by the Senate on Monday, and along with it came corporate tax and superannuation reforms that will affect all Australians. But apart from slugging the miners for a bigger slice of the resources pie, what do the reforms mean for small business?
The 1% cut in the corporate tax rate afforded to SME’s as of July 1 this year is pretty clear cut. Incorporated businesses will pay 1c less to the tax man out of every $1 they earn. It’s a straightforward, easily quantifiable, albeit small tax break for Australian businesses.
The superannuation reform on the other hand is not so easily digested. Experts and small business groups are widely divided on the impact the changes will have on the 2.7 million small businesses across the country.
On the face of it, the leap from a 9% to a 12% minimum super contribution sounds like it’s going to hit the bottom line of SME’s pretty hard. A 3% hike in wages is a fair slug for any business operator.
However, as the lively debate indicates, it’s not that straightforward.
Prior to passing the changes, the Senate held an inquiry into the possible ramifications the reforms would have and several small business authorities weighed into the debate on different sides.
The Australian Chamber of Commerce and Industry told the inquiry that employers would bear the entire cost of the changes. “It's carried by the employing business, 100 per cent of it,” ACCI chief executive Peter Anderson said.
Mr Anderson said the changes would cost small SME’s $20 billion a year by 2020, an amount not compensated by the 1% tax cut.
Council of Small Business Australia executive director Peter Strong was also in this corner, saying the impact of the increase will be much greater on small businesses that their larger peers.
“Big business can pay it. It's the little family businesses that end up paying for it from their own income,” he said. Strong believes the super increase has to be offset by productivity gains, “otherwise there will be small businesses that close down as a result.”
There is also the cost of implementing the change for small businesses, according to Institute of Public Accountants chief Andrew Conway. Conway says while the benefits will be seen by individuals, the cost of administering the change will be a major burden for SME’s.
Conway believes that small businesses will need to “divert precious time to administering something they don't understand, or divert needed cashflow to pay a professional to administer it for them.”
However if super processing is already part of the payroll process, as it should be, the claims of extra administration costs are unfounded according to Michael Davison, senior policy adviser on superannuation at CPA Australia.
Davidson believes the increased contributions are likely to be worn by employees in any case.
Proponents of the reforms also argue that the incremental nature of the increase (super contributions are to go up by 0.25% or 0.5% each year) is slow enough not to have any real impact.
ACTU assistant secretary Tim Lyons pointed out that a 0.25% increase in wages was “not the sort of number which caused difficulty in workplace wage negotiations.”
“It should have been done around 15 years ago.” Lyons told the Senate committee.
The Association of Superannuation Funds of Australia is also of this frame of mind, saying the increased labour cost of the changes is likely to be minimal as the increase is gradually implemented.
Whatever corner you’re in, the changes appear here to stay after the Coalition retracted its initial threat to wind back the reforms. The decision now is how to deal with the gradual yet inevitable increase in wage costs in your business.
Are you paying the bill or will your employees make up the difference? It’s sure to be a point of contention in any future wage negotiations and one you definitely need to be prepared for.
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