Published 7:46 PM, 10 May 2011 Last update 7:42 PM, 10 May 2011
The one million contractors of Australia should beware. Your ability to run your business is in severe jeopardy.
The Swan-Gillard attack on building contractors is one of nine blows associated with the budget aimed at middle income Australia. But, in the case of contracting, the budget measures are only the first step in the government?s campaign to turn as many contractors into employees as they can, and widen the net into IT and many other areas.
I must add here that many government ministers would dispute this claim, but I believe I am right.
So let?s start with looking at how the government?s plan will affect the building of the average house, or even the average home repair job. Currently the builder or ?handyman? hires contractors who do most of the work. Very often they will contract to others. Under the government plan, every time a handyman pays a contractor or that contractor pays another contractor the government must be told how much has been paid.
It will also extend to architects and engineers, who mostly work as contractors. If IT contractors work in the building industry, they will also be caught.
We are talking about an enormous paper work burden on small contractors ? many will find it impossible to operate. And then there will be paperwork mistakes, which will cause tax audits. It will not be such a big burden for the commercial building sector, because most of their work is usually carried out by larger groups ? that?s one reason why high-rise apartments cost so much more than double or single story dwellings.
When I tackled Treasury officials about the nightmare the budget will create for small operators in the home building and home repair industry, they replied that it was no different to what would happen if the contractor was employed. When you are running your own business, it is nothing like being employed. If home repairers and builders have to report every amount they pay to contractors, why not retailers, travel agents etc?
What I discovered is that IT and other professionals are next. The plan is to make it so complex and difficult to hire contractors that you will simply have to put everyone on staff. If that happens, watch the costs rise. It will certainly add 25 per cent to the cost of a house.
However, if this is all that is in the Swan-Gillard contract pipeline and the only purpose of collecting the information is to mathematically check tax returns ? as happens with bank interest ? then it would be bureaucratic, but it might be manageable.
But almost certainly the information will be used to attack the basis on which a contractor acts. The CFMEU, which wants to get control of the housing industry, has set out an agenda that has been backed by the ACTU and appears to be where the government is heading. A key part of the CFMEU plan was the reporting to government of all amounts paid to building contractors. The government has now agreed to this demand.
Next, the CFMEU wants to redefine a ?sham contract? under the Fair Work Act. The current law holds that a builder must have ?intent to deceive? for his independent contracting arrangement to be declared a ?sham?. The CFMEU want to remove ?intent?. That will enable the unions to put extreme pressure on builders to declare their independent contractor?s shams, which will devastate those contractors.
The CFMEU also want to impose an 80/20 rule as the key test of whether a person runs a business or should be an employee. The union says if contractors earn more than 80 per cent of their income from one client, they can be denied business tax treatment.
The CFMEU wants to ban the subletting of contract work and effectively shut down contractor and employee labour hire. They want Fair Work Australia to enforce the superannuation guarantee levy, rather than the Tax Office, which oversees it now. The government and the Greens control the Senate, so provided the independents roll over the government can transform the Australian workplace.
And, as productivity slumps and costs rise substantially, interest rates have to jump.
That makes you think the government would not be so stupid. But they have taken the first step.
