ADDISON, Mr Matthew, Chair, Council of Small Business Organisations Australia CAPPUCCIO, Ms Skye, Chief Executive Officer, Council of Small Business Organisations Australia CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses giving evidence to Senate committees has been provided to you. I now invite you to make a short opening statement and, at the conclusion of any remarks, I'll invite members of the committee to ask questions. Ms Cappuccio : Thank you to the committee for the opportunity to appear today. COSBOA is the peak national body representing small business in Australia. We speak on behalf of the roughly 2.7 million small businesses that make up around 97 per cent of all Australian businesses, businesses that employ more than five million Australians and contribute billions of dollars to our economy every year. COSBOA welcomes this bill. The permanent instant asset write-off, the loss carry-back measure and the increased threshold for the small-business CGT concessions all move in the right direction. But in each case, we believe the design falls short of what's genuinely needed to lift small-business investment resilience and productivity. On the instant asset write-off, we strongly welcome permanency. For years, small-business owners have watched thresholds change, been dependent on annual announcements and have often seen legislation passed at the last minute. That uncertainty has made it harder for small businesses to plan to invest in equipment and tools to drive business productivity. For many small businesses, that planning runway is critical, and, with tight margins, the accessibility or otherwise of the instant asset write-off can be the determinant on whether the investment goes ahead. Whilst permanency is welcome, the $20,000 threshold is out of step with the real cost of the assets that truly improve small-business productivity. Twenty thousand dollars supports a new laptop, a new coffee machine, perhaps a trailer, but it falls far short of the new vehicle or equipment that enables a tradie to support an additional staff member or the machinery upgrades that enable a small manufacturer to improve production times whilst reducing energy consumption. COSBOA has consistently called for a threshold of $150,000 indexed over time. Further, the simplified depreciation lockout should be permanently withdrawn. On loss carry-back, the principle is sound, but the mechanism as drafted is built for companies with a turnover up to $1 billion. A genuinely small business needs a simple pathway with standardised calculations so the businesses this measure is meant to help aren't shut out by compliance complexity built for a different scale of enterprise entirely. Further, this should apply to small businesses operating through other structures, not privileging only those set up in a company structure. On the small-business capital gains tax concessions, lifting the threshold for the 50 per cent active asset concession is very welcome. There are approximately 180,000 small businesses in Australia with a turnover between $2 million and $10 million who are now clearly eligible for this concession. The $2 million threshold hasn't been indexed or updated in 19 years, and each year becomes more and more out of step with the contemporary reality of small business. Critically, it also acts as a deterrent for business growth beyond the eligibility threshold, particularly for businesses that are close to that threshold. Whilst increasing one threshold is welcome, leaving the framework otherwise untouched creates inconsistency and complexity in the tax system. It becomes yet another issue that small-business advisers have to explain to confused small business clients. Further, it retains the business growth deterrent issue when we urgently need action to facilitate growth in small-business productivity. We want to see all four of the small-business CGT concessions aligned to the same $10 million turnover threshold already used elsewhere in the tax system. This not only provides a coherent framework but contemporises the breadth of small-business CGT concessions to remove barriers and disincentives to business growth. We are very happy to take questions. CHAIR: I will go first to Senator Chandler. Senator CHANDLER: Thanks, CoSBOA, for coming along today. I have a few questions on a couple of different topics, so we'll just launch right in and, hopefully, we'll get to the end. First of all, I understand COSBOA are welcoming the instant asset write-off becoming permanent. I know that that has been coalition policy for a long time, ahead of the budget announcement. What does having certainty around the instant asset write-off mean for Australian small-business investment decisions? Ms Cappuccio : I think it's critical because it enables small businesses to plan ahead. Even a $20,000 investment for a small business can be quite significant and something that you need to save for or that you need to consider how you're going to access financing to fund, so that planning runway for a small business is really, really critical. The instant asset write-off and the impact that has on cash flow, for some businesses, is actually the difference between whether or not they will go ahead with that investment. Having said all of that, $20,000 as a threshold is much too low for the sorts of investments we really need to see small businesses making to actually drive the efficiency in how they work and the productivity of their business. Mr Addison : If I can just add to Skye's comments about that certainty of the legislation and the certainty of the tax framework that a business is acting in, they know it's $20,000. They know it's $20,000 this year. They know it's $20,000 next year. Our number is $150,000 but let's just assume the $20,000 number. It takes the gamble out. What we've had for a number of years is the law gets passed late June for that 30 June, and we actually don't know whether the law is getting through or not. By making it permanent, it is a definite win to businesses and their advisers in being able to get the strategy right for their business investment. Senator CHANDLER: The threshold level and the $20,000 being too low was going to be my next question, so thanks for answering that pre-emptively. Are you concerned that at that $20,000 level small businesses might reconsider investing in significant productive investments like IT infrastructure, commercial vehicles and machinery because that that $20,000 just isn't quite high enough to cover off on those sorts of investments? Ms Cappuccio : Exactly. The critical purpose of the instant asset write-off is to be driving small-business investment in a way that drives small-business productivity. With the threshold set at $20,000, we see small businesses investing in what are probably better categorised as tools, so tools to support their business. That's useful, but it's not as useful as something that actually allows you to invest in something that really will change the speed or the efficiency with which you are able to work or which really does let your business grow. So I think the example of a tradie being able to invest in a new, fully kitted-out ute that lets them bring on another staff member is a really good example because that's actually something that does enable the business to grow but really can't be achieved with under $20,000. Senator CHANDLER: Would $50,000 be better? Ms Cappuccio : Fifty thousand dollars is obviously better than $20,000, but I don't think goes quite as far as we really need it to in today's times. Senator CHANDLER: I note you'd also prefer that high level of $150,000 plus indexation of the that $150,000 over time. What are the risks you see if this measure that we're talking about today, the $20,000, is made permanent, but it's just set-and-forget and it's not constantly being revisited? Mr Addison : Clearly, if the bill as tabled is passed at the $20,000, we believe that is a win for small business. Making it permanent is a win for small business. We would advocate and ask this committee to seriously consider the economic benefit that will come out of raising that threshold. Senator CHANDLER: In your submission, you've also raised concerns about the simplified depreciation lockout rule resuming on 1 July 2027. Can you walk me through those concerns coming from small business about the need to retain some flexibility in changing circumstances? Mr Addison : For 15 years, that lockout rule has been deferred and pushed off, and it's pushed off annually. If there's an integrity issue, it would have come up over the last few years. The whole purpose of making the instant asset write-off permanent is to give us a certainty about our decisions. That lockout rule seems to be addressing an issue that is just not evident in Australia at this point in time, so it would make decision-making certainty also be improved and enhanced if we just take the lockout provision out of the regime. Senator CHANDLER: I want to go to the loss carry-back as well. You've raised concerns that the loss carry-back provisions as presented in this bill are too complex for small businesses to be able to realistically use in practice. Can you again walk me through those concerns and your alternative safe-harbour arrangements? Mr Addison : I'll draw the committee's attention to some of the submissions by some of the other parties that aren't appearing before you today. Both CPA and Chartered Accountants in particular have looked at that loss carry-back and found some concerns about the current construct—that it may actually disadvantage a small business, depending on how they claim the carry-back loss. I'll leave it to those submissions, and the committee could certainly reach out to either Chartered or CPA to follow those up. In terms of the mechanics for a small business, we're concerned that, with the way that it is framed, a small business with limited capacity to get great advice or good advice may actually make decisions that will cost them some of their losses. They will actually forfeit some of their losses because they fill in the forms the wrong way. So we would be asking Treasury and would be asking the ATO as the implementers—therefore we want it backed up by the legislation—to make sure this is implemented in a very simple framework. Our early research says we do believe it can be achieved, but we want to make sure it's achieved in the legislation, the explanatory memorandum and the way it's implemented. Senator CHANDLER: Would it be a fair assessment, given some of these concerns that you've raised, that what the government has done here is design a tax policy that doesn't necessarily understand the realities of how small business operates? Mr Addison : The loss carry-back as tabled certainly advantages those small businesses that trade and act in a company scenario. We are concerned, and we would ask the committee and government to think about applying the loss carry-back provisions to the other entities, be that sole traders, partners in a partnership or, for that matter, beneficiaries in a trust, all of which might have a loss year, all of which, through the lodgement of a simple loss carry-back claim form, could have the 2027 loss tabled to claim a refund against their 2026 tax. It could be administratively simple. We don't quite understand why the bill and the policy as tabled has not extended to the other small businesses. There are 2.7 million small businesses in Australia, and I think the Treasury paper said 80,000 will benefit from the loss carry-back. We'd like to see it extended. Senator CHANDLER: Just to this broader issue of engagement with the government around these changes, have you had any engagement from the Treasurer or Treasury on these concerns from small businesses on the measures within this bill? Ms Cappuccio : We have spoken extensively about the CGT small-business concessions, and we have, in the lead-up to the budget, spoken a lot about the instant asset write-off, but not since. Senator CHANDLER: Nothing specific to this legislation, then? Ms Cappuccio : Some of those are covered here, but not specific to the legislation. Senator CHANDLER: Has any form of engagement occurred formally since the tax reform No. 1 bill was passed? Ms Cappuccio : No. Senator CHANDLER: The government has consistently said that the measures presented in this bill effectively offset the impacts of the other budget measures, including those that were in tax reform No. 1. Do you consider that the measures in this bill, given the issues we've gone over in the last 10 minutes or so, go in any way to offset the government's high taxes on small businesses? Ms Cappuccio : Some of the measures in this bill are very much welcome with the conditions that we've already outlined. However, having said that, some of the other announcements that have come out of the budget are really problematic for small business. We haven't yet had a debate in parliament about the impact of the minimum 30 per cent taxation on discretionary trusts, but that's going to have a negative impact on hundreds of thousands of small businesses. In fact, our basic costings suggest that the restructure proposal that comes alongside that—the suggestion that many small businesses may be better off from a tax point of view in restructuring out of a discretionary trust into a company—could in itself cost $3 billion to $10 billion for the small-business community. In that sense, that's a direct and very costly negative impact on small business that isn't fully offset by any of these changes. Senator CHANDLER: I think you've probably answered my next question, but, on balance, we're saying that what is in this bill doesn't go anywhere near to offsetting the detriment that the small-business community is seeing elsewhere through these changes. Mr Addison : Regarding the consequences to small business of implementing the changes of this bill, the previous No. 1 legislation that's through and the announcements out of the budget for proposed measures that are not yet before us, we are really concerned at the cost of implementation and the cost of adoption to small business. Right at the moment, the measures before you in this bill do not offset the costs that we are seeing. Senator CHANDLER: Are you aware of any progress that has been made of those outstanding budget measures, particularly the trusts issue that you just raised, that might assist in assessing this bill within its full budgetary context? Ms Cappuccio : Treasury currently has a consultation paper out about the minimum 30 per cent taxation of discretionary trusts. That consultation closes on 31 July, and we understand there'll be further discussion after that. Senator CHANDLER: What consultation have they undertaken with COSBOA specifically? Ms Cappuccio : We have had one conversation with Treasury about it and a number of conversations with the Treasurer's office about that. We are participating in the formal consultation process, and we'll put in a submission to that. Senator CHANDLER: In your submission on this bill, you continue to raise—and I think you've raised it in testimony this morning as well—that the small-business CGT concessions no longer reflect contemporary business realities and that you are still concerned about the small businesses that will be negatively impacted by the removal of the 50 per cent CGT discount. It seems to me that the government doesn't really understand how small businesses operate and the pressures that they're facing and that they are continuing to scramble to cover up these badly designed high taxes that they've introduced. Would that be a fair assessment? Am I reading between the lines too much? Ms Cappuccio : Our key concern about the changes to the small-business capital gains tax concessions is that the eligibility threshold has been lifted for one of four concessions. Lifting that one does take away some of the negative impact of the broader change to how the capital gains tax discount is calculated, but what it doesn't do is recognise the fact that the thresholds for those small-business CGT concessions haven't been updated or indexed in nearly 20 years. So we're not contemporising. We're not matching to the reality of current small businesses. Senator CHANDLER: Yes, they're just tinkering around the edges. Ms Cappuccio : It is an important change. Lifting to that $10 million threshold is definitely welcome, and it will make a significant difference. But, in lifting only one and not the other three, we do keep in place that disincentive to grow. If you're a small business and you're turning over $2.5 million, maybe you're trying to grow, but you're getting close to retirement, there's actually now an incentive—and there was previously as well—built into the system to turn over a bit less and be a bit smaller because your capital gains treatment will be preferable. CHAIR: I'm now going to go to Senator O'Neill. Senator O'NEILL: Good morning, Ms Cappuccio. Thank you very much for your evidence this morning. Could you confirm your earlier evidence that every single one of Australia's 2.7 million active small businesses, as a consequence of this legislation, will now be eligible for the instant asset write-off and loss carry-back? Is that the case? Ms Cappuccio : I think they're two separate questions. If we define a small business as an entity that turns over less than $10 million, they will be eligible for the instant asset write-off if they are purchasing an eligible asset, but the loss carry-back relies on them being set up in a company structure. Many—as in hundreds of thousands of small businesses—are set up as discretionary trusts. Even more of them are set up— Senator O'NEILL: We'll get back to the loss carry-back, but let's start with the instant asset write-off because I recall the last time Mr Addison was giving evidence, there was a little uncertainty about exactly what information was flowing to the small businesses. For people who are interested, as Mr Addison said in his commentary, $20,000 is quite a significant investment for many small businesses. I want to confirm the figure—that 2.7 million active small businesses will be eligible for that instant asset write-off if they invest in a term that are recorded to that program. Mr Addison : Thanks for clarifying. The 2.7 million number is a definition of small business. I'm not sure that 2.7 million is the current number attached to those below the $10 million turnover threshold. I am unable to confirm exactly what the number is, but the $20,000 instant asset write-off is certainly welcome. We'll restate that COSBOA's view is that that threshold should be higher. Senator O'NEILL: Thank you for your submission. Everybody always asks for a higher number, but let's make sure that we get a sense of how significant this is because we haven't always had certainty around this. Perhaps you've been involved with the sector as long as I have, Mr Addison, and it is a fact, despite submissions by colleagues here this morning, that the Liberal and National parties are camping with small business. It was a previous Labor government that created a $6½ thousand permanent instant asset write-off and a similar loss carry-back, which was repealed by Mr Abbott in the Liberal and National parties' government, and left a $1,000 deduction instead of a $6½ thousand deduction and no loss carry-back. When that occurred, you can imagine there was some impact. What happened to small businesses when the Abbott government repealed that permanent instant asset write-off and the loss carry-back scheme in 2014? Mr Addison : Yes, you're right. I have been around too long, so I have lived through some of these eras. What this year-to-year legislation has done over the different eras does make it harder for small businesses to make those investment decisions I'll leave it at that point, but making it permanent gives us a win, gives us some certainty and allows us to make decisions that crossover a financial year. We welcome this government's move to making it permanent. Senator O'NEILL: As you said, Mr Addison, $20,000 is nothing to be sneezed at. Every Australian who would be investing in their small business wouldn't make a decision lightly about $20,000, no matter how big or small their business is. For some people, this is a very significant statement. Could you perhaps expand on Ms Cappuccio's language about a planning runway? This is new terminology that she's used a couple of times. Why is a $20,000 instant asset write-off an important part of planning for small businesses? Mr Addison : One of the issues that comes into a small-business investment decision or looking at the slightly larger equipment that my colleague has referred to is that it's not all made within one financial year. It may trip over the 30 June. So a $100,000 piece of equipment might be placed in April or May but not be installed and ready for use by 30 June despite having deposits paid. Maybe, in some cases, the full amount is paid, but the equipment isn't delivered and installed till a later date. That planning runway, as you've done for $20,000, if we could make it permanent for a higher amount, small business can invest in energy appropriate equipment. They can invest in productivity-enhancing equipment of a larger sum. That would be good for their own business, but it would also be good for the businesses they have purchased from, which creates more economic viability for the Australian business economy. Senator O'NEILL: I'm thinking about an example that's in the papers from the Australian Taxation Office in their efforts to communicate these improvements to small business in the Australian economy, and it's the purchase of a bucket, which is a vital piece of equipment for earthmoving industries. It might not be enough to buy a brand new machine, but it is certainly an important part of the productivity of a business to be able to purchase a bucket under $20,000 at the right size for the job that's at hand. That's a perfect example, in my view, in a very practical way, of where you might plan for a replacement of an old bucket and an improvement of your activity by a $20,000 asset write-off that can be planned for. Does that accord with your understanding? That's just one sector of course. Mr Addison : Again, we welcome the $200,000 limit. We welcome that being made permanent. Our position remains, our members tell us and the environment tells us that a higher threshold would add greater value. Senator O'NEILL: It would always be welcome, I'm sure; $20,000 is nothing to be sneezed at. Can I go back to the 2.7 million number of small businesses. My understanding is that is the number from Ms Cappuccio's opening statement, and that would cover 97 per cent of all businesses that are now eligible for the 50 per cent capital gains tax active asset reduction. Is that your understanding, Mr Addison? Mr Addison : Skye? Ms Cappuccio : Yes, that is my understanding. As I said, the 2.7 million might be a rounded-up figure. I think it might be 100,000 or 200,000 off, but in a general sense that is the case. Senator O'NEILL: I believe, Ms Cappuccio, 2.7 million is the Australian Bureau of Statistics data on active small businesses below $10 million, so we would generally afford such a number a high degree of confidence, and I'm sure you use it yourself for your own organisation. Ms Cappuccio : Yes. CHAIR: Thank you. Senator Liddle. Senator LIDDLE: I want to pick up on the references to 2.7 million small businesses. We know that's a number that we hear, but I understand that not all small businesses are eligible—only those who are incorporated. Is that your understanding, and who else is ineligible? Mr Addison : For the loss carry-back provision, correct. Senator LIDDLE: We've seen in the news a fair bit lately—we've heard about the benefits of cash flow. What potential is there, when businesses are going broke at record levels, for this to result in improved productivity, and how would indexation actually assist them, given the inflationary issues that we've seen impacting business as well? Mr Addison : I think you're referring to the general economic environment for small business at the moment—which all our information is it is extremely tough. I think there's a recent New South Wales report that talks about the number of small businesses that are closing each week. I think it was 14 small businesses—I'm going to say per week, but I think it actually said per day. It is really tough out there. There are cafes closing, there are restaurants closing, and there are builders saying, 'I'm not going to do this anymore.' It is a very tough environment, so anything that we can do to incentivise or encourage small business to stay in business—and loss carry-back might contribute to some of that. The instant asset write-off means you get a deduction this year, not over the next five years, so it makes it easier to invest in that new equipment. It is a very tough environment out there, and we're hearing it across the board. Senator LIDDLE: Small businesses are made up of a diversity of people who operate in a diversity of sectors. On your read of these changes, are there some sectors that are going to benefit more than others and some who will not be able to engage in this? Mr Addison : A lot of small businesses are service providers, and they don't have a lot of equipment. So the instant asset write-off might be a win, but they will not be significantly enhanced by it, because they're not spending $5,000, let alone $20,000, let alone our large amount. Those service providers that are a significant portion of small business in Australia are not seeing it. Again, those service providers watched our perspectives report from last year—said it's a lot of small business. Sixty per cent weren't even able to pay themselves every week or every fortnight. That same proportion of small business were telling them they would certainly not earn minimum wage. Again, we are hearing it's a tough environment despite that being last year's perspectives report. To get it on the record, we've just released this year's perspectives report, which is about regional Australia's small businesses, and that indicates it's the same very tough environment. Senator LIDDLE: The actual cost of running a business and the regulatory requirements that businesses are finding are making it even tougher—I want to go to the things that people are focused on right now, one of them being engagement in artificial intelligence and what that can mean for their businesses, as well as cybersecurity and technology, which you mentioned earlier. I want you to give me a sense of, if the instant asset write-off is sitting at $20,000, how much would that assist businesses? Do you have an idea of what the minimum amount is that a business would need—as you mentioned before, it has to be incorporated—to even start participating in purchasing those things that would allow them to take advantage of those things they're being told are needed now? Mr Addison : I could give you an 'off the top of the head' answer; I think we'd prefer to take that away and see whether we can get you some creditable evidence. So if we can take that on notice— Senator LIDDLE: Thank you. Given your concerns about the effectiveness of the loss carry-back position, would you prefer that the loss carry-back be scaled back and the instant asset write-off be expanded to provide more benefit to more businesses? Ms Cappuccio : I don't think that would be a suggestion that we would make. We would like to see the loss carry-back mechanism expanded to capture all small businesses, not just those that are set up as a company structure, and we would like to see the instant asset write-off threshold increased. Both of those but particularly the instant asset write-off are productivity measures so that they may have some immediate revenue cost to the government, but they do drive productivity. The Productivity Commission has done some work that shows what increasing the instant asset write-off to $150,000 would do, and they clearly demonstrate that it would grow GDP. Senator LIDDLE: Just to clarify, I meant scaled back from the $1 billion turnover. Ms Cappuccio : Sorry. I thought you were suggesting we trade one to the other. I think our preference would be that we try and get the mechanism with the established thresholds set up so that it benefits as many small businesses as possible, rather than limiting the number of businesses that it would benefit. Senator LIDDLE: I know you represent a huge number of businesses. You were doing a fair bit of work prior to the budget. You would have been meeting with the government as well as other members of parliament. Were you disappointed when you saw what was actually on offer in this so-called tax reform? I'm assuming you weren't advocating for $20,000 for the instant asset write-off or for some of the other things that are actually in this current legislation. Ms Cappuccio : We were pleased by, and welcomed, some of the measures, including some of the commitments about reducing red tape and definitely the permanency of the instant asset write-off. You're very correct that we are disappointed that the threshold remains at $20,000. It really does need to be higher, and we hear that from small businesses regularly. We were particularly concerned about the capital gains tax changes that have now passed parliament, and we remain very concerned about the 30 per cent minimum tax on discretionary trusts. That is going to have a direct and negative impact on hundreds of thousands of small businesses. Senator LIDDLE: Thank you. CHAIR: We're running short of time now, but I'll go to Senator McDonald. Senator McDONALD: I think this is an incredibly important topic given the proportion of Australian workers who are employed by small businesses, who get a start with apprenticeships and every other thing. Despite some suggestion previously that there may be 2.7 million small businesses, it is the 85,000 that we're really discussing today. If you could, clarify that. Then I would like to ask you this: what is the environment that is contributing to small businesses doing it so tough? Some of that data you just provided about some small-business operators not being able to pay themselves a wage is pretty shocking. Mr Addison : The 85,000 is the number of small businesses trading through companies that Treasury, I believe, has stated will be eligible for the loss carry-back provisions. The other provisions, such as the instant asset write-off, will apply to all those businesses below the $10 million turnover threshold. The other provisions of the budget like the CGT provisions below $10 million are great, but the other things like the trusts apply to potentially all those businesses operating through trusts, which is over 300,000, I believe. Senator McDONALD: Could you speak to the economic climate that is providing this environment that small businesses are doing it so tough? Ms Cappuccio : This is a good segue to a report we released just last week which really focused on regional small businesses. Ninety per cent of those who were involved in that survey work told us that the costs of doing business had increased in the last year, and our research the year before suggested the cost of doing business had increased in the year before that. Particularly what they're talking about are costs of energy, costs of insurance and cost of wages going up. That's really significant. Also, 75 per cent of survey respondents—there were 600 of them in that survey—talked about diminishing profits. Their profit margin has reduced this year, and, again, survey results from the previous year suggested a really similar picture. So we are seeing year-on-year increases in the costs of doing business and year-on-year decreases in profit margins. The things that are driving that are diverse and cumulative, but we definitely need to be looking at some of those spaces, like making sure that we don't see any further increase in insurance costs for small business, that we don't see further increase in energy costs for small business and that in decisions around wages et cetera we clearly consider the impact on the viability of small business when those decisions are being made. Senator McDONALD: Today I'm in Townsville. Today we hear that North Queensland farmers are not receiving more than the cost of production for tomatoes, for eggplants, for basic food that we want to keep on the shelves in Australia. They're quoting the cost of transport, fuel, fertiliser, insurance, electricity—some of the things you've mentioned. I think the idea that $20,000 is something not to be sneezed at is fundamentally offensive to small businesses who carry Australia—Australian businesses, Australian food production and Australian employment. I'm shocked. It's seven years since I ran a small business. I ran butcher shops, and $20,000 would barely cover a workplace-safe bandsaw, much less anything that would actually grow the business. You've given the example of being able to buy a new motor vehicle. You could employ another staff member. Do you want to expand a bit on what it is that grows businesses, that secures businesses and secures Australians' employment in those businesses? Ms Cappuccio : Drawing on the agricultural food production examples that you just provided, an increased threshold for instant asset write-off would enable the upgrading of your equipment for processing food, which might enable you to bring on an extra one or two staff members to participate in that production or speed up the way you move through the production. There's also, obviously, a range of equipment in the picking of certain produce on farms. If you upgraded that, you could pick and bring that food into the packing sheds much more quickly. So there's a breadth of examples. They are often very industry specific, but when you look across most industries there are examples where, to really invest in a way that drives productivity of the business, you need to be investing and be able to spend more than $20,000. Senator McDONALD: Do you feel that the Australian government is attuned to the interests and concerns of Australian small businesses? Ms Cappuccio : I think that's a challenging question. I think some of these measures do respond to things that we have asked for, like making the instant asset write-off permanent. I think some of the other changes we saw announced in the budget—I again go back to the minimum 30 per cent tax on discretionary trusts—are going to have a huge and very negative impact on hundreds of thousands of small family businesses. Certainly, those businesses do not feel their concerns are being heard or heeded. Senator McDONALD: Do you feel you're being asked to thank the government for throwing crumbs at your feet rather than supporting small businesses genuinely in a way that allows them not only to survive but to thrive and potentially grow? Ms Cappuccio : I definitely think it's fair to say that we would like to see more support for small businesses that is directed at supporting them to thrive. A lot of small businesses at the moment are resilient. They're adapting, but they're adapting in a way that is based around survival. They're not adapting to grow and thrive because the underlying policy conditions are just not there to support that. So we would strongly welcome more support across a range of domains that really support small businesses to get back into that space where they have that confidence to invest and grow. Senator McDONALD: We had some reflections on earlier governments and their treatment of instant asset write-offs. During COVID—which was not a dissimilar shock to the economy to what we're seeing now with the significant increases to fuel and transport costs—instant asset write-offs were initially increased to $150,000 and were then unlimited. How would you compare a $20,000 instant asset write-off threshold? Mr Addison : Clearly, during COVID a threshold was set, and the $150,000 was very welcome at the time. That, I suppose, set not just an expectation. It was realistic at the time, and we believe it's realistic now. Senator McDONALD: In its totality, do you think this budget does harm to small business? Mr Addison : There are measures and commitments made by this government in the budget that show some promising signs. But, as we have both mentioned to this committee, there are concerns about the consequences of both the capital gains tax measures and the trust measures, in particular, that are yet to be seen. And we really hope those measures can be brought on in a way that will improve the economy and not hurt it. Senator McDONALD: I'll leave it with a final observation. In my experience in running a small business—butcher shops—$20,000 is an insult to small businesses. The lack of understanding of how small businesses operate in this country, as evidenced by this budget, is truly breathtaking. I feel sick listening to this evidence. CHAIR: Senator O'Neill, I understand you have one more follow-up question. Please be as efficient as possible so that we can get to our next witness. Senator O'NEILL: If you could indulge me, I actually have two. Let's go to the small business issue of loss carry-back. I think it's an extraordinary proposition—comparing the moment as we're moving freely around the country here—that it should be dealt with in the same way as during the COVID crisis that the country faced. I want to clarify something and get it on the record from Mr Addison. The loss carry-back scheme, that has just been spoken about by Senator McDonald, was temporary in nature and implemented in that COVID era. Let's be clear: was that exclusively for corporate entities, which is the 85,000 number that Senator McDonald referred to? Is that correct? Mr Addison : The 85,000 number is the number that's on the table at the moment for who will be impacted by the proposed measure. I am unable to talk to how many businesses, or which businesses, were eligible during the COVID era. I would have to take that on notice to confirm. Senator O'NEILL: That would be great if you can take it on notice to get the exact number, but we are talking about the same structural element of the economy. The corporate entities were the entities that received the loss carry-back under the previous Liberal National Party under Mr Morrison. That is correct. Mr Addison : It sounds right, but I will take it on notice. It would appear to be what has been replicated in the provisions brought before us. As I mentioned before— Senator O'NEILL: And that was temporary in nature under Mr Morrison. That is not the case in this legislation. Is that correct? Mr Addison : It was for the time. So, yes, it was temporary legislation. Senator O'NEILL: What is it now? Mr Addison : To your point, yes, it is being tabled as permanent. Senator O'NEILL: And that assists in planning and productivity for businesses, clearly. To the point of the 85,000 corporate entities that are being referred to, I want to clarify something finally. According to ABS statistics, there are 2.7 million businesses in Australia under the $10 million threshold that will benefit from the instant asset write-off. Is it correct that there are 2.7 million small businesses? Mr Addison : I don't have the ABS number sitting in front of me, but I'm quite prepared to rely on your narrative around that being the number that comes from ABS. If that's the number below $10 million, then they will be eligible. Senator O'NEILL: Can I clarify further that the $20,000 instant asset write-off will be made permanent and that it is not a single opportunity for businesses, but rather the opportunity for businesses to purchase multiple productivity enhancing items? Perhaps they might decide to undertake the purchase of nine buckets, if we use my original example, or nine IT improvements to their businesses at $20,000 a pop, at every opportunity. There is not a capped number of opportunities for access to the $20,000 instant asset write-off. Can you clarify your understanding please, Mr Addison? Mr Addison : I think you've represented that rather well. It is $20,000 per asset, so a small business could do that for multiple assets. There is some complexity between what is considered a separate asset, but your narrative is correct. Senator O'NEILL: That is a very important distinction there with regard to numbers. I want to go to another number, if I can. It's my last question, Chair. CHAIR: It's the third last. This has to be your last. Senator O'NEILL: Given that there are 2.7 million businesses, could you, once again, state the sample size of your recent report into small business? How many businesses of those 2.7 million did you acquire information from? Ms Cappuccio : The report that we were referring to was particularly focused on small businesses in regional areas, and there were around just under 600 who participated in that. I would say that the results from that are very similar to a similar sized survey that we did the year before. Also, there's a lot of alignment in the results that we found and in some results that the ABS has recently published on business confidence. Senator O'NEILL: Thank you very much. CHAIR: Thank you, Senator O'Neill. That concludes our questions for representatives of COSBOA. Thank you for joining us today..