Tax system sets up SMEs to fail in a crisis - Atterton

FORMER academic Tim Atterton believes Australia's tax system sets up small business for failure in times like these by discouraging the retention of profits, distracting management and undermining strong balance sheets. To maximise personal wealth creation, the owners of small-to-medium enterprises tend to control their businesses through trusts, which have to distribute earnings and leave little in the way of long-term assets directly linked to the operations themselves.

"As a result, growth is funded through excessive borrowings that the banks have been all too happy to provide," Mr Atterton said. "However, this creates over-gearing on a massive scale that comes back and haunt the business sometime in the future, most likely when the economy begins to slow down."

Mr Atterton's concern is that the focus on tax minimisation comes at a high price in terms of management time and ultimately building a strong business entity separate from the people who created it. "Small business is so busy managing tax," W Atterton said. "It is not to say businesses are not doing well, but it is for the short-term. "They are working hard and they think they are doing fine. "None of them is looking at their balance sheets." (SOURCE/EXTRACT: WA Business News, 7.8.08)