20 June 2014
Speech - #2014015, 2014

Address to the G20 Agenda for Growth: Opportunities for small and medium enterprises conference, Melbourne

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Introduction

Thank you all for coming to such an important conference during Australia’s G20 host year to discuss important issues for small and medium enterprises (or SMEs) across G20 nations.

I would also like to thank our co-hosts - the Australian Chamber of Commerce and Industry.  Their valuable support and hard work has made this a great opportunity to address the many issues facing SMEs both here and abroad.

Australia’s overarching objective is to provide effective ‘stewardship’ of the G20, and ensure that its agenda has a global focus and is relevant to the priority challenges of today.

To achieve this, Australia has structured discussion around the key themes of: 

  • promoting stronger economic growth and better employment outcomes; and
  • making the global economy more resilient, and able to deal with future shocks.

We aim to promote stronger economic growth by unlocking private sector-led growth, through investment and trade.  

Clearly SMEs will be crucial in achieving the G20 objectives and a stronger and more prosperous global economy.

Going for growth 

Below trend growth in Australia and the developed world

It is so important that Australia, and our G20 colleagues have this focus on promoting stronger economic growth.

The Australian economy is in the midst of a major economic transformation, moving from growth led by investment in resources projects to broader-based drivers of activity in non-resources sectors. 

During this transition, the economy is expected to grow slightly below trend, with significant decline in mining investment expected to be only partially offset by a strengthening in the non-resources sector of the economy. 

Productivity growth is critical to sustaining Australia’s living standards.  Put simply, growth in productivity means that more or better quality goods and services are generated from the available resources available. 

It will be a significant challenge to maintain Australia’s current rate of income growth.  It will require productivity growth to increase to around 3 per cent a year. This is well in excess of what Australia achieved in the past 50 years, and more than double that of the past decade.  

Of course, the challenge of achieving robust and sustainable growth extends well beyond our own backyard.  The recoveries underway in advanced economies are welcome, but long overdue, with growth remaining subdued.

It took until May this year for employment in the United States to pass its pre-crisis peak.  And while growth has returned to the euro area, it remains weak and uneven, with unemployment rates still near record highs.

While dealing with some of these legacy issues from the global financial crisis remains a priority – we need to see more job creation and business investment in this recovery.

And like Australia, many advanced economies also face looming challenges. Fiscal sustainability remains a concern for many countries, and one which will only worsen with the ageing of our populations. Governments cannot control productivity growth, but they can support and promote productivity in their policy settings, which influence how resources are distributed and used in the economy.  

The drive, adaptability and flexibility of SMEs are vital for productivity growth.  It is crucial that we use the strengths of the G20 economies to foster SME growth and innovation.

G20 two per cent target

Importantly, the G20 leaders agreed to the development of comprehensive growth strategies for presentation at the Brisbane summit in November 2014. 

The Australian presidency has emphasised four key priority reform themes.  These themes have the greatest potential to close output gaps, and contribute to economic rebalancing.

The themes are:

  • investment, particularly investment in infrastructure;
  • trade; 
  • employment, particularly boosting female participation; and
  • competition.

In February, the G20 Finance Ministers — led by Treasurer Hockey — met in Sydney.  They agreed that the G20 countries should adopt growth strategies, with realistic policies aimed at lifting the G20’s collective level of growth by more than two percentage points over the next five years.

Our work is to identify what kind of positive action can be taken by G20 countries to energise enterprise and ensure SMEs can fully play their crucial role of contributing to this 2 per cent accelerated growth ambition.

Role of Small Businesses in growing the world’s economy

SMEs play a critical role in maintaining both the social and economic health of our local and regional communities. The success of SMEs contributes to the success of all economies. 

Australian SME owners are optimistic, motivated, diligent and hard working.  I applaud and encourage their continuing work and risk taking enterprise. 

The Australian Government has committed to ensuring that Australian SMEs have every chance to thrive and grow in a competitive economy.

When the mining boom in countries with large resource sectors such as Australia moves into a production phase, people will wonder what is next. At this point, many will realise what we here already know, SMEs will be the ones to drive the economy. 

SMEs can be more adaptable and flexible, able to exploit niche markets, and to develop and embrace new technologies. SMEs can be faster to enter and exit the market in response to price and demand conditions.  This means SMEs can act to increase the level of competition in the economy – increasing the options available for consumers, and delivering value. This competition acts to discipline existing firms that may have slipped behind in efficiency.

Enabling SMEs to be the best they can be

I’d now like to turn to the role of policy and governments in enabling our SMEs to be the best they can be.

I see that there are three critical ways in which governments can help SMEs to flourish.

The first involves building an economic ecosystem which nurtures and supports SMEs.

The second requires governments to remove barriers to SME entry and growth.

The third role for government is to partner with SMEs to build the skills and capacity that SMEs need to grow, innovate and increase productivity.  

Building the economic ecosystem

It is important for governments to provide a secure, predictable and supportive ecosystem for businesses to grow and thrive.  National governments have a key role in providing domestic and international frameworks which give SMEs certainty and the confidence to take risks.  

There are six key areas where the Australian Government is building a thriving economic ecosystem to support Australian SMEs:

  • a strong macroeconomic environment;
  • building vital infrastructure;
  • enhancing competition;
  • facilitating trade; 
  • a strong and vibrant research sector; and
  • providing information and programs to support SMEs to grow and thrive.

Strong macroeconomic environment 

Australia’s macroeconomic policy framework incorporates: a flexible medium-term inflation target for monetary policy, run by an independent central bank; a robust fiscal policy framework, focused on transparency and medium-term sustainability; and a freely floating exchange rate. 

Australian monetary policy aims to maintain inflation between 2 and 3 per cent, on average, over the medium term, which anchors inflation expectations.

Our approach to fiscal policy allows sufficient flexibility for the fiscal position to vary in line with economic conditions in the short term.  This supports macroeconomic stability, without threatening the overall strength of the public balance sheet.  

Anchoring expectations, particularly price expectations, over the medium-term also contributes to an environment conducive to SME investment and growth.

Building the infrastructure needed for the future 

The Australian Government is building the infrastructure needed for the future by shifting resources from recurrent spending to investment in new economy building infrastructure. 

Overall, the Government’s infrastructure investment is expected to pull over $125 billion into new infrastructure spending, including state and private sector funding.  

Once the infrastructure is completed it is expected to lead to a permanent increase in GDP of 1 percentage point, as this infrastructure enhances the arteries of commerce. 

Enhancing competition 

Another vital element for SMEs in a strong economy is effective competition.  Competition drives continued growth in productivity and living standards, including a preparedness to invest.

Australia has a strong history of competition review and reform. Productivity improvements in key infrastructure sectors in the 1990s — that were targeted by National Competition Policy and related reforms — increased Australia’s GDP by 2.5 per cent.

Consumers and businesses now operate in an increasingly global marketplace where efficient and innovation are more important than ever.

So earlier this year, we announced the terms of reference for a Competition Policy Review.  The review is an independent process led by Professor Ian Harper, assisted by an expert Panel.

The Harper Review has a broad remit: to look at the current competition laws, but also broader policies that impact on competition across the economy.

One focus of the Review is on removing impediments to competition.  It is also examining the role of government and regulators in certain markets, to assess their effectiveness in supporting and facilitating competition, and whether they align with international best practice.

Small business issues are an important element of the review.  An enhanced competition framework will better enable efficient businesses – both big and small – to compete, thrive and export, if they choose.

Facilitating open trade in goods and services 

In relation to trade, a joint OECD-APEC study from 20081 confirms that international trade helps SMEs achieve growth and economies of scale that cannot be achieved from domestic markets alone.  

Removing barriers to trade, including through bilateral and regional free trade agreements, supports economic growth.  

Trade agreements create opportunities for exporters, investors and SMEs to build new commercial relationships and expand into overseas markets.  They provide improved market access and help to maintain and motivate the competiveness of Australian businesses, both internationally and domestically. 

With more than one in five Australian jobs in trade-related industries, better access to global markets is critical to Australia’s future growth and prosperity. 

The Australian Government recently concluded trade agreements with Korea and Japan, and is aiming to conclude negotiations with China later this year. These agreements will provide new opportunities to Australian businesses to contribute to the global economy.

A strong and vibrant research sector

A strong research, development and commercialisation sector is core to building a country’s capabilities and knowledge base.

Supporting research, innovation and collaboration, and then bringing insights, new knowledge and commercial support to market are high priorities for the Australian Government, and are key factors in our vision to build an innovative and growing economy. 

Collaboration between researchers and businesses can give enterprises a competitive edge and help them access national and international knowledge networks, research infrastructure, technology and equipment.  

In this regard, the Australian Government has in place a number of programmes supporting business innovation and industry-researcher collaboration, including with SMEs: 

  • The $484.2 million Entrepreneurs’ Infrastructure Programme will assist Australian businesses to build research connections, and to identify and develop the skills and knowledge they need to commercialise their idea, product or service.
  • The R&D Tax Incentive encourages businesses to undertake research and development by allowing them to offset, through the Australian tax system, the costs of conducting eligible research activities.  
  • The CSIRO SME Engagement Centre connects small and medium sized Australian businesses with the technical expertise and resources of Australia’s national science agency.  This helps these businesses undertake research and development that will help them gain a competitive advantage and grow. 

One area where we know that SMEs face innovation challenges is in moving from insight or concept to commercialisation.

Those with experience running a business know that having a good idea – or having access to good ideas developed by others – is no guarantee of success if it doesn’t result in a product that people want, at a price they’re willing to pay.

The Government is not about telling businesses, especially innovative start-ups, how to run themselves.  But we can help link new businesses with experienced private sector people who can be pathfinders with hands-on experience in building up businesses.

Providing information to make it easier for SMEs to grow and thrive

Our Government is committed to putting SMEs at the centre of business decision-making with a Cabinet-level Minister in the central and economic powerhouse of Treasury, to give SMEs whole of government visibility and impetus.

The Government recognises the importance of providing small business owners with the best information possible to improve business practices and better prepare our SMEs compete domestically and internationally.

The National Small Business Support Line provides small business owners with information and referral services that are tailored to specific needs. 

A new single business service initiative will streamline the way businesses access government information and services, putting their needs first and reducing complexity. A time poor small business shouldn’t have to understand how governments organise themselves to do business with government and tap into information, services and programs that could assist.

The initiative will include a streamlined and consolidated one-stop-shop web presence, call centre and face-to-face business facilitation network to advise businesses on the most appropriate solution for their needs. 

It will make information simple and easy to find and be available any time and on any device.  

This is part of a key cultural change for our government putting SMEs’ needs and interest ahead of bureaucratic administrative convenience.

Removing barriers to SME entry and growth

The second critical component where governments can assist to build a strong business environment is by removing barriers to SME entry and growth.  

Governments should do everything they can to eliminate obstacles for small enterprises.

Any obstacles to starting a new business – whether finance, registration or tax – should be scrutinised.  If regulation is unnecessary, we should remove it. The Australian Government is working in three main areas to remove the barriers to SME entry and growth:

  • reducing regulatory burdens,
  • improving access to finance; and
  • facilitating employee share schemes. 

Reducing regulation and the costs of doing business 

For all businesses, meeting the requirements imposed by Government (either directly or through the activities of regulators) can be costly and are cumulative. Taking steps to reduce this burden is a key priority for our small businesses community.

Unnecessary red tape hinders innovation, investment and job creation. It displaces effort where resources could be more productively deployed promoting growth, innovation and business opportunities.

Small businesses are particularly burdened by government regulation. They do not have the resources of larger businesses. 

We are committed to cutting at least $1 billion of red and green tape each year as part of our deregulation agenda.  Deregulation units have been established in every department to cut down on regulation as an embedded and ongoing government imperative contributing to the two parliamentary sitting days every year to repeal unnecessary and costly legislation and regulation. 

The first repeal day in March this year scrapped more than 9,500 unnecessary or counter-productive regulations, and 1,000 redundant acts of Parliament.  This will save hundreds of millions of dollars in compliance costs across the economy.

Superannuation clearing house

The responsibility for the Government’s free Small Business Superannuation Clearing House has been transferred to the Australian Taxation Office. This will enable it to leverage existing business relationships and will see more small businesses use this free online service to meet their superannuation obligations for multiple employees and funds by a single transaction. 

The Small Business Superannuation Clearing House is a free online service to help small businesses meet their superannuation obligations for multiple employees and funds by a single transaction.

Removing the obligation for employers to be the pay-clerk of the current paid parental leave scheme is another positive red-tape reduction action which is currently before the Senate.

I can also confirm the Coalition will deliver on its election commitment to ‘pay on time or pay interest.’

Under the policy Commonwealth departments and agencies will either have to pay an account within 30 days or interest will be applied at the ‘General Interest Charge’ applied by the ATO.

This will apply to all financial obligations of the Commonwealth to small business from 1 July 2014 providing certainty for small business.

Today I am pleased to announce three areas of further work to reduce the red-tape burden on small business even more.

In the area of tax compliance we are working up a measure for reducing compliance costs for taxpayers by $56 million per year, by reducing PAYG(instalments) reporting requirements for a range of small businesses.

Around 372,500 small businesses will benefit from administrative changes to PAYG instalment thresholds.

Around 32,500 small businesses will no longer have to lodge a Business Activity Statement (BAS) simply to report their PAYG instalments.

A further 340,000 small businesses will still be required lodge a BAS, but will no longer have to interact with the PAYG instalment system.

By simply reviewing thresholds that are more than a decade old, we can cut the red-tape burden which lands most heavily on small business.

We are also progressing work on Standard Business Reporting (SBR) to help untangle the red tape by standardising and simplifying reporting information across forms and government agencies.

SBR offers an easy and convenient way for businesses to report to government; saving time, minimising compliance costs, and freeing up business owners to focus on what's important—building their business.

SBR-enabled software allows businesses to complete the bulk of their reporting requirements directly from their accounting or payroll system.  

It reads the financial data from a business’s accounting system, pre-fills forms with the required information, allows the business owner to check for accuracy, and then delivers the forms to the relevant government agencies through a safe, secure online channel.

The Government will encourage the availability of SBR-enabled software to Australian SMEs and seek to extend the scope of SBR across government bodies – so that businesses can use their SBR software to easily report information, rather than manually reporting multiple times in multiple formats.

This brings me to the work the ATO and Treasury have been doing to improve the way in which business interacts and complies with the ATO across the board.

Work is currently being undertaken by the ATO and Treasury on two areas we have termed ‘Enabling Digital by Default’ and ‘Single Touch Payroll’.

‘Enabling Digital by Default’ will allow the ATO to progressively designate ‘digital’ as the default channel for interactions, with a provision for clients to ‘opt-out’ under special circumstances. 

Digital interactions increase certainty and reduce overall costs and workloads for business. They also save time and costs for employees and government.

For example, in a digital by default world, an employee can jump online or into a mobile app and authorise the ATO to send their tax file number, superannuation choice details and bank account number to an employer’s software.

An employer can then use a “Single Touch Payroll” function to automatically fulfil a whole range of existing employer reporting and payment obligations, such as staff payments, PAYG (withholding) and payment summaries.  In the future, this function could be extended to other non-Commonwealth obligations such as payroll tax and workers compensation reports and payments. This would reduce employer workloads, the time spent reconciling data, and the potential for errors.

A “Single Touch Payroll System” could also flatten and streamline cash flows associated with employer obligations which will reduce the debt accrual burden generated by monthly or quarterly cycles.

It will also level the playing field for business by reducing non-lodgement and phoenix opportunities, as the ATO would be alert to non-payers sooner.

The ATO and Treasury are consulting with stakeholders around the red tape reduction opportunities that are possible in a Digital world and the strategies to support Digital adoption by business.

Access to finance 

Access to affordable finance is the oxygen of enterprise and along with human capital and the accessibility of markets, is one of the primary preconditions for enterprise and the kind of growth we are here to talk about.

In Australia we are holding an independent inquiry into our financial system – we want to make sure our financial system meets the needs of its users and that includes small business.

We are examining competition and innovation in the financial system – both critical to small business.

Improving the ability of small businesses to obtain affordable finance is another item the Government is addressing as a high priority. 

I am particularly interested in innovative products that will broaden the range of options available for small businesses seeking finance. 

By reducing reliance on bank debt, small business financing will become more resilient.  Improvements in competition for small business funding will help drive down the cost of this finance. 

Crowd-sourced equity funding is a type of online fundraising that allows a large number of individuals to make small contributions, and take an equity stake in the company in return.

It has the potential to be more accessible to small businesses than traditional equity markets, as the funds sought may be too small for listing on the stock exchange.

Australia, along with a number of other G20 nations, is currently considering how crowd funding can be a vibrant alternative for funding small businesses, while also making sure individual investors are properly protected.

Peer-to-peer lending allows investors to lend directly to borrowers, bypassing a traditional financial institution such as a bank, and instead takes place through an intermediary website.     

While it is not yet used for funding small businesses in Australia, peer-to-peer lending is a promising alternative source of debt finance and the Government is exploring the regulatory changes that may be required to accommodate it.

There are other interesting policies being pursued overseas that may also be worth considering.  I encourage the delegates here today to share your experiences.

Employee share schemes 

We also want to overcome barriers and disincentives to SME participants sharing ownership of their business.

Employee share schemes are one way in which employees can share some ownership of a company they are helping to create and grow, through acquiring shares or options in the company.  

Such schemes can provide significant benefits for employers and employees.  They may improve the alignment of employee and employer interests, encourage positive working relationships, boost productivity through greater employee commitment to a company, reduce staff turnover and encourage good corporate governance.

They may also be valuable tools for cash-constrained start-ups in retaining talented people, while ensuring sufficient capital is available to allow growth of the start-up.  

The Australian tax system currently imposes taxes on discounts on interests granted under an employee share scheme in the year of issue and many have reasonably argued that these tax arrangements are a disincentive for many start-ups to set up an employee share scheme and are inconsistent and out-of-step with global practice.

The Government is examining ways to address these concerns in the context of the National Industry Investment and Competitiveness Agenda.

Building SME skills and capacity

The third key area where governments can partner with SMEs is through skills and capacity development of both managers and staff, to support business growth and efficiency.

Up-skilling our SME owners is not simply a matter of designing courses and hoping time poor business people can attend. Innovative thinking on our part is also needed.  Across our 20 economies, there is a fantastic array of talented business owners.  Exposing SME owners to these talented people and their  processes, thoughts and wisdom could be a great way to build expertise and capability.  

Private sector networks are a vital source of new skills and expertise.  Industry associations across the globe are an important resource for new information and techniques.  Similarly, business-to-business links – whether formally in supply chains or informally through friendships – are also a great source of new ideas.  

I encourage successful business people to reach out to SME owners, as agents of enterprise and prosperity, and share what they have learned and experienced so that we can all prosper together.  

Growing SME digital know-how

Small businesses often pioneer new technologies or work practices, before they spread more broadly through an industry.

Businesses that embrace technology to innovate are three times more likely to export and 18 times more likely to increase the number of export markets targeted than those that do not innovate; and 91 per cent of Australian businesses report a benefit from innovation through increased revenue, reduction in costs, gaining a competitive advantage and improved customer service.

Microsoft has recently commissioned modelling in relation to the economic benefits of more small businesses becoming technology leaders in Australia.  Their modelling suggests that more small business technology leaders could lift GDP by nearly $6 billion – a truly remarkable thing if we can achieve it.

Initiatives like cloud computing can offer opportunities for small business to become more productive and innovative. The Grattan Institute has released a report which highlights that cloud computing could help level the playing field for smaller firms, as it gives these firms access to sophisticated IT services that may previously have been out-of-reach due to their upfront capital costs. 

The Government has released a series of guides aiming to help small businesses adopt and use cloud computing services with confidence. 

Getting as many small businesses connected to the internet affordably and as fast as possible is the best way to ensure the nation makes the most of the economic opportunities provided by very fast broadband.

The NBN will help small businesses stay competitive, improve community and family life, drive productivity, create jobs and increase Australia’s global competitiveness.   

And the Government’s mobile black spots program will identify areas where mobile phone coverage is inadequate.  The programme will both improve coverage and increase competition, benefiting small businesses operating in the affected areas.  

Conclusion

I’m hopeful this overview of what is happening in the SME sector and our actions to energise enterprise may provide some thought starters.

This conference is a unique opportunity to be able to not only let domestic leaders know of the importance of the SME sector but leaders from across the world.

It is important we use today to look at starting to deliver some real tangible ideas to empower SMEs to grow.

I know my work won’t be done as the Australian Small Business Minister until Australia is the best place in the world to start and grow a small business.

But that is a title I don’t want to earn by default. I want to earn it on a competitive global stage and our work here today will encourage that

1 APEC-OECD (2008) Removing Barriers to SME Access to International Markets.