Hands off super, more tax cuts for small business – what the mid-market wants from #Budget2017

Brett Mitchell, Partner, KPMG Enterprise
Brett Mitchell, Partner, KPMG Enterprise
Tax cuts, that’s what all businesses want from Government – right?

Well, yes and no.

In April, KPMG Enterprise launched its first pre-Budget Client Survey. The results yielded interesting insights into the mindset of the small to medium enterprises at the heart of our client base.

Some 2000 clients were invited to participate with 200 responding in a snap poll. In several areas our survey confirmed what we already suspected: our clients are feeling vulnerable at a time of unpredictability and worldwide volatility, and consequently naturally cautious.

The survey asked clients for their responses to several topical issues – in particular their views on whether superannuation should be accessed to allow home buyers to enter the property market. Overwhelmingly, nearly three quarters have sided with the Government, believing that superannuation should be conserved as a fund for retirement. Housing affordability is a complex issue but our clients are strongly opposed to further amendments to superannuation, particularly after the sweeping changes that will be introduced from July 1 2017.

On negative gearing, 44 per cent of respondents said no action should be taken, but 42 per cent argued it should be capped – based either on taxable income or interest claimed. A further 14 per cent said it should be scrapped altogether. Most believed the Capital Gains Tax Discount should remain at the current level.

Perhaps, more surprisingly, the Government’s tax cuts to small business were not viewed as favourably as might be expected. In 2017-18 these cuts will reduce the tax rate to 27.5 per cent for businesses with an aggregated turnover of under $25 million. This will be extended to businesses with an aggregated turnover of less than $50 million in 2018-19.

It was presumed that owners would use these savings to re-invest in their businesses; buying equipment, investing in technology or hiring additional staff.  But this survey suggests the forthcoming cuts are not going nearly far enough: nearly two thirds of respondents said that they would not make any difference to their business.

Australia has a high number of taxes and our clients are clamouring for taxation reform. Over 40 per cent want state taxes – such as stamp duty, payroll and land tax – to be either aligned or replaced by broader-based federal taxes.

The current system is viewed as complex and cumbersome and the issue has been brought further to the fore by the reforms instigated or proposed by other countries. The United Kingdom, for example, is reducing its corporate tax rate to 19 per cent, while in the United States, the Trump Government is proposing a reduction in its corporate tax to 15 per cent.  Tax simplification, for these businesses would not only prove to be a vote winner, but could also provide a boost to the economy.

Although more than two thirds of respondents believe Capital Gains Tax should remain at its current level, what is particularly interesting is that, when it comes to the thorny question of the GST, more than half would support an increase if the GST revenue was used on infrastructure spending to the regions, or for income tax cuts to stimulate productivity.

The mid-market is currently taking stock and biding time. Mid-term budgets are rarely as voter-friendly as those held in pre-election years, designed as they are to provide sweeteners and incentives to voters.

For SMEs, this is no time to take risks.

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