Corporate taxation is stifling business in Australia

MY past two columns have examined a few of the issues facing Australia as we move forward. The mining boom has all but ended with the completion of much of the construction phase. 

The mining and transport industries are finally having to face the realities of competition.

The unemployment rate at 6% is its highest since the global financial crisis.

Internet shopping, job uncertainty and the rising cost of living have dented the one-time invincibility of the big shopping outfits, resulting in price cutting warfare that has impacted on domestic producers. And there's more.

This week, taxation; particularly its effect on business.

In the lead-up to the recent G20 meeting in Sydney, the Organisation for Economic Co-operation and Development and the International Monetary Fund urged Australia to significantly lower its corporate tax rate if we are serious about continued economic growth in the aftermath of the boom times we have enjoyed over the past 14 or so years.

And yes, they recommended the balancing of all government budgets as a priority.

Lower direct taxation, lower spending on middle class welfare leading to higher business profits to stimulate employment, resulting in more capital for expenditure on infrastructure, which will stimulate employment and so on - so the domino effect theory goes.

So what's wrong with taxing the bejesus out of business, you might ask?

As the IMF pointed out, small to medium businesses in this country suffer a twin gazumping from high taxation and an inability to borrow seed capital from banks that have an aversion to lending for anything other than property securities.

What this means is that these businesses are stripped of any chance of expanding.

Any competent financial analyst will tell you that debt-sourced cash flow is essential to running a successful business, positive cash flow being more important than profit to expansion on a day-to-day basis - no matter how big the business.

In effect by the way, equity raising by flogging shares is a form of unsecured debt financing in that access to the reserves of the company is limited to those who own shares. 

So punitive is the direct taxation of business that the ATO and the various state revenue offices attempt to collect taxation on earnings that haven't yet been received to raise advance cash payments to fund their own over-commitments.

These are funds that should be flowing from businesses into development and expansion.

These examples. Provisional company tax (now called PAYG instalment tax) is collected monthly or quarterly based on an uplifted projected profit not actually measurable until June 30 and not reportable until the following May.

Godawful payroll tax is similarly collected on suspicion and the difference between what's paid in advance and what should have been paid is reconciled months after the June 30 balance date.

And there's GST. The ATO forces even medium sized businesses to use an accrual accounting system so that it can collect GST upfront on debtors (receivables).

This sees such businesses fork out cash to government before they actually receive cash payments from their credit customers.

Yes, this applies equally to creditors (payables) to whom GST paid is claimed back, but any profitable business will inevitably carry greater debtors than creditors. 

Now my point. It's a terrible business taxation system. The winner, government. The losers, unemployment queues.

Bob Lamont is director of Corporate Accountants, situated at the Night Owl centre. Email him at

Topics:  australian taxation office bob lamont gladstone business opinion

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