Small Business Tax in 2025: Why Urgent Reform Can’t Wait

Australia’s small business sector is at a crossroads. In 2025, small business owners are facing a perfect storm of rising costs, increased compliance, and a tax system that many say is overdue for reform. As the federal government unveils its latest budget and the election campaign heats up, industry leaders and accountants are sounding the alarm: without urgent action, the decline of small business could become a silent tax on Australia’s future prosperity.

Small businesses are the backbone of the Australian economy, making up 97.7% of all businesses, employing over 5.1 million people, and contributing $500 billion annually. They are the local cafés, the family farms, the tradies, and the start-ups that keep our communities vibrant and resilient. Yet, behind the scenes, many are struggling to survive under the weight of rising costs, red tape, and a tax system that hasn’t kept pace with their needs.

Recent polling by the Council of Small Business Organisations Australia (COSBOA) found that 50% of small business owners are worried about their survival. The cost-of-living crisis, staff shortages, and increasing regulatory demands are pushing many to the brink. In regional and remote areas, where small businesses are the heartbeat of the community, the stakes are even higher.

The numbers paint a sobering picture. According to the Institute of Public Accountants (IPA), the contribution of small businesses to Australia’s GDP has dropped from 40% in 2006 to just 33% today. Their share of private sector employment has also fallen sharply, from 53% to 42%. Nearly half of all small businesses are now operating at a loss, and most self-employed owners earn less than the average full-time wage.

This decline isn’t just a matter of dollars and cents—it’s about the dreams and livelihoods of millions of Australians. As IPA CEO Prof. Andrew Conway puts it, “Their success is Australia’s success.” Yet, the 2025-26 Federal Budget has been criticised for failing to reverse this trend or provide meaningful support for innovation and growth in the sector.

The numbers paint a sobering picture. According to the Institute of Public Accountants (IPA), the contribution of small businesses to Australia’s GDP has dropped from 40% in 2006 to just 33% today. Their share of private sector employment has also fallen sharply, from 53% to 42%. Nearly half of all small businesses are now operating at a loss, and most self-employed owners earn less than the average full-time wage.

This decline isn’t just a matter of dollars and cents—it’s about the dreams and livelihoods of millions of Australians. As IPA CEO Prof. Andrew Conway puts it, “Their success is Australia’s success.” Yet, the 2025-26 Federal Budget has been criticised for failing to reverse this trend or provide meaningful support for innovation and growth in the sector.

Tax rates are only part of the story. In 2025, small businesses are also grappling with a raft of new compliance obligations and tax rule changes that are increasing both their administrative workload and financial risk.

Despite these mounting pressures, the 2025-26 Federal Budget has been widely criticised for its lack of targeted support for small business. While there is a focus on cost-of-living relief for households, self-employed business owners are largely left out. The budget is silent on investing in small business innovation, research and development, or creating a regulatory framework that puts small business first.

Small businesses also continue to face barriers in accessing government procurement contracts, securing only 11% of the $75 billion available. Excessive electronic transaction fees are costing the sector an estimated $1 billion annually, further eroding margins.

Industry leaders are calling for a fundamental shift in policy—a “small-first,” risk-based regulatory approach that puts small business at the centre of economic planning. This would mean designing tax, compliance, and procurement rules with the unique needs and constraints of small businesses in mind, rather than as an afterthought.

Supporting innovation in digital, AI, and medical technology is also seen as crucial to diversifying Australia’s economic security and driving future growth. As Prof. Conway warns, “Australia’s future can’t be built by putting all our eggs in the green metal basket”.

In this challenging environment, small business owners need to be more proactive than ever. Here are some practical steps to stay ahead:

Australia’s small business sector is resilient, innovative, and essential to the nation’s economic and social fabric. But without urgent tax reform and a regulatory environment that supports rather than stifles growth, the risk is that more small businesses will close their doors—and with them, the jobs, services, and community connections they provide.