Opposition’s ‘Free Lunch’ Policy for Small Business Not Enough for Growth: Economists

Customers at cafes and retailers in Perth, Australia on Feb. 6, 2021. Stefan Gosatti/Getty Images

The Coalition’s “free lunch” plan for small business has left economists and the head of a think tank hungry for more substantive policy.

Opposition Leader Peter Dutton has launched the policy to assist small business owners with tax breaks when entertaining clients or staff, at the same time, the Coalition says the program will help galvanise the hospitality sector, which has recorded the highest number of insolvencies in recent years.

However, Graham Young, executive director at the Australian Institute for Progress, said he was “not sure why Dutton came up with this policy,” calling it a “marginal” initiative that will not have broad economic impact.

Young said that in the 1980s, tax-deductible business lunches became infamous for enabling excessive drinking—the Dutton policy does not include alcohol—while lowering the tax take for the federal Treasury.

Former Labor Prime Minister Paul Keating put an end to it, and Young said most Australians never mourned its demise.

“The restaurateurs will be cheering, but as a political act, I don’t think they are a large enough constituency to make a difference in the next election,” Young told The Epoch Times.

He cautioned that Dutton’s proposal risks alienating those already struggling with cost-of-living pressures.

Saul Eslake, an independent economist, was no fan of the policy saying it was “really dumb.”

He acknowledged that it might provide some temporary relief to struggling restaurants and cafes, particularly those that have seen a downturn in trade due to the rise of remote work.

However, he questioned whether the benefits outweighed the financial burden.

“Is that a sufficient justification for adding $250 million to the budget deficit?” Eslake told The Epoch Times. “I don’t think so.”

Australian Opposition Leader Peter Dutton reacts during House of Representatives Question Time at Parliament House in Canberra, Australia, on Feb. 4, 2025. AAP Image/Lukas Coch

What Is the Lunch Free Policy?

The proposed policy would allow Australia’s small businesses—turnovers under $10 million—to claim tax deductions for meals and entertainment.

Under the proposal, alcohol will not be deductible, and the tax breaks will apply for two years, exempt from Fringe Benefits Tax (FBT).

Businesses can claim deductions for meals or entertainment tied to business activities, such as those with clients, employees, or vendors—a common activity.

Dutton argues the policy will help businesses recover from the economic fallout of the past few years, stating, “Cafes, restaurants, clubs, and pubs are the lifeblood of so many local economies around the country.”

However, he did not provide estimates on the policy’s cost, but the Treasury projects could cost the government $1.6 billion in tax revenue.

Treasurer Jim Chalmers painted the proposal as one that would offer “lower wages for workers, and longer lunches for bosses.”

Hospitality Chief Says Proposal Will Not Impact Tax Revenue

The Australian Restaurant and Cafe Association (ARCA) has backed Coalition’s proposal to offer small businesses tax breaks.

ARCA believes the plan could create up to 100,000 jobs in the sector. A spokesperson told The Epoch Times the policy would also have little impact on the government’s tax take.

“How can a policy aimed at the 2.5 million small businesses earning less than $10 million a year benefit the ‘Big end of town?’” ARCA said.

He also noted Australia currently collects $4.1 billion in fringe benefits tax, with $2 billion related to meals and entertainment.

ARCA argued the policy would encourage extra spending beyond current tax collections, stating, “It’s not costing the budget one cent.”

Bigger Ideas Needed

Gigi Foster, professor of economics at the University of New South Wales also weighed in, describing policies that offered tax refunds, write-offs, and deductions as “some of the lowest-effort means the government has of intervening in the economy.”

Foster said such measures were “superficial” and failed to tackle the structural problems contributing to high inflation, while noting potential issues with “grey corruption.”

John Humphreys, chief economist at the Australian Taxpayers’ Alliance, said the country needed to revisit major reform ideas like cutting income tax, so that individual personal wealth can grow and contribute to economic activity.

Humphreys said tax-deductible lunches were a reasonable starting point, but called for government to revisit indexing tax brackets, lowering tax rates, and introducing tax-free savings accounts.

“The stage 3 income tax cuts took six years to introduce, and they only compensated taxpayers for two years of bracket creep,” he told The Epoch Times. “Yet sadly the topic seems to be totally missing from the political debate.”