Small-scale businesses are the engine room of Australia, the backbone of our economy, the hope of the side. They were employ by the former treasurer and current premier Scott Morrison to justify. Special treatment for small and medium-sized enterprises. A position that is share by the leaders of every political party. From Labor up to One Nation to the Australian Greens

This is the belief that drives the many subventions and grants. As well as guidance programs and preferential tax procedures, such as:

  • Tax exemptions for payroll tax
  • an lower corporate tax
  • Tax breaks on personal income when you are not incorporate
  • Exemptions under prescribed conditions in relation to capital gains taxes
  • Capital investments that are tax-deductible up-front
  • simpler arrangements for paying the tax on goods and services.

What’s remarkable concerning this engine room of the economy theory is the total lack of evidence supporting it. The advocates point out the huge amount of employees working in small companies.

Based on the Bureau of Statistics most recent count (in which small companies are those. That have less than twenty employees) the number of employees was 4.67 million people at June 30, 2020. That’s about 37.7 percent of the total workforce.

The Small Engine Room Which Eliminates Jobs

It is often not discussed is the fact that the figure 4.67 million 4.67 million is less than. It was in every single one of the last 13 years. There has never been a time over the last 13 years has more Australians. Worked in small-sized businesses than June 2007.

Instead of being the primary engine for jobs, small-scale business has been the cause of job loss. And has not created a single net new job total over the past 13 years.

Small-sized businesses’ employment has decreased 6.3 percent over the past 13 years of employment. Employment in medium-sized enterprises has grown by 46.4 percent and the number of employees. In large companies has increased by 48.4 percent.

Small Business Employment As A Proportion Of The Total Number Of Employed

Also, the instant asset write-off advanced to small businesses in the budget for 2015-16 budget contributed to boosting the amount of capital expenditures made by small companies.

Fixed capital expenditures of small-sized enterprises fell 16.1 percent during 2014-15 (the year prior to the immediate loss of asset) between 2014-15 and the year 2018-19 (the year prior to the pandemic) which is a significantly higher reduction than that in capital expenditures of medium-sized companies (2.7 percent) and large companies (6 6 percent). Another myth that is widely believe is that small companies are more creative.

Inefficient Small, Less Creative

Although some small-sized businesses are innovating, ABS research on innovation activities have repeatedly found that small companies are more likely to not engage in any type of innovative activities than large or medium-sized enterprises. The productivity is lower in small firms than larger ones.

The ABS calculates the value added per employee in small-sized businesses at around $24,000 which is 21% lower than that of all companies for 2019-20. The value added per employee in large companies was nearly $41,000, which is 36% more than the average.

A lower level of productivity may be one reason that, in the year 2019-20, small-sized businesses paid their employees just 35 percent less than the average salary or wage paid by all companies. Medium-size companies were paid around 11% more, while larger companies paid around 34 percent more.

Average Annual Salary Or Salary Is Determine By The Size Of The Business

The obvious conclusion that I have outlined more thoroughly in my latest article published in The Australian National University journal Agenda is that the common notion that small-sized businesses are an engine room of the economy is completely false and so is the implication that providing more assistance to small businesses just because they’re small is an effective option to boost employment, investment, as well as economic development.

Not Many People Are Keen To Pay Tax

One thing that small companies do not excel in is paying the necessary tax. It is report that the Australian Taxation Office Tax Gap program shows that small businesses (which is define as businesses who earn up to $10 million annually) were able to pay only 86.3 percent of the personal and corporate income tax they would have had to pay in the event that they had been fully compliant according to its interpretation of the tax law for 2018-19.

This is more than any tax gap estimated through the ATO. The ATO found that wealthy individuals voluntary paying 91.4 percent of what they should have been receive if they adhere to the rules. Large corporations paid 91.7%.

It is report that the Tax Office numbers suggest companies made up 49 percent of what it defines as non-collect funds. Large corporations and wealthy individuals only accounted for 10 percent and the tax office estimates 3%.

This is also strikingly in contrast to the widely-held perception that companies are unfairly target from the ATO and the idea that all of Australia’s fiscal woes would go away in the event that the only the top end of town contributed their fair share of tax.

During The Pandemic, Small Companies Needed Help

This isn’t to say that the vast assistance given to small-scale businesses in COVID-19 was unjustified. Small businesses make up an overwhelmingly large portion of all the industries that were most severely affect by the restrictions that were impose in order to thwart COVID-19. Hospitality was among them.

If the government had not offered the massive support to small-scale enterprises and it is very likely that the economy would have slowed by more while the unemployment rate could have increased by more by the middle of the last year. But, it is crucial to make sure that this support doesn’t be enshrine.

Strategies that help extend the life of enterprises which in the past typically, are less productive than larger companies will reduce the speed at which production elements are able to shift to more productive use within the industries and across the entire economy.