Have the Federal Government’s moves to cut small business red tape gone far enough?

However, one year on, small businesses still face growing expenses and a heavy compliance burden – from rising rents to changes in industrial relations laws. 

For that reason, the Institute of Public Accountants (IPA) continues to advocate for decreased red tape and more financial support.

We spoke with Tony Greco, IPA’s General Manager of Technical Policy, about the challenges small business faces and measures that could improve trading conditions. 

How did the federal government promise to reduce red tape?

The government’s package titled ‘Driving Collaboration with Small Business to Reduce the Time Spent Complying with Tax Obligations’ pledged $21.8 million over four years from 2023–24, then $1.4 million per year, to the Australian Tax Office (ATO) to deliver:

• An 18-month trial of an expansion of the ATO’s independent review process for small businesses undergoing an ATO audit, at a cost of $12.8 million (from 1 July 2024);
• The creation of five new tax clinics to provide tax advice and assistance, at a cost of $9 million (from 1 January 2025);
• Three strategies for reducing tax-related paperwork:
  • Allowing tax agents to lodge single touch payroll forms on small businesses’ behalf (from 1 July 2024);
  • Faster, safer and cheaper tax refunds through the reduced use of cheques (from 1 July 2024); and
  • Giving small businesses up to four years to amend their tax returns (from 1 July 2025).

Red tape reduction does not go far enough

While the IPA welcomes the move to cut red tape, it believes the 2023–24 measures did not go far enough.

“It’s not a game changer – it’s more like noise,” Greco says. “The relief is almost invisible – it doesn’t deliver very tangible benefits to small businesses.”

Small businesses do not need minor amendments to the taxation process, but an overhaul of the system. This is what the IPA called for in its 2024–25 pre-budget submission, urging the government to reform Australia’s taxation regime to make it fairer, simpler and more efficient.

“What we’re saying is that, when you’re a small business, you face pretty much the same taxation burden as a larger business,” Greco says. “The small business tax offset [at $1,000] gives something back to help with the disproportionate burden, but it’s not enough to make up for the significant cost.”

The IPA pre-budget submission advocated for an increase in the tax offset and a change in the rules, so the offset would apply per business, rather than per individual taxpayer.

Keeping up with changes in industrial relations

While continuing to deal with a complicated and expensive taxation system, small businesses face an increased compliance burden in other areas, particularly industrial relations.

“The red tape around industrial relations has gone through the roof,” Greco says. “There are changes to casual employment and changes to the meaning of employee versus contractor – and the right to disconnect will apply to small businesses from 2025.

“Employing people is a nightmare, which is why, in the main, most small businesses don’t do it.”

The IPA advocates for more support for small businesses to enable them to meet legal requirements without endangering cash flow.

For example, in its 2024–25 pre-budget submission, IPA called for changes to the new Payday Super regime. This would give small businesses extra time to plan and, in the case of errors in superannuation payments, would not face disproportionate penalties.

Rising cost of running a small business 

Rising costs of doing business have added to the pressure. Despite inflation easing and interest rates stabilising, the cost of running a small business is now higher than ever. 

“Small businesses are in their own cost of living crisis,” Greco says. “They’re facing rising rents, land taxes and so on, but at the same time they can’t increase prices significantly because consumers cannot afford to pay them – so they’re being smashed at both ends.

“It’s an incredibly difficult environment.”

The IPA believes more financial support is needed for small businesses, such as the Federal Government simplifying and expanding the small business CGT concessions and boosting incentives for research and development.

Red tape amplifies difficult small business conditions

“Small businesses are a huge part of the economy,” says Greco. “They employ a significant number of people, when you look at them collectively.” 

Over the past two years, the operating environment for small businesses has been in decline due to a combination of increasing compliance burden, growing costs and lower demand, according to the Australian Small Business and Family Enterprise Ombudsman Small Business Pulse. In the past 12 months alone, conditions have deteriorated by 3.5 per cent and continue to be well below the long-term average.

Consequently, many small businesses are focusing on survival rather than looking at growth opportunities. Fewer aspiring business owners are taking the first step in such a difficult operating environment.

“It’s important that there are rewards to encourage small businesses,” Greco says. “Otherwise, you get large businesses getting larger and the small ones, which are so important to our ecosystem, dropping off the perch.”