Wishing for a small business slam dunk

Barring the Coalition's proposal on competition laws and unfair contract, there is little difference between the parties on small business policy. Yet there is so much more that could be done.

The Conversation

Last Wednesday, Prime Minister Julia Gillard announced the start of what is set to be Australia’s longest election campaign. Set for September 14, it will last approximately eight months. One of the justifications given for having such a long campaign is the PM’s desire to see a robust discussion over policy issues.

For many weary voters, this will be a welcome relief from the bitterness and personalised attacks that characterised so much of the national political scene in 2012. One area that is likely to shape up as a key battlefield is small business policy.

Both the government and the opposition have indicated their desire to help the small business sector, and have outlined policies they hope will demonstrate they can deliver real benefits. So what should the focus of small business policy be for the 2013 election?

How important is small business to Australia?

It is probably worth reminding ourselves just how important small business is to Australia’s economy. Small to medium sized enterprises – which are those employing fewer than 200 people – comprise around 99 per cent of all businesses in Australia. They also employ around 65 per cent of the workforce or about 2.8 million people.

According to the Australian Bureau of Statistics, there are just over two million small businesses in Australia with less than 20 employees. Of these 1.3 million (64 per cent) are non-employing firms that comprise only the owner-manager. In terms of economic contribution Australia’s small businesses contribute around 20 per cent of GDP and 34 per cent of the value added within our private sector. Around 40 per cent are actively engaged in some form of innovation.

Unlike many of our larger firms, 97 per cent of our SMEs are wholly Australian owned, and only 15 per cent have sought assistance from the government. Yet 35 per cent have reported a decrease in their profitability in recent years.

What then should this engine room of the national economy expect from our political leaders?

What’s on offer?

We are undoubtedly going to hear more about small business policies from both sides of politics as the election campaigns unfold. However, we have some indication of the battlelines from the policies already announced by the government and the opposition in recent months.

For the federal government, initiatives over the past year include the elevation of the Small Business Ministerial Portfolio within cabinet and the appointment of a Federal Small Business commissioner. It has also been active in working via the Council of Australian Governments to find ways to cut red tape. This has taken the form of streamlining access to information via online systems such as the Australian Business Licence and Information System.

The government has also made some changes to the taxation system, reducing the company tax rate for SMEs from 30 per cent to 29 per cent, and enabling small firms to instantly write-off assets they buy that are worth up to $6500 in value. Other initiatives include the Enterprise Connect support program, the national Small Business Support Line, and the review of the Franchising Code of Conduct.

For the federal opposition, the focus, as outlined in their policy statement Real Solutions for all Australians, aims to lower taxes and charges, cut red tape, review competition laws and policy, and extend the unfair contract protection currently available to consumers to small businesses.

The Coalition also seeks to double the annual rate of small business growth. This last policy proposes to add 30,000 new small businesses each year to the Australian economy, or double the rate that has been achieved under the current government.

In many respects, the policies of the government and the opposition have more in common than they may wish to acknowledge. Both seek to champion the fight against red tape and both have offered only very modest changes to the taxation system. The Coalition’s proposal to address the competition laws and unfair contract provisions in dealings with large firms are key points of difference.

Over the past year I have written a number of articles and columns in The Conversation about small business and the issues that affect them. As the election campaign rolls on towards the proposed election date, I would urge both sides of politics to consider the following.

Getting real about small business policies

A first step is for politicians to get real about small business and the important role they play in our economy. There needs to be recognition that the majority of small firms are little more than self-employed people or the leaders of small teams (often families). Unlike larger firms they do not have the systems or personnel to undertake all the compliance work required in the management of various national schemes such as superannuation, industrial relations and maternity leave.

Both sides of politics make claim to be fighting red tape, or green tape in the case of the opposition. This is a mantra that has been chanted by almost every government for decades. That it remains an issue reflects the challenge of actually defining what the problem is, then finding ways to take action. Many red tape problems stem from Australia’s federal system and require better coordination between state and federal authorities.

Some useful work has been done via COAG in this regard, but it remains a major issue and involves some fundamental adjustments in the interrelationship between the various levels of government. What small businesses need from politicians is for them to fight for a fairer system that recognises their disadvantage in relation to dealing with compliance costs.

Give the Small Business Commissioner some teeth

The appointment of Mark Brennan as Federal Small Business Commissioner was a positive step. However, he does not have sufficient legislative power to take action and is at risk of becoming little more than a toothless tiger. A more empowered small business commissioner would have the authority to lead real change in taxation reform, the regulation of poorly regulated industries that contain many small firms, and the development of small business impact assessments.

Bridge the digital divide

Another key area that needs attention is finding ways to help SMEs become more actively engaged in e-commerce. Data from Telstra Sensis and the ABS suggests that while most Australian SMEs have internet access and a website, only a minority are actively engaged with e-commerce. Further, 67 per cent expressed a lack of knowledge or expertise in engaging in this.

The rollout of the National Broadband Network, despite criticism from the opposition, is a significant opportunity for Australia’s SMEs to embrace a digital future. More attention needs to be given to this and to finding ways to assist small firms to compete within a marketplace that is online, mobile and global.

Focusing on sustainable growth not just start-ups

The proposal by the federal opposition to increase the total number of small business start-ups in Australia may have some merit, but it overlooks the fact that Australia already has a very good track record in business creation when compared to many other countries. Further, the global financial crisis of 2008-2009 had an impact on Australia – there was negative growth in the number of new firms established. This recovered in 2010-2011, but it explains why small business creation was stronger during the era of Prime Minister John Howard.

What is also often ignored is the "leakage” of jobs since the GFC and the trend towards start-ups that employ little more than the owner-manager. Rather than a concentration on the creation of new businesses, there should be more attention given to finding ways to sustain and grow our existing ones, particularly the mid-sized firms or "Mittelstand” that have proven so important to the economic performance of a country such as Germany.

Manufacturing matters

In August 2012, the PM launched the report from her Manufacturing Taskforce, in which many recommendations for assisting SMEs were discussed. Given the challenges facing our manufacturing sector and the importance of it for our economy, it would be good to hear something from both sides of politics as to how the recommendations from this report might be implemented.

Key issues raised by the taskforce report were the need to encourage more engagement between SME manufacturers and universities, the role of design and the development of smarter workplaces. It also acknowledged that innovation is not restricted to high-tech industries, but should be encouraged across all types of business.

No more motherhood statements

Politicians often view small business in a similar manner to mothers. They like to be photographed with them and they all acknowledge their importance. However, just as all mothers are not the same, all small firms are not the same. Small business policy is a challenging and complex area that encompasses a wide range of ministerial portfolios, government agencies and jurisdictions. Small firms lack the political lobbying power of big business and the unions. Their role in the national economy is too important to be left to a few motherhood statements about cutting red tape, tinkering with the tax system and encouraging entrepreneurship.

Tim Mazzarol is Winthrop Professor, entrepreneurship, innovation, marketing and strategy at University of Western Australia

This story first appeared on
The Conversation. Reproduced with permission.