Abbott’s parental leave policy would be a disincentive to growth: Tax experts

Tax experts have slammed the Opposition’s plan to fund a six-month paid parental leave scheme via a 1.7% tax on companies that earn more than $5 million in profit, saying the plan could lead smaller companies to shelve expansion and acquisition plans to avoid paying the tax.

Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants in Australia, says the new levy could be seen as simply a surcharge on top of 30% corporate tax rate for those companies who earn more than $5 million.

He argues this will have an impact on the profitability and competitiveness of these firms and predicts this could flow through to the economy in two ways: higher costs for consumers as the tax is passed through, or lower wages for employees as the firms involved try to protect their margins.

Another concern is the possible impact on growth plans and what he describes as the potential “abuse” of the system.

He says a company earning $5.1 million in profit could find it that is actually in its best interests to lower its earnings below the $5 million levy threshold.

“The difference could be enough to generate a better return after tax.”

Smaller companies could also be forced to shelve growth plans and reconsider mergers or acquisitions if that would take them up to or above the $5 million threshold.

“It may well have the effect of stopping businesses form growing and merging and taking over other businesses. It jeopardises the ability for them to make those decisions.

“You don’t want tax to be a disincentive to entrepreneurial activity.”

He argues the parental leave tax could also act as a disincentive for investment and growth, something successive governments have worked to improve upon.

“This sort of policy announcement will take us in completely the opposite direction. Wherever possible we should avoid using the tax system as the easy target for tax grabs that are used to fund other policy initiatives.”

His argument was supported by figures that showed an effective company tax rate of 31.7% would make Australia’s company tax rate with fifth highest in the world.

Corporate Tax Association executive director Frank Drenth told The Australian most countries around the world were trying to reduce corporate tax rates to encourage investment and productivity gains.

While tax experts are unimpressed with Abbott’s plan, the move has won some support from women’s groups, some unions and, in something of a surprise, the Council of Small Business Organisations of Australia.

Chief executive Jaye Radisich says the plan would support female workers in small businesses and women who work for themselves.

While some female entrepreneurs had expressed concerns the Abbott plan could actually increase discrimination by making employers less likely to employ women, Abbott has pointed out that companies would not be affected according to how many women they employ, as the levy is based on profit rather than number of female employees.

However, there have been concerns in the past that there could be some discrimination against women stemming from the fact that paid parental leave schemes allow women to take longer leave periods.

The Productivity Commission’s report into paid parental leave scheme released last year found the introduction of a paid parental scheme of 18 weeks on the minimum wage would increase the average parental leave period by 10 weeks. A scheme that allows 16 weeks leave on full salary would be likely to increase the average leave period even further.