“Hey Wayne, Let’s Ignore Henry & Focus On Stuffing-Up Tony!”

 In Daily Column

The Henry Report’s out. If you’re a small business with less than $2 million revenue you will probably be better off as your tax rate will be cut from 30% to 28%. Here’s what you’ll save.

Revenue You’ll save (PA)
$2 million $40,000
$1.5 million $30,000
$1 million $20,000

Henry’s recommendation to change the definition of a small business to $5 million revenue from $2 million was ignored by the government. This would have widened the number of companies that could have accessed these benefits, to include fast growing small and medium-sized companies.

As it is, the tax cuts don’t come into play until 2012. With them come increases to super contributions, which to a small degree offsets the benefit. However, should you be looking to hire more full-time workers, the benefit is practically negated. The fact that payroll tax will remain unchanged, is a further disincentive.

Small business  will also be able to write-off assets worth up to $5K instantly, and depreciate other assets in a single pool at 30%. Remember though, that none of this comes into effect until July 1, 2012. Unfortunately, most small businesses are not asset rich.

This budget is driven by a pragmatic political agenda. The heartland of the liberal vote is small business. Rudd and Swann look to be bedding-down swing voters in this segment before the next election. The problem is that the benefits come with caveats and seem at odds with the government’s grander plan to develop infrastructure.

The quintessential problem for most small business remains. It’s called “monthly cash flow.” Tax savings are always a good thing, and cuts to interest rates by banks would be an ideal complement. However, all this doesn’t help you pay this week’s wages.

Last week, AR Cash Flow had half a dozen enquiries related to leveraging accounts receivables to help cover wages and purchasing raw materials. Over half of these enquiries came from companies with revenues of less than $100K per month. They either had insufficient assets to comply for a loan, or didn’t want to increase their debt load.

What about a reduced GST rate on materials purchased for construction/infrastructure – the direct stimulation of a vertical segment? Not broad enough vote-wise for a government, and therein lies the ongoing problem – it’s all about votes!

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