Small business tax and payment reform will lift economy

Michaelia Cash and Mathias Cormann. Cartoon: Johannes Leak.

Australia has taken the first essential step in a new approach to stimulating economic activity: reform of its chaotic business taxation collection system. And, if my information from Canberra is correct, before the month is out the government will undertake a major cash generation reform to transform the nation and boost employment.

But first we have to hope that the Reserve Bank wakes up that in a time of token interest rates reducing them further actually depresses the overall economy, because it reduces spending in many areas.

And in that environment, Josh Frydenberg’s tax cuts did not stimulate the economy.

Accordingly, in the words of Indeed chief economist Callam Pickering, households are dialling back on what they don’t necessarily need so that they can maintain their spending on necessities, such as food and clothing. In the September quarter, retail volumes fell for the first time in 28 years. Not since our last recession have we had a retail sector that has struggled so much to get product out the door.

READ MORE: Weakest retail spend in 28 years | We need reform, not rate cuts

Last week I set out the steps now required to stimulate the economy, a dramatic speeding up of the money flow via 30-day bill payments and a removal of the major brakes on the system, which include the chaos in the ATO; the unfair contract epidemic and the avalanche of regulations.

These are straightforward issues that can be tackled quickly, causing a big rise in cash flow lending and greater investment.

A fourth brake, the fact that the actual tax system is failing (separate from ATO actions) requires fundamental long-term change and I will tackle this issue in the next week.

I am very optimistic that before the month is out the government will speed up the economy via mandating that 30-day bill payments from the date of invoice (it may be 20 days) are required. Assuming that happens, this week’s tax and growth fund sannouncements become important in economic stimulation. The tax change announcement goes under the heading “Fairer treatment for tax compensation claims.”

Most importantly it showed that the Minister for Finance Mathias Cormann understands the breakdown in ATO administration.

The entire parliament can grasp a similar understanding of that breakdown by reading the transcript of the Australian Tax Office presentation to the Senate Estimates, delivered by tax commissioner Chris Jordan. The way the ATO’s Jordan treated whistleblowers and the Senate duplicates the way business taxpayers are treated. The ATO is consistent and hence the need for a “fairer” way.

The Cormann-Cash plan

The minister for employment and small business Michaelia Cash has joined Cormann in this new effort. She is well aware of the ATO mess and before the election worked with former assistant treasurer Stuart Robert in tackling the problem by setting up the small business tax appeals tribunal.

It’s good to see that the current assistant treasurer Michael Sukkar put his name on the Cormann announcement. Sukkar has proposed GST legislation before parliament that would have the reverse affect to the Cormann-Cash plan, delivering a massive rise in ATO power and boosting regulation. Here are some of the details of the Cormann-Cash plan that follows the Robert Cornall review of the treatment of small business tax cases under the scheme for Compensation for Detriment Caused by Defective Administration:

• The government will ensure that compensation claims are investigated and decided by officers who are not from a part of the ATO that was involved in the tax matters which led to the claim. The most sensitive or complex matters can now be referred to independent reviewers outside the ATO.
• The Australian Small Business and Family Enterprise Ombudsman will establish a new assistance function to help small businesses understand how they can pursue compensation claims. The ATO will also work to increase awareness of the scheme.
• ATO procedures will require its staff to take into account a small business’ financial and personal capacity to respond to a review, audit or other compliance process.
• The ATO will review and update its guidance material to ensure that making a claim is as simple as possible and decisions are explained in succinct everyday language.
• For more serious cases, the investigation of a claim will be separated from the decision-making. These cases will also be escalated to senior levels for decision, with the Tax Commissioner himself deciding the outcomes where an independent reviewer is involved.

Those measures would be sufficient if the problem was minor. Unfortunately, it is massive and further measures are required but we are off to a good start. We have recognised the problem and so it paves the way for the cashflow stimulation program.

An important adjunct to that cash flow stimulation is the Australian Business Growth Fund where Treasurer Josh Frydenberg and Michaelia Cash have released for exposure draft legislation for consultation. The government is committing $100 million in funding to establish the growth fund and partnering with other financial institutions to provide equity funding to SME’s. The aim is for the Fund to grow to $1 billion as it matures.

Link this fund to fast payments, cash flow lending, end of unfair contracts and the tax measures plus less regulation and you have a stimulation that should fire the engine room of employment and growth - small and medium enterprises.