With tax cuts for big business abandoned, what is the fallout for SME’s?

The news has been dominated in recent days by the Liberal Party Leadership saga, a new Prime Minister and a new Cabinet.  However, the last days of the Turnbull Government saw proposed corporate tax cuts for big business being consigned to the scrapheap.

The contentious plan to cut the corporate tax rate for big business from 30 to 25 per cent over 10 years was abandoned last Wednesday.  This put an end to months of bickering and conjecture around what the true impact (of what some were calling a $50 billion-dollar cash injection for the top end of town) would be.

The tax cuts for all Australian business were originally intended to boost and protect the economy, ensuring our competitiveness in Global markets.  While SME tax cuts have already been legislated, the proposal for big business quickly lost favour as it became increasingly apparent that the tax savings would not be used to fund jobs or growth.

According to an AFR report, only 17 per cent of big business nominated that the tax savings would be directly applied to increasing wages and staff numbers while more than 80 per cent said they would either use the proceeds to boost returns to shareholders or invest in the company.   Statistics such as these – along with the gaping $50 billion-dollar hole left in the Federal Budget, has seen the proposal mired in controversy from the outset.

When the news came last Wednesday that the proposal had failed to pass in the Senate it was seen by many as a positive outcome.  But what does it mean for SME’s?

Our feeling is that SME’s should be cautious in the first instance.  Many are suppliers to huge players e.g. Supermarkets, Telecommunications, Mining (who stood to benefit significantly from the tax cuts – some to the tune of 6.7 billion per year) and should plan to expect some impact from the fallout.

Interestingly the controversy surrounding big business tax cuts has primarily been around the tax savings being viewed as an increase in revenue.  In fact, the tax cuts may well have been built into financial projections for the coming years.  As such, SME’s could feel a squeeze on cash flow almost immediately as debtor days and invoice payments may be pushed out.

On the plus side, the Government has already passed legislation for a 25% tax rate for small, medium and family businesses with a revenue of up to $50 million pa – and we may see these accelerated.  In addition, the Small Business Portfolio was re-introduced to Cabinet on Monday – this show of support for the small business community, combined with pressure from business groups may see the tax cuts brought forward.

Let’s hope, in the current uncertain political climate, with the possibility of an Election looming, small businesses will get the opportunity to weather the storm and get fighting chance.