Small business tax cuts on the table as Productivity Commission calls for reform

If you’ve ever cursed the red tape wrapped around Aussie business or wished your tax bill was just that little bit smaller, there might be good news coming your way.

The Productivity Commission has just dropped the first of five big reform reports, and it’s calling for a shake-up of Australia’s company tax system and regulation burden. The goal? To give small and mid-sized businesses more breathing room to grow, invest and get back to doing what they do best: building the economy.

A tax cut with cut-through

The draft proposal suggests a major drop in the company tax rate, down to just 20 per cent for businesses with revenue under $1 billion. That’s a big shift from the current setup, where businesses earning under $50 million are taxed at 25 per cent, and those above that threshold cop a 30 per cent hit.

The move could benefit over 1.2 million small companies around the country, potentially unlocking an extra $8 billion in investment and boosting the nation’s economic output by $14 billion. And the Productivity Commission says it won’t cost the Budget a cent in the medium term.

Deputy Chair of the Productivity Commission, Dr Alex Robson says the move is needed to ensure future prosperity.

“If we don’t get our economy moving again, today’s children could be the first generation to not be better off than their parents,” says Robson

A new 5 per cent cashflow tax

The Commission’s also throwing a new idea into the mix: a 5 per cent net cashflow tax that allows businesses to instantly deduct the full cost of investments. Think tech upgrades, tools of the trade or new premises.

This could be a game-changer, especially for newer businesses or those trying to scale up fast. Instead of waiting years to slowly claim depreciation, you get the tax break now, right when you need the cashflow boost most.

It also levels the playing field. Larger, asset-heavy companies making passive profits off existing capital might end up paying more under this model, while growing businesses putting cash back into expansion get a leg up.

Red tape: still the great Aussie handbrake

Beyond tax, the Commission’s sounding the alarm on Australia’s growing “regulation nation” status. From windfarms taking nine years to get approval in NSW to Brisbane cafes needing 31 steps to open their doors, the message is: we’re drowning in paperwork.

“Regulation is important, but over-regulation is a handbrake on growth,” said Commissioner Sterland.
“We need government to cut through the thickets of regulation that are slowing us down.”

Their suggestion? Make growth a priority when writing new rules, hold regulators to account, and empower an independent commissioner to scrutinise the impact of red tape before it’s unleashed.

What does the Treasurer think?

Treasurer Jim Chalmers has welcomed the report, saying it’ll help shape discussions at his upcoming economic reform roundtable in late August. The roundtable, featuring a mix of economists, unions and business leaders, will put tax, productivity, regulation and spending under the microscope.

Chalmers has promised any reform needs to be budget-neutral or better. So don’t expect freewheeling spending. But the appetite for meaningful tax reform seems to be growing.

For now, the Productivity Commission is taking submissions on its draft proposals, so if you’ve got strong feelings about tax rates or the pain of permits, this is your chance to have a say.

The impact on small business

If you’re a small or growing business, these proposed changes could free up cash to invest in your future. Lower tax rates and streamlined regulation could make a real-world difference. While we’ve heard plenty of talk about productivity over the years, this feels like a shift toward practical, founder-friendly action. Let’s hope the policymakers are listening.

Want to have your say? The Productivity Commission is taking submissions until September 15.. The final report will be released later this year.

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