Small business looks set to get a rare and easy leg-up as Scott Morrison and Bill Shorten do a little dance over $29.8 billion worth of tax cuts for the sector.

The PM announced on Thursday that the government would bring forward by five years its legislated tax cuts for small and medium businesses with annual turnovers capped at $50 million.

The cuts will cost $3 billion, but this will be partly offset by the government’s failure to win tax cuts for big corporations.

The move was widely reported as Mr Morrison essentially putting a gun to Labor’s head in the run-up to the election. But Mr Shorten appeared to defuse what could have stacked up as a major election issue by agreeing on Thursday to consider the proposal, with a view to supporting it if the numbers stacked up.

Shorten back-flip on tax rate

The tax rate for these companies has already been lowered from 30 per cent to 27.5 per cent. It was scheduled to drop to 25 per cent by 2026-27.

But Mr Morrison wants to fast-track the cuts by lowering the rate to 26 per cent in 2020-21, and then to 25 per cent in 2021-22.

The cuts would benefit about 3 million businesses employing about 7 million people.

Labor had indicated that, upon winning government, it would legislate to keep the rate at 27.5 per cent, preventing any further drop. Mr Shorten risked his leadership earlier this year by declaring he would, as prime minister, limit tax cuts to companies with turnovers capped at $10 million – and supported the 27.5 per cent rate only as a grudging backdown.

Senate cross-bench support is key

Mr Morrison and Treasurer Josh Frydenberg said the legislation to fast-track the cuts would be introduced when Parliament resumes next week. It’s thought that the proposal will pass the Senate with cross-bench support.

In a statement, Mr Frydenberg said the cuts would mean a small business, “such as an independent supermarket or a pub, that makes $500,000 profit, will have an additional $7500 in 2020-21 and $12,500 in 2021-22 to invest back into the business or staff, or help to manage cash flow”.

He said the change would help to ensure Australian businesses were competitive, to protect the economy and jobs.

He said the legislation that delivered the tax relief “will be a major test for Bill Shorten – does he support Australian businesses, Australian workers and Australian jobs? Or is Bill Shorten’s only plan for the economy to introduce an extra $200 billion in taxes?”

It’s a no-brainer for Labor

But Mr Shorten said he was not only open to the full rate cut, but wouldn’t rule out supporting passing the legislation before the election.

“We will keep an open mind on this question as we examine the numbers,” he said in Brisbane.

“But the other criteria we have is that our first priority is to properly fund our schools, to properly fund our hospitals.”