The Henry Review on Small Business Tax Concessions: Same Script, Same Soap Opera

Abstract

Australian federal Governments’ increasingly broaden and tinker with a range of small business tax concessions as they seek electoral support from an estimated 2.7 million small businesses. Consequently, a plethora of costly tax concessions for small business has emerged. Their complexity produces considerable uncertainty as to their practical operation and the concession benefits do not appear to outweigh the additional compliance costs. The various concessions favour particular types of businesses with certain structures over other taxpayers and this creates distortions and inequities. Despite noting these concerns, the Henry Review supported the small business entities (SBE) tax concessions framework with recommendations that significantly broaden its scope. Consequently, the Government announced a further round of concessions as another electoral cycle comes into play. This paper examines these Henry Review recommendations. In doing so, the paper first outlines the background to the current small business tax concessions including the former Simplified Tax System (STS) as well as SBE. The paper then examines the Henry Review’s recommendations and the Labor Government’s response. Finally the paper analyses the Henry Review’s SBE recommendations having regard to the various rationales that are commonly provided for such concessions. The paper finds no justification for such concessions since they contribute to complexity, inefficiency, inequity and damage fiscal adequacy