Last week, Labor handed down the 2025-26 Budget, the Coalition delivered its reply, and neither party presented the tax reforms that small-business owners desperately wanted – and needed.
Small-business owners and advocacy groups have been calling for meaningful tax reform. They’ve been asking for measures like targeted tax incentives and relief, a rightsized GST system and the overhaul or removal of payroll tax.
But the tax changes unveiled last week by both major parties failed to tick many – if any – points off the small-business wishlist. Labor took aim at personal income taxes, promising $536 in savings over two years, but it’s a far cry from the systematic change that small-business owners and advocacy groups have been asking for.
The Coalition has made some meatier promises – like raising the instant asset write-off to $30,000 and promising tax-deductible dining for SMEs – but it hasn’t addressed many of SMEs’ biggest pain points either.
Payroll pains
An example of the systematic changes that SME owners are crying out for is an overhaul of the payroll tax system. This tax targets employer businesses whose wages or employees exceed a certain threshold, and small-business owners have long been calling for its removal – or at least, a significant reform.
Lauren Sommer of Moi Moi Fine Jewellery is one such business owner.
“The unchanged payroll tax threshold has had unnecessary and significant expenses for Moi Moi Fine Jewellery and other SME,” Sommer told ISB.
The business owner said that payroll tax not only adds significant administrative complexity and cost to her operations, but also discourages her from adding additional employees and growing interstate. Currently, this taxation system is managed on a state-by-state basis, meaning that the rates are often confusing and vary widely.
“Moving to a federal system with uniform rates would simplify compliance,” said Sommer.
But it’s these sorts of targeted, coordinated changes that were missing in this year’s wave of SME-related election promises. For now, payroll tax remains the states’ domain – and SMEs miss out on much-needed reform.
Lack of clarity around tax incentives
Another issue expressed far and wide in the small-business community is the lack of clarity and consistency around tax incentives in general.
For instance, the instant asset write-off measure is often renewed on a yearly basis at very short notice before tax time, making long-term planning difficult for small-business owners. The 2024-25 instant asset write-off wasn’t made law until last week – just three months before the end of the financial year.
To make matters worse, it was just announced that the write-off would not be renewed for the 2025-26 financial year – meaning that small businesses have a limited amount of time to make significant business investment decisions.
“The tax system should encourage small businesses to invest, innovate, and hire – yet too often, it does the opposite,” said Council of Small Business Organisations Australia (COSBOA) CEO Luke Achterstraat. “A simplified and fairer approach is needed to unlock growth.”
COSBOA is now calling for a major tax rate cut for small businesses. It wants the rate to be decreased to 20 per cent from the current rate of 25 per cent for businesses with an annual turnover of $20 million.
“Cutting the tax rate would have an instant impact and provide Australian small businesses with the fair go they deserve,” said Achterstraat.
“Investment growth has been lacklustre in Australia, leading to reduced competition, higher prices and lower living standards. RBA research confirms lower tax drives new investment.”
