Schnitzel Tax and Fiscal Nonsense
I have recently been referred to a new substack called Labor Dry. Hat tip to JK.
It’s a relatively new stack. Only a few posts so far. The author describes him/herself as:
And old school Labor Dry with a hard head and a soft heart.
Of the posts so far, so good. One might think, given the nature of the posts that Peter Walsh is dictating from the grave. Irrespective ….
Labor Dry’s latest has prompted me to write about the latest stupid, lazy, theatrical policy announcement from the Coalition opposition. Writes Labor Dry:
But in reality, the Coalition measure is just likely to add a further layer to the tax code and privilege a sector that is already tax preferred.
The sorta called schitzel tax. Here is the most disappointing member of the opposition, Angus Taylor:
A Dutton Coalition Government will cut red tape for small businesses by introducing a capped tax deduction of $20,000 for business-related meal and entertainment expenses.
Small businesses with a turnover of up to $10 million will be eligible and alcohol will be excluded from the policy.
The measure will run for an initial two years and be exempt from Fringe Benefits Tax.
On top of this policy folly is the costing arguement. In one corner is the Parliamentary Budget Office. In the other, the utterly useless and corrupted Treasury. Yes. That Treasury that has not found a tax and spend program it does not like. Yes. That Treasury that could not properly cost a $5 note on the ground.
But this is where it should get interesting if anyone had a clue.
If big business has an advantage because of boardroom catering …. remove the preference. Very simple. But to remove the preference would make poitical board room fundraisers fewer. Read about the political donation fundraising machine, that is generally hosted in these tax deductable corporate boardrooms. Myriam Robin in this weekend’s AFR has described it well:
A fundraiser is, almost always, a chance to hear a politician speak for 10 to 15 minutes over dinner, followed by a chance to introduce oneself or ask questions. These interactions are not usually done one-on-one. The spotlight moves along the table. Old hands briefly introduce themselves and ask a Dorothy Dixer – a question that can make the politician look good answering. Novices rabbit on, and try to elicit information or a firm commitment.
But here is the secret that those fools at Treasury won’t disclose and those fools in both the ALP and Coalition don’t understand.
THIS POLICY WON’T COST A CENT. It may actually generate additional GST revenue.
Australia has a system of dividend imputation. It means that companies don’t pay tax.
Yes. There may be some timing issues, but ultimately the only people who pay company tax in Australia are … non Australians. Foreigners. And one might venture that few, if any Australian small businesses have foreign (for tax purposes) investors.
So when you pay no tax, there tends to be no benefit from a tax deduction.
Perhaps there might be some additional hospitality spending from this pea and thimble trick and this might generate additional GST revenue. Given the duds that occupy the modern Commonweath Treasury, the chance that they considered this is inversely related to the cost they ascribed to this.
One thing I do take exception with Labor Dry is this comment:
Small businesses are already tax advantaged.
Yeah. No.
I have written, said, yelled, cried many times that complexity is a subsidy from small to big.
Small business does not have the armies of lobbyists (who go to these boardroom fund raisers). They don’t have the lawyers to trawl through the latest industrial relations law or reg. They aren’t gonna get a bailout if they experience business distress.
It is big business that is both tax and regulatorily preferred in this nation. That is why we are dominated by monopolies and oligopolies. It’s not a fault but rather a feature of our economy.
Too hard and expensive for unions to negotiate with small business. They LOVE big business.
To hard for the Treasury to bully millions of small business. Much easier to pick up the phone to badger a couple of CEOs.
The big state loves, needs, demands big business. Which is why the concentration of Australian business runs parallel with the growth of government in Australia.
This policy is both rubbish and about nothing. Much like most policy discussion in Australia nowadays.
One of these is Treasurer. One of these is the Treasury Secretary. You guess which.
On the same page. But what I think we are saying in furious agreement is that the system is rooted. The twits in Treasury can't see how Single Touch payroll technology fundamentally changes the ballgame - for all these abour taxes (payroll, GST etc). They are so hopeless that they used STP to deliver business expenditure style tax credits with Jobkeeper and the Cash Flow Boost and they can't see how you can use the same approach for a better system overall, including moving to a BET. But your point that you wouldn't do this without a fair dinkum crack at spending and Comm/State spending is spot on. Or you just end up with the Euro problem - tax rises to meet spending until there is another step change. The real issue is we have had a step change in welfare of 3% of GDP called disability. You have to get that under control.
Thanks Spart. And for the kind words. I take your point about the untidy relationship between big government, big business and big political parties. And regulatory burden. There is a lot to that. But issue about tax preferred is the different headline rates and the myriad of tax concessions afforded the sector which evidence shows does little to boost productivity and prosperity (how many times can you replace your kit?). And let's not forget payroll tax exemptions which has effect on the allocation and returns of labour across sectors with large deadweight costs. I just don't think that preferment - whether business size of by industry is a growth strategy. Besides I prefer to get post tax returns for labour up and then let agency and the market doing the allocation.