Leading economist and prominent Tasmanian Saul Eslake has prepared a paper on tax reform in the Apple Isle at the request of The Australia Institute’s Tasmanian branch.
Eslake’s paper contains many of the kind of recommendations you’d expect. He notes Tasmania relies heavily on what are regarded as “bad taxes” — stamp duty, insurance levies — and less so on “good taxes” that carry less economic burden — payroll tax (Eslake gets cranky at traditional claims payroll taxes are “taxes on jobs”) and land tax.
Like many other economists, he urges a swap between stamp duty and land tax, with transitional provisions to prevent double taxation of those who’ve recently bought a property. He also wants an expansion in payroll tax by lowering the current threshold, and proposes the return of an estate tax on properties over $1 million (but with deductions available for charitable and not-for-profit donations).
All good stuff — albeit unpalatable for more timid politicians. But Eslake also returns to a favourite theme, or should that be a sacred cow. Eslake is that rare thing in Australian public discourse: someone who refuses to kneel at the altar of small business. And the paper gives him a chance to once again make the point that small business is, by and large, overrated when it comes to jobs and innovation.
Exemptions from payroll tax for small business would be justified, he says, if they were indeed the engines of job creation they’re usually portrayed as. In fact, in Tasmania the proportion of private sector employment in small business has fallen even faster than it has Australia-wide over the past decade: between 2007 and 2019 it fell by 10.2% compared with 9.9% nationally. As Eslake writes:
Employment at Tasmanian small businesses has actually shrunk over the past 12 years … By contrast, employment at medium-sized enterprises (those with between five and 199 employees) in Tasmania grew by 43.8% over the 12 years to June 2019, while employment at large enterprises (those with 200 or more employees) grew by 39.3% — despite these firms paying the second-highest rate of payroll tax in Australia.
He also notes that small businesses are less innovative than larger ones — but they’re better at avoiding tax. Australian Tax Office data shows “small businesses accounted for almost exactly half of the ‘tax gap’ (or difference) between the amount of (personal plus company) income tax which would notionally have been collected if there had been ‘full compliance’ with taxation laws, and the amount which was actually collected”.
Small business tax avoidance, he says, cost the federal government $11 billion in 2015-16, compared with about $2 billion from “non-compliance” by large corporate groups, and $703 million by high net worth individuals.
Small business, many claim, is not merely the engine room of the economy but the backbone of the nation — indeed Australia is, according to some, a “small business nation”. Not according to one heretic, however.