Mark Bouris: Why Bill Shorten’s policies are bad for business

Read the latest column from Mark Bouris in the Sunday Telegraph

12 November 2018

Mark Bouris's column was first published by the Sunday Telegraph and is published here with permission.

WITH an election looming next year, the major parties are heading in opposite directions over business taxes.

While the Coalition government has accelerated by five years the reduction in corporate tax to 25 per cent, Labor will be striking at the heart of business owners’ tax arrangements and retirement planning.

It’s going to be a clear choice for business owners because while Prime Minister Scott Morrison tries to make it easier for businesses to grow and employ, Labor leader Bill Shorten’s three policies announced this year are bad for business.

The first ALP policy sees the removal of the ability for individuals and SMSFs (self managed super funds) to receive a tax refund from company franking credits.

The main impact falls on SMSF members and small business owners operating through a company.

A lot of business owners use SMSFs and this franking credits policy also applies to dividends from businesses run through a company.

Business owners leave equity in businesses as deferred income, retirement income or for succession planning. And when they drawdown equity as a dividend, they use tax refunds on the franking credit.

Labor’s policy penalises these arrangements and pushes business owners towards selling their business at retirement and putting the proceeds in retail or industry super funds, which are — somehow — not affected by the policy.

Secondly, Labor will impose a minimum 30 per cent tax on distributions to adults from a discretionary family trust.

This hits business owners if they operate their business through a trust — a structure they were advised to use by their accountant or solicitor.

If a couple run a small business through a trust, and they receive profit distributions of around $40,000 each, their income tax more than doubles under the Labor tax plan.

The third tax policy is Labor’s proposed changes to negative gearing. Some business owners invest in property (their shop, office or factory) by using negative gearing. Many simply use equity in property as security for the business overdraft.

Yet Labor’s negative gearing laws are likely to reduce property prices and undermine the ability to secure finance for the business. At very least they create uncertainty.

I don’t usually get involved in politics but the three tax changes promised by Labor are an attack on hundreds of thousands of hardworking Australians.

Frankly, Labor’s changes look punitive and unbalanced. They don’t hurt big corporations or the truly wealthy and they don’t apply to massive super funds — they only attack the little guy.

Business owners who structured their businesses and retirements for the future, will have to scrap them under Labor and put their money with a bank or a union — the two dominant forces in superannuation.

I’m surprised Labor has become so anti-small business, but at least it’s now in the open.

Let me put something else into the open: with 1.8 million business owners in Australia there are now more businesspeople than the 1.5 million union members.

If Bill Shorten can’t hear that, it’s time to tell Scott Morrison.