How small is small when it comes to tax?

The players are in the right positions. The referee has blown the whistle. The match of the round has begun and, as I predicted yesterday, SMEs have managed to become the political football being booted around by all sides.

The Greens are standing firm on their promise not to pass the company tax cuts to “big businesses” that are a key part of the Government’s mining tax package.

The Greens say they will pass the company tax reduction – down from 30% to 29% – to small businesses with less than $2 million in turnover, but that’s as far as they will go.

 “Giving a tax cut to small business is a pretty good tonic for this economy that we’re in,” Greens MP Adam Bandt told ABC Radio yesterday. 

“[But] there’s no case economically or on fairness for giving a tax cut to big business in the order of $2.4 billion.”

When Bandt and Bob Brown use the phrase “big business” they are no doubt thinking of the big banks, or Woolworths or Boral or Myer or Telstra or the hundreds of other companies in the ASX 300.

But the problem with using a threshold of $2 million in sales to define small business is that you penalise thousands of entrepreneurs in the SME community.

Take SmartCompany’s annual Smart50 list for example. Only one company was under the $2 million threshold in the 2010-11 year, and knowing how these companies grow they’ve probably zoomed past that mark already.

Are the members of the Smart50 big business? Of course not.

Do they deserve a tax cut? Of course they do.

But these are the sort of companies that will miss out if the Greens don’t budge. These companies employ people, create wealth and drive the economy forward.

Tarring them with the same brush as the top end of town is silly – even if it is very convenient from a political sense.

Ironically, the Greens have actually been pushing to widen the definition of a “small business” from $2 million to $5 million, which would be a much more sensible threshold.

If the Greens did manage to increase the threshold, that would dull the pain of dumping the broad company tax cut. But the Government would never agree to it, because that $2 million definition runs across several key tax reforms, including the enlarged asset investment tax write-off.

Ironically, Labor might not be too upset by the Greens’ position. If it can’t get the company tax cut through for “big business” it will have an extra $2.4 billion to play with – that’s gold when the Budget is so tight.

And Labor has even been able to use the Greens’ move as a way to have a crack at the Coalition, who are refusing to support the company tax cuts for small business or big business on the principle that they are paid for by the carbon tax, which the Opposition opposes.

Treasurer Wayne Swan thundered yesterday: “The ball is firmly in Tony Abbott’s court – will he support a company tax cut to help small businesses that aren’t in the fast lane, or will he oppose a company tax cut so he can give Clive Palmer and Gina Rinehart a huge tax cut instead?”

“Tony Abbott’s name will be forever recorded in the history books as the leader of the Liberal Party that voted against a tax cut for small business.”

Pretty smart play by Swan, really. He gets to deflect blame from Labor’s junior Government partner in the Greens and puts the Coalition into what really will be an awkward spot of voting against company tax cuts.

It’s all great fun for the politicians. But the thousands of SMEs who may miss out on a tax cut aren’t going to enjoy themselves quite so much.