The $1.6b sandwich: Labor calculates bill for Dutton’s free-lunch pledge

A Coalition promise to allow small businesses to claim a tax deduction for business lunches could punch a $10 billion a year hole in the federal budget, the federal government has claimed as it attacks the opposition’s fiscal credentials.

Before an election that will be dominated by cost-of-living issues, the analysis by the federal Treasury puts the price tag for the Coalition plan at between $1.6 billion and more than $10 billion a year depending on the number of businesses that use the scheme.

Peter Dutton pledged last month to give small businesses a tax break for lunches. Credit: Louie Douvis

Last month, Opposition Leader Peter Dutton said if elected the Coalition would allow businesses to deduct for tax purposes up to $20,000 for business-related meal and entertainment expenses without incurring fringe benefits tax.

Dutton said the policy would help boost spending in the hospitality sector and reduce red tape by sparing businesses from “a complicated tax jungle”.

But the full cost of the policy, which excludes spending on alcohol and would run for at least two years, has yet to be revealed. However, it is understood a preliminary costing has been done by the independent Parliamentary Budget Office.

Treasurer Jim Chalmers, releasing the Treasury estimates on Monday, said it was clear the policy would “smash” the federal budget.

There are about 4 million small businesses with turnovers of less than $10 million – those captured by the Coalition plan – of which about 2.6 million are actively trading enterprises.

The Treasury estimate assumes trading businesses would claim $2500 a year on average, or 12.5 per cent of the cap proposed by the Coalition. At that level, the cost to the budget would be $1.6 billion.

But if the 2.6 million businesses claimed the full $20,000 amount, the annual cost from the change would reach $10 billion.

Shadow treasurer Angus Taylor said on Monday the Coalition would be “completely transparent” about costings for the tax deduction policy.

“We’ll release all that costings in advance of the election ... we’ve been clear about that all along,” he said. “We’re still trying to work out how much money Labor’s spending, and those numbers keep going up.”

Taylor said the tax change would be one of a range of policies aimed at encouraging investment and connection.

“Let’s be clear here that productivity has collapsed under this government,” he said. “We’ve got to get people out, networking, working together,” he said.

“One of the challenges we’ve had post-COVID is we haven’t been seeing businesses connecting in the way they need to drive productivity, and we need to make sure that we’re pulling every lever we can to drive productivity.”

There is also doubt about policing a policy with concerns that businesses could rort the system by illegitimately claiming food and entertainment that is personal rather than business.

Opposition Leader Peter Dutton says the Coalition’s tax policy will help small businesses recover.Credit: Janie Barrett

Abuse of the tax system was one of the reasons the fringe benefits tax was introduced by the Hawke-Keating government in the mid-1980s. At the time, the tax was opposed by the Liberal Party while the hospitality sector warned it would kill restaurants across the country.

Chalmers said the opposition was deliberately trying to avoid revealing the true cost of a policy that would ultimately hurt ordinary taxpayers.

“We now know this policy costs billions of dollars but we still don’t know what Peter Dutton would cut to pay for it,” he said.

“After three years, the best they can come up with is billions of taxpayer dollars to subsidise long lunches.”

The Coalition has taken aim at Labor’s spending priorities, claiming the government is wasting money on the public service, which it says has grown by about 20,000 since the Albanese government came into power. The opposition has also vowed to slash the public service, although it is yet to reveal where those cuts would occur.

Announcing the policy, Dutton said it would help small businesses recover from a “horrible period” under Labor. Figures released by the Australian Bureau of Statistics on Monday show spending through the nation’s hospitality sector has soared by almost a third since the government was elected, the largest growth of any retail sector.

Prime Minister Anthony Albanese targeted the Coalition’s policy in his first address to the Labor Party caucus this year in a sign it will feature prominently in the government’s election attack on the Opposition.

“They don’t want workers to get a tax cut, but they do want bosses to get a free lunch. That is the big distinction. They want workers to pay for it,” he said.

“They want every Australian to pay for up to $20,000 … a pop for people to engage in meals, entertainment, liaisons at golf courses, karaoke nights, weekends away – who knows what it would be?”

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