The risky small business

Nathan Udy 

Julia’s been enjoying her vacation and in her blasé holiday mentality she’s made some frivolous purchases on the way back to the hotel. What seemed like a one off, impulse decision has had some rippling consequences. The suitcase that held her luggage so perfectly on arrival has been pushed that little bit too far and, with this additional purchase, everything has to be shuffled around.

With the carbon tax to be introduced later this year, the Labor Government has had to tweak current and planned legislation to counteract the repercussions of this national tax. One of the biggest uncertainties expressed by the Australian public regarding the carbon tax, is the stability of small businesses. In theory, the tax will target Australia’s 500 biggest polluting companies, charging them $23 a ton while leaving the rest of the nation relatively unscathed. The uncertainty comes from thepotential of the  big corporations  to pass on any costs that they incur down the chain,  disadvantaging the 2.7 million registered small businesses in Australia.

The tweaking began with the Government’s household assistance package, which will see $325 million in assistance divvied out to low and middle income families as well as pensioners and students. Essentially this is much needed support for those who support small business. If budgets were stretched,  small businesses would certainly be the first to feel the pinch. Another more direct form of assistance would be the increase of the instant asset tax write-off threshold, currently at a $1000 maximum per item. In 2010 the Labor Government announced the threshold would be increased to $5000. In 2011, after the confirmation of the carbon tax, the threshold was pushed to $6500 in compensation for an expected increase in costs.

This means single purchases of depreciable assets can be reimbursed up to $6500, for those businesses earning less than $2 million annually.

This results in several things for small businesses: They now have a bigger incentive to make more expensive purchases, they can further the value of their business while steering away from rented equipment and they can defer their tax liabilities while increasing cash flow,helping perpetuate the nations economy and stabilizing small businesses on a much wider scale.

Now this all looks great on paper, and there’s no denying that this one reform has required an exponential amount of changes to deem it plausible. Though there are no guarantees. Not until we throw all these ingredients together in two months time will we know if the correct measures have been taken to protect our small businesses.

What is unified under the term small business can be broken down into many different fields and trades, and as adamant as the Labor government might be, it is unlikely that these changes will be suited to sustain all fields of business. A recent poll covering a variety of small business owners revealed some distinct concerns around the approaching carbon tax and the measures in line to minimise its repercussions.

All of the proprietors questioned agreed that further measures should be taken toward reducing the carbon footprint of Australia, though only 40% of these thought the carbon tax was a necessary measure. It’s as if Australia asked for a nightlight and the Gillard government responded by producing a 100-watt florescent light bulb to keep our environmental nightmares at bay. Of those questioned, 90% were aware of the increase to the instant asset tax write-off threshold, and after a quick briefing on what the change in reform entailed for small businesses 100% affirmed that they would attempt to take advantage of the change in reform. This shows an appreciation of the measures proposed but has not necessarily eased the worries of the small businessperson. Four out of five owners had doubts about how the carbon tax would affect their business personally, while half thought that the reform would affect their business negatively.

There were also some industry specific trends found in the results. none of the trade workers agreed with the carbon tax, while it gelled almost unanimously with the retail industry. A mixture of trade and hospitality related businesses made up the 50% who thought the tax would negatively affect their business.

Jason Crump is co-owner of O’toole plumbing, sited in Warriewood. Jason and co-owner Anthony have built up the business over the past eight years to where they now own around $80,000 in equipment and a small fleet of five cars. They employ up to six people at one time ranging from contractors to apprentices and laborers. Jason has a very firm position on the carbon tax. “No way!” he said, when asked if he supported the tax “It’s a lot of money going to a useless cause, I think. It’s different from the GST. That was a big tax but we knew Australia was going to see the money.” While appreciating that the proposed measures to minimize the effects of the carbon tax would help some small businesses, Jason thought O’toole plumbing was not really in a position to take full advantage of the Instant asset tax write-off. “We’ve been up and running for a while now so we pretty much have everything we need. If something breaks, we can buy the new gear, yeah, but a lot of the stuff in plumbing can be more expensive than that ($6500).”

“One of the young fellas who left us this year is looking to get his own thing up and running, and I can see for him, getting all the new gear, this would be great to get him started up.” So the measures in place to sustain the small business have in fact made the prospect of owning your own a lot more realistic. Inadvertently it is the up and comers that will be able to take full advantage of the increased threshold over the seasoned tradesmen. This will increase the competition inside a market with the potential for a decreasing clientele. You can see why the tradies might be worried. Jason believes there is a good chance he will lose business when the carbon tax is introduced, and the measures in place are not enough to prevent it. “ I think everyone will experience the price increases from the tax, some people say you wont. You can argue whether people will be better off or worse but in the end people will be stressing regardless, and if they’re stressing they’ll tighten up. Some of what we do is necessity and some of it isn’t. It’s that kind of business, the pools, gardens sort of stuff that I expect to drop off.”

On the other end of the spectrum is Susan Croach, Proprietor of Tongue teasers Delicatessen in Newport. Susan opened the café/delicatessen four years ago and currently employs five casual staff. Susan is a supporter of the carbon tax. “I understand why it’s a controversial issue, and why some people would be against it but I support the decision. We need to start doing something towards a cleaner future.” While she admits some element of doubt towards what the future may entail for her business, she believes the introduction of the carbon tax will not harm her business. “There’s always a lot of hype around changes like this but I think once its in place, everything will settle down and not too much will change.” Susan is holding off on purchases until July 1st where she can take advantage of the increased threshold. “We need a new freezer for out the back. It’s no emergency so I will wait until the increase. I think it’s a great thing (the write-off increase). It certainly will ease the pressure on my business, and I’m sure others.”

Whether you’re for or against the reform, Carbon pricing will begin on the 1st of July 2012. While the reactions from small businesses are mixed it is still uncertain amid all this reshuffling who specifically is going to feel the pinch. Julia Gillard’s decision to go back on her word and introduce the carbon tax is highly publicized and probably the second most controversial decision in her career (let’s not forget the clash with her predecessor).

She is sticking by her decision and Australia will for at least some amount of time be living with a carbon tax. Gillard hopes that after a year with the tax, when it comes time to vote, the public will have realized that the tax hasnot led up to its disastrous expectations. In a recent Q&A interview Prime minister Gillard explained that while this tax has been introduced sooner than necessary, it has always been essential.

“We need to act to cut carbon pollution.

Of course people will get their vote in 2013, they’ll be able to vote knowing what the carbon pollution tax means, with big polluters paying the price, and also what it means for them and their family in tax cuts – family payment increases and increases in the pension.

We’ve got to get this done, and I’m determined to do it.”

Tony Abbott has vowed to overturn the reform if a Liberal government is the successor. The information has been presented for both sides and the arguments continue to go in circles. The only new material we are guaranteed is living with the tax in the year leading up to the election, with the effects of the tax on Australians bound to have a heavy influence on its results.

Image from www.pointofsalesystems.com.au

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