Tax Institute Private Business Tax Retreat, Gold Coast
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Thank you for your warm welcome, and for the invitation to be with you today for this important event in the Tax Institute’s calendar.
It’s a great pleasure to be here. Your “meeting at the crossroads” theme is very topical as there is a bit going on in your space at the moment as I’m sure you have picked up. There are many areas where the issue of private business taxation and the regulatory framework intersect with the Government’s growth and rejuvenation agenda, which is something that we are very focused on.
As the Minister for Small Business, I never get tired of working with, working for and talking about small business and family run enterprises, being at the heart of the economy and frankly where much of that jobs, economic growth and drive will come from into the future. So I see my role as very much inculcated into that renaissance of enterprise agenda that we are seeking to prosecute and implement.
Some of you may know my electorate is in one of the great southern hemisphere capitals of the world. I’m not talking about Santiago or Buenos Aires but Frankston in Victoria. You might know the place; it’s pretty much the Riviera of Melbourne. For us the small business and family enterprise economy is largely the economy. When the small business sector is going well, our overall economy is going well. That means greater productivity, greater growth and more jobs.
This is an area I have been involved with not only in a policy sense for some five years but also as a former owner of a small business, I bring with me the weathering and the scars of that. I wasn’t successful and we have a behemoth mortgage to show for it. So I have lived the dream of owning a small business and I suppose it prepares me well to advocate for the areas for change, where the challenges may be and also the risks that are involved.
I was talking with a very successful leader of one of our top 200 businesses who had an incredibly successful career, so much so that he was able to retire at a spritely youthful age and thought he would be bored if he retired and decided to buy a business. He chose a franchise, feeling that his success at the big end of town prepared him for the challenges ahead. He wanted to be his own boss but not alone in his enterprise and saw that business analysis, systems development, marketing, and product placement development work of the franchise system very helpful.
He visited my office in Frankston a few weeks ago almost in tears. He characterised an experience quite outside what he imagined. He thought that success in a big corporate prepared him well and it reminded me of an analogy I often use. Let’s say you’re having bacon and eggs for breakfast – think of the big corporates a bit like being the chicken in that they are involved but they still get to cluck at the end of the day. The pig is small business and by golly isn’t it committed at the end of the day.
This is about getting a sense of how personal small business is – because it is personal. When you own a small business you put all of your hopes and ambitions into that enterprise and there isn’t a waking moment when you aren’t thinking about it. What drives you is a sense of optimism and belief but that doesn’t always materialise.
So for me, I bring that personal commitment to my work and that is why we have made some changes that I would like to touch on briefly, not only about our agenda, but the ways we think we can improve it.
I am the first dedicated Small Business Minister in Cabinet. I don’t sit at the kids table, but with the adults where those major strategic, policy, tax and budgeting decisions are made, and I ensure small business considerations are embedded in these decisions.
We’ve moved the small business policy area out of the Department of Industry, who do a lot of good work, but do their best work with sector type plans where there is a continuity of concern and policy intervention. We know in the small business space that this isn’t the case, as they are so diverse, so rich and varied that no single industry plan will work.
What matters for them is the eco-system in which they operate – is it supportive, encouraging, are the incentives right? Are we rightsizing the activities and government programs? Those overwhelmingly are deliberations that the Treasury portfolio has. We also set the tax framework, engage with ASIC, look at the prudential framework and examine policy settings.
Small business fits best into Treasury and that is why we have moved this area, so along with Joe Hockey there are two Cabinet ministers in the Treasury portfolio. The decisions made within the portfolio are so significant to the environment within which enterprising people make choices about their businesses, their plans for investment and their prospects for reward.
So that structural change is there. But that’s just the start of it. Your role is so important to our economy and other economies around the world. You are often the very first point of call for an enterprising person, contemplating a step in their business life. That’s why I am keen to continue to work closely with you because I think that collaboration is important for us doing all we can to support small business success.
The quality of your tax advice is only a small part of the entrepreneurial ecosystem, that crucial part of supporting small businesses.
The playing field, everyone calls for it to be level, however we just want it to be fair and reasonable so businesses big and small can thrive and prosper.
This is one of the reasons why we have activated a ‘root and branch’ review of competition policy. It was 22 years ago when Professor Hilmer started that work to frame largely the toolkit that we have today. It was formed a generation ago and I think you would all agree the economy has changed a lot since then.
It’s not just about the laws and the policy settings; it’s not just about the utility of our application. It’s also about the broader economy. Where are those anti-competitive choke points that are limiting and impeding our capacity to generate the prosperity and opportunities that we need? If you know of some, let us know – the world is run by people who turn up.
It’s something that’s been a long time coming and we’ve been encouraged by the overwhelming messages of support to undertake this timely, once-in-a-generation examination.
It’s part of our whole competitiveness and productivity push that we very much have in our sights and in our focus. There is a need for structural reform to enhance productivity and to make sure our businesses are competitive domestically and increasingly the benchmark is offshore.
I think we are at a point now where prosperity from continuous years of economic growth, some may be lulled into a false sense that it is a gift, but we know that’s not the case. There is a need to contest those opportunities, to win them for ourselves and to see the benefits so that our national competiveness and productivity is something that should be of interest to all of us.
The Prime Minister is chairing a taskforce on these issues and potential measures we can take to promote competiveness and our productivity. In the small business area we are working to ensure fair competition between big and small enterprises.
An inquiry into competition is underway which will not only focus on our competition policy and competition law tool kit, but also what else is going on in the economy and anticompetitive choke points.
The Government has a broad productivity agenda in train. We are committed to pursuing structural reforms to enhance productivity and ensure Australian businesses have a competitive future.
The Government can play a key role in improving small businesses productivity. This means making sure there is robust competition between firms in the economy; improving the quality and effectiveness of Government engagement with the sector; and removing unnecessary red tape and improving how regulators engage with small business.
The change in global growth markets and trade dynamics makes internationalisation more important.
Australian businesses need to be able to harness new and emerging opportunities and integrate into key markets.
The growing levels of human capital and changes in global technologies, markets and competition are driving the development of more knowledge-based production.
The capacity for Australian businesses to innovate will be a big part of Australia’s economic growth.
I mentioned how essential it is that we cut red tape.
On the deregulation front, we’ve held the first of our two annual Repeals Days to scrap more than 9,500 unnecessary or counter-productive regulations and 1,000 redundant acts of Parliament. Just to give you a sense of the regulatory space that we operate in – we have a $1 billion annual red-tape reduction commitment. This is well advanced; the measures announced in March are just the start.
But our work isn’t finished – we have to keep going. That’s the discipline we bring to our task.
We need to tackle the existing stock of regulations.
Businesses know they need to be world-class each day.
This Government knows that our laws and our policy need to be world-class as well.
We as a nation need to lift our game and Repeal Day was an important opportunity to say there is a cost to regulation and there is a choice about how far and how deeply we regulate.
Regulation consumes resources – quite a number of them – and it deflects effort and enterprise away from creating opportunity towards complying with what government thinks is a great idea.
We know that small businesses are particularly burdened by government regulation as they often do not have the in-house expertise that larger businesses have.
As we have seen with the Productivity Commission’s recent report on Regulator Engagement with Small Business, the way regulations are implemented can have as much of an impact as the content of the regulations themselves.
Drawing on the work of the Productivity Commission, the Government is preparing a framework for auditing the performance of regulatory agencies, such as ASIC, APRA, the ACCC and of course the Tax Office.
One example of deregulation that will benefit small business is that we have moved the responsibility for the Government’s free Small Business Superannuation Clearing House to the ATO.
The Small Business Superannuation Clearing House is a free online service that helps small businesses with 19 or fewer employees meet their superannuation obligations.
The Clearing House allows employers to pay superannuation contributions in one transaction to a single location, rather than having to pay individual funds.
This move is part of the Government’s commitment to streamline processes — and the ATO is best placed to promote and identify the small businesses that could benefit.
Small businesses already contact the ATO regularly, so it makes sense that they can speak to the ATO about super payments at the same time instead of another department.
The super clearing house is a great tool for small businesses, because it cuts down the time and paperwork involved in paying contributions to employees’ different super funds. As a second step, an extensive consultation process is underway so the Government can better understand the superannuation compliance cost concerns of small business and develop options to reduce these costs.
This is part of our commitment to genuine consultation with small business and the community on the issues that matter to them.
Of course, I don’t need to tell you that our tax system isn’t perfect. That’s why we are working to make improvements that will benefit small businesses across Australia. A first step is that, along with the Acting Assistant Treasurer Minister Cormann and the Parliamentary Secretary to the Treasurer Steven Ciobo, I have announced that the Board of Taxation will conduct a review to identify features in the tax system that are hindering or preventing small businesses from reaching their commercial goals.
The Board’s report will provide business and broader community perspectives on issues in the tax system that are of most concern to small businesses, and identify the short and medium-term priorities for small business tax reform in Australia.
The review will focus particularly on high priority options for simplification and deregulation.
To facilitate the production of this fast-track review, the Board has been asked to use its extensive links with tax professionals and conduct targeted consultation with key business groups. The Board will also work closely with the Treasury and the ATO in preparing its report.
We’ve asked the Board to report to the Government by 31 August.
We’ve also expanded the scope of the Board of Taxation review Division 7A of Part III of the Income Tax Assessment Act 1936 – a set of tax rules that regulates the way that small business owners access company profits.
We understand that small businesses have a number of legitimate ways to structure their businesses: as companies, sole traders, partnerships or as trusts.
The Government views trusts as legitimate arrangements that taxpayers can use for a variety of purposes, including the conduct of small businesses, investment and succession planning. After all, more than 300,000 trusts produce income from business activities.
I am aware that this is seen as a major problem area for some small businesses and tax practitioners.
In November last year, we announced that the Board of Taxation would extend its review of Division 7A.
The extension allowed the Board extra time to consider not only how Division 7A operates, but also its interaction with other areas of the tax law, and whether there are problems with its operation that are producing unintended outcomes or disproportionate compliance costs.
The Board released a Discussion Paper on 25 March setting out some ideas for public consultation and consideration. I understand that they are seeking stakeholder views by 9 May and I encourage interested parties to make a submission on the paper.
The Government looks forward to receiving the Board’s final report on this matter in October.
Another step we’ve taken is to take a look at some taxation and superannuation measures that have been announced but not yet legislated. There are 96 of these measures, dating back as far as March 2001.
The Government intends to deal with these 96 measures in order to provide certainty to businesses and individual taxpayers, to significantly reduce red tape and associated costs, and to enhance the integrity of the tax system.
Of the 96 initiatives, the government intends to deal with four of these initiatives separately as part of the repeal of the carbon tax and the mining tax; proceed with 18 initiatives; significantly amended three initiatives; not proceed with seven initiatives; and proceed with 16 of the remaining 64 measures after consultation with the Board of Taxation’s advisory panel, other tax specialists and stakeholder groups.
We know that many businesses will have self-assessed on the basis of these un‑enacted measures.
That is why we announced that legislated protection will be available for any taxpayer who has self‑assessed according to any announced changes that the Government will not proceed with.
We started a public consultation on the exposure draft law and draft explanatory memorandum on this protection on 25 March.
The Treasury and the Australian Taxation Office are working together to develop a new tax policy development framework to prevent future backlogs from re-emerging.
The framework will ensure that amendments to tax laws proceed where they are consistent with sustaining or enhancing the long-term coherence and integrity of the tax system.
Our next step will be to take a look at the tax system as a whole.
The Government will produce a comprehensive Tax White Paper as part of our broader reform agenda.
The White Paper will be a major opportunity to take a longer-term considered approach to tax reform and help deliver predictability and stability in tax policy-making.
In developing the White Paper, we will consult and engage extensively with the community. As part of this process, we intend to release an initial discussion paper inviting comments from the public.
I encourage you all to contribute to the consultation around the discussion paper and other opportunities in the White Paper process.
We will then take any proposed tax changes flowing from the Tax White Paper to the Australian people at the next election.
Another piece of work we’re doing is looking at the Corporations Act, as it pertains to small and family-owned businesses.
I am aware that as part of its report last year on ‘Family Business in Australia’, the Parliamentary Joint Committee on Corporations and Financial Services recommended that Treasury consult with representatives of the family business sector on the 50 non-employee shareholder rule in the Corporations Act.
The Government is supportive of Treasury consulting with the family business sector on corporation’s law reform and I look forward to their advice on this issue.
The Government understands the challenges that stand in the way of the success of Australian businesses.
We are committed to improving the outcomes for all business and supporting them to grow and prosper.
The Government’s strategic policy agenda for small business focuses on: reducing red tape burdens; improving the operating environment for small business; and increasing the quality and effectiveness of government engagement with small business.
Small business issues cut across government and I am committed to working across government, and with my colleagues, to promote small business interests.
Our plan will extend unfair contract protections for small business; remove from small business the requirement to administer the government’s paid parental leave scheme; improve small business access to government contracts; refine the national Franchising Code; make taxes lower, simpler and fairer by cutting the company tax rate by 1.5 per cent, and provide small business with a voice on economic bodies.
And finally, we will ensure small business interests are reflected in government decision-making.
Not only will there be small business representatives on key economic bodies such as the Board of Taxation and the ACCC, we will also ensure future appointments to the Fair Work Commission take into account small business interests.
As a Cabinet Minister, I will personally make sure that Cabinet takes into account small business impacts in policy-making. I will make sure small business interests are promoted across the whole-of-government policy agenda.
I am also working to establish a Small Business Ministerial Advisory Council that will provide advice to the Government on priorities in the areas of small business, competition and consumer policies.
We don’t believe government holds all the levers, but when the policy settings are right, businesses large and small have the best chance of success.
By cutting red tape and costs, delivering tailored support, and ensuring the macroeconomic settings are right, the Government can help create the environment to allow entrepreneurs and small businesses to prosper. And when small businesses and entrepreneurs prosper, so does the rest of the country.
Thank you for having me along today.