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Address to the Council of Small Business of Australia, Canberra



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Senator the Hon Nick Sherry Minister for Small Business, Minister Assisting the Minister for Tourism, Senator for Tasmania

Senator the Hon Nick Sherry

25 Nov 2010

ADDRESS TO THE COUNCIL OF SMALL BUSINESS OF AUSTRALIA QUARTERLY DINNER

Parliament House, Canberra

[Check against delivery]

Good evening.

I’m delighted to join you for the first time as Small Business Minister in the Gillard Labor Government.

It’s been more than two months since my swearing in - I hope enough time to prepare myself for your no doubt incisive questions shortly.

It’s also exactly one month before Christmas - and quite apart from the spiritual significance of the season - this time of the year also represents a quite important material reality for small businesses.

While Christmas 2010 is quite a different prospect to the festive seasons during the global recession, it still does pose significant challenges - particularly for our retailers.

Tonight is an opportunity to reflect on the current state of play in the small business sector and some of the key areas of focus for this Labor Government.

I follow a long line of distinguished small business ministers. Interestingly, the first Small Business Minister on either side of politics was Labor’s Barry Jones in January 1988 and every Labor Ministry since has included a dedicated small business minister.

This portfolio also resonates with me in that I’m from a regional centre - Devonport - in the great North-West of Tasmania.

As in other parts of regional Australia, small business is vital to Devonport’s economy, so I want to assure you the Government knows just how important a dynamic small business sector is for the whole economy.

The sector generates around 34 per cent of private industry value added and 48 per cent of private sector employment.

The almost two-million small businesses in Australia represent around 96 per cent of all businesses, and provide private sector jobs for almost 4.8 million Australians.

I’m sure you’ve heard these numbers before, but they emphasise that a dynamic small business sector is critical to a dynamic, innovative and resilient Australian economy.

Strong Recovery

The Australian Government’s priority over the past several years has been to deal with what have been the toughest international economic conditions since the Great Depression.

The best way to address the challenges small businesses face is to help create the right economic conditions for business to thrive and prosper.

Australia was one of only two OECD economies to avoid recession during the global financial crisis and it is one of the first countries to return to stable growth.

There are several reasons we avoided the large-scale job losses and sharp declines in investment of most other advanced economies.

Key among these were the Government’s early and decisive stimulus policy actions, the Reserve Bank’s monetary intervention - and employers who kept their workers on, reducing hours rather than cutting jobs altogether.

I know many of you in this room were among the many thousands of small businesses who did the right thing during the darkest days of the global recession and you deserve recognition.

In a moment I will talk about the practical things the Gillard Government is doing to provide that recognition you deserve.

It has all been worth it, as the latest economic indicators are overwhelmingly positive.

In real terms, Australia’s GDP grew by a very solid 1.2 per cent in the June quarter 2010 to be 3.3 per cent higher for the year, or 4.8 per cent on an annualised basis.

In October, another 29,700 jobs were created as Australia’s workforce grew to a record high of more than 11.3 million workers.

While the unemployment rate rose to 5.4 per cent, the participation rate climbed to an all-time high of 65.9 per cent.

By comparison, unemployment in the US remained unchanged at 9.1 per cent; in the Euro area it rose to 10.1 per cent.

The Australian dollar has continued to appreciate against most currencies - presenting its own challenges.

In the main, the latest small business surveys point to improved business expectations.

They underline that Australia is a great place to start and operate a business.

The Doing Business Project carried out by the World Bank and International Finance Corporation, ranked Australia as the second-best place in the world to start a business.

It also ranked Australia sixth of 183 economies in terms of getting credit and tenth in terms of the overall ease of doing business.

Small Business Support

The Gillard Government recognises small businesses are the backbone of our economy and we have introduced a range of measures to directly support small business.

A tax plan for our future will provide tax relief for small businesses by allowing instant write-offs for assets of up to $5,000. This will have the dual benefits of boosting cash flow and cutting red tape by removing the

need to apply for different depreciation schedules.

Incorporated small businesses will get a head start through the lowering of the company tax rate to 29 per cent from 1 July 2012 - a year ahead of larger companies.

Of course, these important small business initiatives rely on Parliament passing the Mineral Resources Rent Tax - no MRRT means no tax reform.

Our small business advisory services are targeted to ensure small business has access to the information and advice it needs.

They include funding services delivered under the Small Business Advisory Services program through selected Business Enterprise Centres across Australia. Importantly, these BECs are a Labor initiative.

Our highly successful Small Business Support Line is staffed by agents who have owned, operated or worked in a small business.

It’s taken 22,000 calls since its launch in September last year and a mark of its success is the fact that it’s been able to directly help over 90 per cent of callers.

In an increasingly global trading environment, the internet is able to open regional small business showrooms to the world, and our Small Business Online program will assist small businesses to do just that.

It’s helping small business owners go online, expand their e-business capabilities and engage in the digital economy.

For example, a picture framer in country Victoria expanded into selling freeze-dried rose petals for people celebrating, particularly at places which banned rice and confetti.

Business started to take off when she advertised on e-bay. But when she set up a website using the Small Business Online sponsored training, petals literally flew out of the door, with a 700 per cent increase in orders.

I also saw in a recent newspaper article, you Peter (Strong, COSBOA Executive Director) are a convert to the benefits of an online presence.

Internet sales had increased 18 per cent in the past year - and half of those were from overseas, you said.

You also said embracing the internet had been amazing for your own Canberra bookshop business.

And it sounds like an interesting business you run there, Peter - one third wine, one third beer and one third books.

Of course, the Government’s National Broadband Network will level the playing field for Australia’s small businesses and provides small businesses with the opportunity to expand their customer base to anywhere in the world and increase revenues.

Australian small businesses are lagging behind international counterparts in having a web presence, e-commerce and the share of their revenues that come from online sales - the NBN will change all that.

On the issue of online trading, there has been some public debate in recent days about the $1,000 threshold before GST applies to imported goods purchased via the internet.

It is a two-way street - consumers can benefit from using the global marketplace and Australian businesses can also benefit from being part of that same marketplace.

However, there are concerns among some in the business community about the appropriateness of the $1,000 GST threshold and I have been discussing the matter with my colleague, the Assistant Treasurer.

Extending credit

Access to finance is a critical factor for the small business sector. The global financial downturn has meant a significant tightening of credit globally.

I know that small businesses have been concerned about the tightening of lending criteria and demands for greater security.

Your own 2010 Back to Business Survey found 75 per cent of businesses were concerned about the cost of finance.

I think it’s a concern the number of businesses using bank credit fell dramatically - from 68 per cent in 2007-08 to 50 per cent in 2008-09.

While lending from banks has decreased, the total availability of funds to businesses has continued to increase at around its long-run average rate.

We are seeing signs conditions are improving, but access to bank finance remains tough for many small businesses.

Bank relationship

Regrettably, the relationship between banks and small business can often be fraught.

Certainly, and perhaps inevitably, there’s been a lot of media coverage recently in the wake of interest rate rises.

I know Peter (Strong) has called for a more informed debate about small business lending when he spoke on the ABC’s AM program earlier this month.

I encourage lenders to get closer than ever to business and urge them to look to fill the gap in funding as much as the regulators will permit and to price risk realistically.

For the Government’s part, our policies focus on:

• improving competition in the supply of credit • strengthening business cash flows • providing advice to small businesses on finance-related matters.

During the global financial crisis, the Government helped to keep credit available.

It did this with its bank guarantees and by investing billions in Australian residential mortgage-backed securities to support smaller lenders and improve competition in Australia's mortgage market.

To further improve credit availability and competition between lenders, the Government is:

• introducing a 50 per cent tax discount on interest income • making it easier for certain listed companies to borrow directly from retail investors (rather than banks) through a simplified bond raising processes

• extending the financial acquisitions threshold for GST purposes • phasing down the interest withholding tax paid by financial institutions to decrease the cost of accessing overseas funds, mainly for smaller banks and Australian subsidiaries of overseas banks

The Treasurer has also indicated he will announce a package of banking competition reforms next month.

The Government actively supports small businesses in managing their finances and providing access to quality advice.

The Australian Tax Office’s four-year, $100 million Small Business Assistance Program is assisting SMEs experiencing financial distress to remain viable.

It helps viable small businesses experiencing short-term difficulties by providing 12-month interest-free payment arrangements and deferred due dates for activity statement payments.

The Small Business Support Line I mentioned earlier provides advice on finance and cash flow management. It also manages the Small Business Credit Complaints Clearing House to give small business an avenue to raise their issues about access to and the cost of bank finance.

I am confident that lending conditions will improve when more lenders return to the market and this is beginning to happen.

The Reserve Bank has recently noted foreign banks appear to be growing their business loan books again.

In the meantime, the Government will not direct the lending policies of the financial institutions but, is and will continue to be active where it is best positioned to promote a competitive and efficient market.

Franchising

I want to talk quickly now about franchising, because I know the sector is a significant part of the small business landscape.

Almost 700,000 people are employed in nearly 70,000 franchised businesses and the sector has a total turnover of $128 billion.

The Australian Government believes the sector needs an appropriate regulatory framework, one that provides certainty and allows it to operate with confidence, without being unduly intrusive and restrictive.

We continue to support the measures enshrined in the Franchising Code of Conduct under the Trade Practices Act which applies nationally, and the Office of the Franchising Mediation Adviser.

The Franchising Code amendments that began operating from 1 July 2010 will give franchisees more protection, more transparency and greater certainty when they deal with franchisors.

In addition, new enforcement provisions under the Trade Practices Act will commence on 1 January 2011.

Additionally, as of April 2010, corporations face penalties of up to $1.1 million and individuals $220,000 for engaging in unconscionable conduct or making misleading representations.

These changes follow two years of careful consideration of expert advice and consultation.

They are quite comprehensive and, given this, the Government believes they need sufficient time in operation to allow their effectiveness to be evaluated.

To provide stability and confidence for the sector, we don’t intend to review the code again before 2013.

You would all be aware of the recent announcements by the South Australian Government and a Member of Parliament in Western Australia for State-based legislation in this area.

I understand that the Private Members’ Bill in WA is to be referred for consideration by a WA Parliamentary Committee.

The franchising sector has been the subject of four inquiries at both the State and Commonwealth levels over the space of three years, including a 2008 WA inquiry.

While the last thing the sector needs is another inquiry, the Commonwealth does not intend to intervene to prevent a State Government from holding an inquiry into a franchising issue in its State.

I will say, however, that franchising requires a national approach and the Australian Government intends continuing on the path of a uniform, national system.

Retail Tenancy

It’s a natural progression from franchising to issues of retail tenancy, since many franchises operate from leased premises.

I know COSBOA supports greater competition in the retail tenancy lease market.

We are working with the states and territories to improve transparency and consistency between state and territory regulation.

This will allow small business operators to work across state borders and minimise compliance burdens.

Recent agreements between the major supermarket operators and the ACCC to phase out restrictive supermarket lease provisions that prevent the entry of competing supermarkets to centres are a significant breakthrough.

I am pleased these agreements are in the form of court enforceable undertakings which have been voluntarily provided.

In addition to not including restrictive provisions in any new leases, the agreements mean the operators will not enforce any restrictive provisions beyond five years after the commencement of trading on existing leases.

Deregulation for Small Business

The best way of assisting small business is not just by introducing new legislation, but in removing red tape so small business people can do what they do best - run their businesses.

That’s why deregulation is central to the Government’s reform agenda.

The OECD has noted that Australia is ‘one of the front running countries in the OECD in terms of its regulatory reform practices’.

The Gillard Government welcomes the contribution of business to the process to help us drive the reform agenda and as I am also Minister Assisting on Deregulation, I can assure you, the views of small business are heard loud and clear.

Through COAG, the Government is working closely with the states and territories towards reforms in 27 priority areas and deliver a seamless national economy.

They’re aimed at establishing consistent regulation across jurisdictions, addressing unnecessary or poorly designed regulation and reducing business compliance costs.

Several are already operational and will directly benefit all small businesses - they are not simply designed to assist large multi-national firms.

This includes standardised business reporting, which will save Australian business $800 million a year once fully operational in 2014.

For a medium business owner, such as Sue who owns several hairdressing salons, the SBR software simplifies preparation and lodgement of Business Activity Statement (BAS) reports. Sue can complete her BAS quickly and easily at a time that suits her.

The BAS form is automatically pre-filled using information from the ATO. Sue is then able to auto-fill information into the BAS from her accounting software.

She can print, email or save her work at anytime and return to it later.

Sue uses one secure login for all of her reporting processes, eliminating the need for her to have separate logins and passwords for each government agency.

Dispute resolution

One thing that’s become clear in my short time in this portfolio is that there are significant gaps in dispute resolution among small businesses.

I recently released the first national survey of business-to-business dispute resolution for small business.

Commissioned by the Department of Innovation, Industry, Science and Research, it showed around one in five small businesses had experienced a dispute of some kind with another business in the past five years.

Almost half of these, 9 per cent, classed their disputes as serious, but only about a third - 6.5 per cent - thought their dispute was serious enough to warrant further action by a third party.

The survey showed many small businesses don’t know about low-cost or even free options available to them for dispute resolution, such as arbitration, mediation or conciliation.

It is an area of particular interest to me and I intend keeping a close watch on developments.

This may be a place where all levels of government could play a role.

Conclusion

Tonight, I’ve tried to cover quite a bit of ground. That’s because the ground is broad and the issues facing small businesses are many and varied.

Policy for small business should not be developed on a one-size-fits-all basis.

But the broad principles can be applied. We are committed to ensuring:

• the markets in which you operate are genuinely competitive • you are not unduly hampered by red tape • we provide you with the direct support you need as small businesses through appropriate advisory and training services

I would like to conclude by wishing you a happy, peaceful Christmas and a prosperous 2011.