Saul Eslake is a heretic. He has found a position that is anathema to literally every side of politics: he’s a small business sceptic. Prior to the budget, Eslake detailed his concerns about the government’s proposed company tax cut package. But unlike many economists and all politicians, he went further and suggested there was no case for extending a tax cut to small business any more than medium or large business.

Small business is the sacred cow of Australian politics. Everyone in public life worships it. Small business is the “engine room” and “backbone” of the Australian economy, according to the government. Small business is the engine room and backbone of the economy, according to Labor. Small business is the engine of the economy, say the Greens.

Eslake’s contention is that small business’ job creation performance is overhyped, especially given it is now taxed at a lower rate. And new data confirms his scepticism about the backbone/engine.

On Friday the Australian Bureau of Statistics released its annual Australian Industry data for 2016-17, which examines the characteristics of Australian business, including size. Small business is the largest employing sector in Australia, with businesses under 20 employees having around 4.8 million jobs; medium businesses (20-199) 2.6 million and businesses over 200 staff about 3.5 million. But it has been the poorest performer in terms of jobs growth in the last two years.

“Small businesses have been taxed at a lower rate than larger ones since the beginning of the 2015-16 financial year,” Eslake explains. “Over the two years to 2016-17, employment in businesses has increased by 2.3%. Small businesses account for only 0.9 percentage points of this increase in employment, or 17.9% of the total, well below their 44.4% share of total business employment in 2014-15.”

The company tax cuts that are already legislated (which are based on turnover size) seem, if anything, to be associated with a decline in the jobs performance of small business relatively to sectors subject to higher taxation. “The share of business employment accounted for by small businesses has fallen from 52.6% to 43.8% over the past decade,” Eslake points out. The strongest growing sector in the last two years was medium businesses, which grew employment by nearly 5%. 

Tax breaks should be aimed at new, not existing businesses, he argues. “New businesses actually do typically create jobs (and for that matter are more likely to engage in various forms of innovation).” Assistance for new businesses is much cheaper given there are fewer new businesses than small businesses. And assistance aimed at small business can be gamed.

“Small businesses can and often do choose to remain below whatever threshold determines their eligibility for tax breaks,” he notes, whereas “new businesses can’t help growing older”.