The gaping hole in the discussion on GST is the impact on small business

In light of the government decision to take GST reform off the table, now is the time to consider other options to reduce red tape for small businesses, and help this vital part of the economy succeed.

Unfortunately, the recent GST debate was focused on the wrong point. With politicians fixated on rates of GST and its carve-up, the burden the tax places on SMEs was largely ignored.

The SME sector is Australia’s largest private sector employer and the heartbeat of innovation and needs to be supported.

MYOB commissioned research with Australian and New Zealand small businesses to find out the cost of administering GST.

It has found GST compliance costs SMEs more than $13.7 billion a year; that’s $6778 annually for each of Australia’s 2 million SMEs.

Running the same business in Australia, administering the GST costs more than twice it does in New Zealand. That is because of the complexity of exemptions in the Australian GST, and the amount of (over) reporting needed for each exempt item.

If we implemented a New Zealand-style, simplified GST, small and medium businesses would save over $7 billion a year.

That is time every small business owner can spend improving their business, winning new clients, researching new products, streamlining process, or seeing their children’s sports matches. It is hard to imagine there can be a larger or more immediate productivity dividend from any other taxation reform.

However, complexity in Australia’s GST is not the only regulation that holds back small and medium enterprises. Another example is the Fair Work Act. With 122 federal awards, it is unnecessarily complicated.

It means business owners must be experts on a range of things, and keeping track of multiple awards is time-consuming and complex.

From speaking to customers, it’s clear these awards are a barrier to hiring new staff. The complexity intimidates many business owners, who are worried about getting it wrong.

Simplifying the Fair Work Act by reducing the number of awards would be welcomed by the SME sector.

If we implemented a New Zealand-style, simplified GST, small and medium businesses would save over $7 billion a year.

Tim Reed

It’s encouraging to see this on the agenda of the new Small Business Ombudsman, Kate Carnell.

I spend a a lot of time meeting SMEs across the country and the message I hear time and again is that they need things to be simpler. Less red tape means more time spent growing their business and driving the nation’s economy forward.

By taking incremental steps, such as removing the need to assign GST-free categories for all businesses or those with annual revenue below $2 million, we would be moving in the right direction. This modest reform would demonstrate to SMEs that their frustrations were being heard and acted on.

Showing that government is listening to the nation’s SMEs, and taking action to make their lives easier, will provide a significant productivity benefit which does not impinge on the Australian Tax Office’s ability to track GST collection.

There is real excitement in the SME sector about plans to encourage innovation, but we need to take care of the basics first. By removing unnecessary complexity for SMEs, we can give them back valuable time to do the things they do best: running their businesses and contributing to Australia’s economic growth.

If we can see progress on simplifying employment and take steps to slash the GST compliance burden, we will be a lot further towards creating an environment for innovation.

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Commentary by Tim Reed, Tim reed is the chief executive of MYOB

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