In its submission to the tax discussion paper, the IPA argued that tax policy is a critical part of the regulatory environment for small business owners and myriad government regulations, combined with the current taxation system, impose "unreasonably heavy compliance burdens on small businesses”.
“These burdens act as a disincentive to entrepreneurial activity and employment, and ultimately represent a drag on the performance of the economy as a whole, and the living standards of Australians,” the institute said in the submission.
While the IPA welcomed the tax cuts introduced for small businesses in the 2015 Budget, along with other concessional budget measures targeting the small business sector, it argued that tax relief still does not extend far enough.
“The 2015 Budget tax cuts do not go nearly far enough towards redressing the relatively disadvantaged position of small businesses when it comes to compliance and finance costs,” the submission said.
The IPA argued the reduction of 1.5 percentage points in the company tax rate, from 30 per cent to 28.5 per cent, for small businesses with an annual turnover of up to $2 million, and the 5 per cent tax discount, capped at $1,000 a year, for unincorporated businesses, “will at best provide marginal relief”.
“For a more impactful approach, Australia should look at the model adopted by the Canadian province of Alberta which has a combined federal/provincial corporate income tax rate of just 14 per cent for small business, against 25 per cent for general business.”
IPA chief executive Andrew Conway said Australia faces dual challenges in the need to ensure fiscal sustainability and boost productivity growth to sustain living standards.
“Moving to growth supporting taxes is essential to sustain Australia’s economic momentum and to meet all current and future spending needs,” said Mr Conway.
Despite consumption taxes such as the GST representing one of the “most efficient and sustainable tax bases available”, he added, Australia’s GST base remains relatively narrow, covering just 47 per cent of private consumption.