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Education and Employment Legislation Committee
04/03/2020
Estimates
INDUSTRY, SCIENCE, ENERGY AND RESOURCES PORTFOLIO
Australian Small Business and Family Enterprise Ombudsman

Australian Small Business and Family Enterprise Ombudsman

[21:47]

CHAIR: Welcome, Ms Carnell. Do you wish to make a brief opening statement?

Ms Carnell : I'd like to quickly run over the issues we've been dealing with. Many of them you've already discussed today—and I won't go over those. I would like to raise one particular issue that is concerning us at the moment, and that is the issue of financial planners—in particular, the AMP financial planners. We have over 80 cases at this time, and that is just the AMP ones—and this issue runs much broader than just the AMP. I really believe that Justice Hayne, when he did the royal commission, would have been horrified that a lot of the issues he raised in the financial planning space have ended up being pushed down the supply chain, shall we say, from the large operators in the space, such as AMP, to small businesses. These are often individual operators . They are being required to handle compensation and look backs, and many of them have had their contracts removed. This, I'm sure, is an absolutely unintended consequence of some of the recommendations of the royal commission. I'm sure it was aimed at large companies, not individual small business operators. So I just wanted to raise that issue.

You are aware of the work we've done in supply chain financing and the R&D tax incentive. We're in the process of an inquiry into insolvency practices for small businesses. In the last quarter we had 1,865 inquiries—that number continues to increase—of which 1,488 were complaints, disputes and other issues.

CHAIR: Thank you, Ms Carnell. I might go to Senator McDonald, who has a couple of questions.

Senator McDONALD: I am particularly interested in the agricultural sector, and I note with interest that your website now advertises assistance within 24 hours to dairy farmers who need access to dispute resolution services.

Ms Carnell : Yes.

Senator McDONALD: Were you hoping for this question? Were you expecting it?

Ms Carnell : Yes. We're very excited to have the dairy code as part of the suite of codes that we now have responsibility for. I'll hand over to Dr Latham, who has responsibility for the codes.

Dr Latham : Our assistance function is divided in a couple of ways. One is the general ones that the ombudsman has spoken about—the general disputes. Then we've got a number of industry codes: franchising, horticulture, oil, and now dairy, as well. This one is new, and it's for any new agreements after the date that this came in, which was earlier this year.

Senator McDONALD: That was 1 January. Am I right in understanding that it is for contracts that are less than $5 million? I notice in the drop-down box options for the contact form—it was above or below $5 million.

Dr Latham : I think that's only because we're trying to categorise the way that this works. I was just going to have a quick look, but I don't think there's any restriction. There's a restriction on some of the contracts that come in, but I don't think there's any financial cap on any of them.

Ms Carnell : There's unfair contract terms.

Dr Latham : Yes, there's unfair contract terms. That has its own limits, as well. But I don't think so, for this.

Senator McDONALD: Would you take on notice and come back to me with what the structure or the opportunities are and the restrictions, if any, on the sorts of dairy farmers who could apply or who could receive dispute resolution assistance from you?

Dr Latham : I'm very happy to. From memory, the only restriction in here is that there are certain small-business processes that are excluded. But, basically, the rest are in.

Senator McDONALD: Terrific. What are the dispute resolution services you offer? For example, I've contacted you by email, and you've said, 'Happy days. Please tell us the details,' and then you go off and bring the two parties together by phone. Is it like that?

Dr Latham : It's very rarely 'happy days'. When they come in, what we do is we seek to understand the matter. We don't duplicate somebody else's service. So if it was something that was more appropriate for the Australian Financial Complaints Authority, AFCA, or somewhere else, we'll get it to them. If it doesn't have a better home that's outside of us, then we'll deal with the dispute. We will then triage it and get to understand it. As part of our understanding, we're trying to get our head around what it is that's actually in dispute and, if so, what sort of alternate dispute resolution might help. As part of that, just us raising and defining—'This seems to be what the problem is.' They say, 'No,' and then the parties can actually enter into a dialogue and resolve it. That's quite common. Where that doesn't occur, then the ombudsman will make a recommendation on the best form of alternative dispute resolution that would apply in this matter. It's often mediation, but we've also got conciliation—a sort of harder edged mediation. We've got case appraisals, neutral evaluation, conferencing—

Ms Carnell : And in the dairy code, arbitration—

Dr Latham : Yes.

Senator McDONALD: That's marvellous.

Ms Carnell : which is really good.

Senator McDONALD: It is really good. How many calls or emails and online requests have you received from dairy farmers?

Dr Latham : At the moment, under the new code, we've received very minimal. I'm not aware of any at this stage. I could also take it on notice.

Senator McDONALD: Well, I think, given that it was only contracts after 1 January—that's only just commencing. Given that you provide the same assistance to growers covered by the Horticulture Code of Conduct, would you be able to provide figures on notice, numbers and by state, and numbers of issues resolved for growers under that code?

Dr Latham : Yes.

Ms Carnell : It's really minimal. The horticulture code has been an ongoing issue—before we had it, as well—in terms of not being used dramatically. I think we have a bit of a job to do in publicising it a bit better.

Senator McDONALD: I wondered if that was the case.

Ms Carnell : It's been ongoing. This is not new for the horticultural code, but I think we need to do a bit of work in getting people to understand what their rights are here.

Senator McDONALD: Do you have a budget for that sort of communication?

Ms Carnell : We've got an overarching budget. We have a communications budget. So, yes, we can do that. If we find that we're not getting the sort of response that we think we should—and I think the horticulture code will fall into this category—then we need to get the message out that it exists. It's the same with the dairy code as well. When we met with the Victorian dairy farmers recently, in explaining to them the sort of powers that we have, they were much more positive—

Senator McDONALD: Quite excited, yes.

Ms Carnell : about how this might work. So I think we've got a bit of work to do in communication.

Senator McDONALD: I think it's an incredible solution and very powerful. I'm interested in SMEs and agriculture across all commodities. I'm keen to understand how frequently you're contacted by primary producers. Again, could I get some numbers from you on the number of calls you would receive? What was the pain point? Were you able to resolve the inquiry? What was the state that it came from?

Ms Carnell : We can do that.

Senator McDONALD: Did your staff or the assisting case officer have expertise or experience in agriculture to assist with the inquiry? It's not specialised, is it?

Ms Carnell : All of our staff have small business backgrounds of some description, some of them in rural and regional areas—in the assistance team, very definitely. I don't think we've got anyone with a straight ag background. It's a good point that we should look for that. We've certainly got people who have grown up in rural and regional areas and have been part of small business. But now that we've got the dairy code as well, I think your point is well made.

Senator O'NEILL: Can I ask a clarifying question for a little bit of reshaping of the information that you've requested? Regional and rural Australians are telling me that it's worse for them. The social outcomes in the communities are palpable. People are very, very concerned about it in a whole lot of ways. I wonder, given the data that you're getting, if you could make a heat map for us—like a model—of key areas where concerns are absolutely evident to you based on the contacts that are coming to you. It's not a perfect way—

Ms Carnell : No.

Senator O'NEILL: because you indicated the communication gap. But if it's sufficiently bad that enough people are communicating with you about issues in a particular region, I think that would be quite helpful for us to know.

Ms Carnell : Sure. We can certainly give you what we can. It won't be perfect, but we'll do our best.

Senator O'NEILL: It's better than nothing. Thank you.

Senator DAVEY: I'll jump in there on the bandwagon while we're there, too. While you're looking at that, I'm interested to understand how many small businesses in regional, rural and remote Australia contact you, particularly given that your advocacy agenda notes a key principle of giving small business greater access to a skilled workforce and appropriate training for existing workers. So I want to know, when you're having a look at doing your heat map, if that could also be a factor that you look at.

Ms Carnell : Sure.

Senator McDONALD: I'm also keen to understand the level of engagement you've had with the agricultural division within the ACCC around the offering of services and the communication of them, particularly in relation to bargaining power issues and unfair contract terms and the agricultural supply chain across all commodities.

Ms Carnell : Mick Keogh, who looks after the ag area, actually looks after small business as well. So we interface with Mick all the time on a range of things. Certainly, the issues surrounding unfair contract terms are something really important to both the ACCC and to us. In fact, I know the ACCC and our approach to the changes that need to happen with regard to unfair contract terms are almost identical. So we both have the same view on the changes that are needed to make unfair contract terms legislation actually work better than it does.

Senator McDONALD: Thank you. I had a very animated conversation with Mr Sims just a moment ago. He has the same views. Do you have any suggestions on how the ASBFEO could play a greater role in assisting primary producers with contractual disputes and unfair bargaining terms and, if so, are there any limitations you face in allowing you to execute on that?

Dr Latham : We are open to all Australian businesses.

Ms Carnell : Our legislation defines small businesses in a number of ways, but under a hundred employees means that just about every agricultural business is going to be in. So we can look after their complaints.

Senator McDONALD: I refer to your advocacy agenda, and I'm pleased to see a key principle is increasing access to emerging technology to boost productivity. Can you outline for me whether the ASBFEO engages in the agricultural sector and, if so, how?

Ms Carnell : With that, where we've been particularly focused is in helping small businesses to be digitised, things like Buy from the Bush. If we can get small businesses and agricultural businesses online, selling online, using technology efficiently, we know that their profitability and their efficiency will go up. So the focus has been on digitising—how you do that, how you make it as cheap as possible. Some of the work that the department has been doing in terms of digital champions—many of those are in rural and regional areas, and it's good having a mentor, a champion, to show what you can do, even in really little businesses.

Senator McDONALD: I sit on the select committee on fintech. It's extraordinary the conversations that agriculture is having compared to other sectors. One may as well be on the moon. Agriculture is still talking about connectivity—can they get an internet connection and is it consistent enough to run a digital anything?—much less engaging in blockchain or anything else that's more exciting. That's great though—the digital champions. Chair, thank you very much for your patience.

CHAIR: Senator Sheldon.

Senator SHELDON: Given that it's been some years now since penalty rate cuts have come into effect, are you able to explain to the committee how many extra jobs have been created in retail, then in fast food, then in hospitality and then in the pharmacy sector?

Ms Carnell : That's outside our remit. Our job is to support small businesses, advocate on their behalf and handle their complaints when they have them.

Senator SHELDON: Ms Carnell, I recall that the organisation actually supported the cutting of penalty rates.

Ms Carnell : Absolutely, because small business have told us on many occasions that the issues surrounding penalty rates are complex and stand in the way of them opening longer hours, particularly on Sundays and on public holidays, and as our job is to advocate on behalf of small businesses, that's why we took that position.

Senator SHELDON: You haven't tested that proposition that extra jobs have been created, so you've made an assertion but haven't tested it?

Ms Carnell : We speak to small businesses—all of the stuff we do is about talking to small businesses, getting input from small businesses. We have 29 organisations that represent small businesses and that are on our policy group that we use to input into our policy position. So we go out to them and ask them what they think about various things. They go to their members. We also speak directly to lots of small businesses. That's the approach we take. Remember that we have somewhere between 20 and 25 people altogether in our organisation. That includes for both advocacy and assistance. So we don't have an awful lot of capacity to go and do major surveys.

Senator SHELDON: What concerns me is that there was certainly a lot of argument, including from the Reserve Bank and from economists, about the fact that wage stagnation is having a detrimental effect on our economy. Would you consider that would have an effect on small business?

Ms Carnell : A very large percentage of small businesses are in areas that are award dependent, as you would be aware—retail, hospitality and those sorts of areas. As you would be aware, the minimum wage, which directly affects businesses that are in those areas, has gone up by 3.3, 3.5 and three per cent over the last three years, which is about double inflation. So for a lot of the small businesses involved, and these are quite little businesses, with what's happened over the last few years—which we haven't argued shouldn't have happened; it's the way we set minimum wages in Australia and that's absolutely fine—I don't know that they would perceive that wages in their businesses have been stagnant as their staff have had wage increases close to double inflation.

Senator SHELDON: A number of those workers in those industries I mentioned—retail, fast food, hospitality and pharmacy—have had substantial wage decreases. As the Reserve Bank says about stagnation, there is an important nexus between the capacity to spend money and those small businesses. I'll rely on the Reserve Bank to argue the case, and it says that there is serious concern. As I understand it, some small businesses made a representation to you that weren't happy paying weekend penalty rates.

Ms Carnell : No, sorry. We went out to the 29 industry associations that are part of our policy group. They have many hundreds of thousands of members. They consulted their membership. They came back to us with views on what needed to happen in this space. Remember that the reduction wasn't set by us or government; it was set by the independent Fair Work Commission after two years and 30-something different hearings and many hundreds of submissions, with the unions and the employer groups having the capacity to put their cases on many occasions. The Fair Work Commission determined that there would be some reductions in penalty rates in some awards on Sundays and on public holidays. So it was not more broadly than that. We supported really clearly the independent arbiter's right to do that, as we support them setting minimum wages.

Senator SHELDON: The question I was putting was about job creation. That was the reason that there was the support also for the reduction in weekend penalty rates. Again, in a past life I had the pleasure of being a union official for the largest small business organisation in the country, the Transport Workers Union. It's probably larger than all the other small businesses put together, I would hazard a guess, with close to 30,000 and many others that were covered by agreements negotiated by paying members on behalf of all those small businesses. The drivers I have spoken to over these two years have said they do, from time to time, employ people when they're on leave to carry on the business. They've said they've employed more people. Be that as it may, that's only my opinion—the Council of Small Business Australia Chief Executive Officer, Peter Strong, said the net impact of the phased-in cuts by the Fair Work Commission has been minimal, because they coincided with above-inflation increases to the minimum wage. He said:

There's no extra jobs on a Sunday. There's been no extra hours. Certainly I don't know anyone—

who gave workers extra hours—

It's been just a waste of time.

This was reported on 26 April 2019. To the best of my knowledge, he hasn't changed his view. That is the Council of Small Business Australia's Chief Executive Officer, Peter Strong, who I'm sure you're well aware of.

Ms Carnell : Peter's entitled to a point of view. I know that he made that point of view without any data either. That was his personal view. Can I say—

Senator O'NEILL: Data-rich commentary from COSBOA—

Ms Carnell : Well, it was—

Senator O'NEILL: If you can't get the numbers you want, you just make them up on the spot? Is that what's going on?

Ms Carnell : No, I was just saying that that was Peter's point of view. That was his view; it wasn't something based upon some survey—as you asked before—of what had actually happened. On a positive note, I think some of the good things that have happened in the last little while is the—

Senator SHELDON: No offence, Ms Carnell, he gets appointed and elected by various small businesses. You're appointed into your position; I respect that's what happens. In his view of those sorts of things, he's accountable to his membership and he gets voted out.

Ms Carnell : All I said was that that was Peter's personal point of view. I'm not responsible for Peter's view.

Senator SHELDON: I would suggest that he's in the same boat: he has experience and he's accountable for that experience, and when he expresses it publicly he's accountable to his membership.

Ms Carnell : I'm not going to make a comment on Peter's position or Peter's comments. From what I understand, that was Peter's personal point of view.

Senator SHELDON: It seems like a very strong point of view, because he's mentioned it in such glowing terms after, obviously, he's looked at the breadth of his membership and what they're saying to him: it's just been a waste of time.

Ms Carnell : I don't know what you want. What I'd love to say, though, is one of the things that we really think is a great step in the right direction is Iain Ross of the Fair Work Commission coming out and supporting loaded rates, something we've supported for a long time. Loaded rates, of course, would ensure that everyone who was working in those particular industries under those awards ended up with a higher hourly rate, and they would get rid of the complexity that many small businesses experience with different penalty rates at different times and so on. And, by the way, Peter Strong supports that, too. I think that looking for new ways that will ensure that employees are paid properly—and the great thing about loaded rates is that it means everyone is paid more. The women who work during the week often can't work weekends, so they aren't able to get penalty rates. With loaded rates, everybody is in a position to get a higher hourly rate. It's just there aren't penalty rates as well. That loading would be different with the different awards, based upon a whole range of things. I think we've got to try to look outside the square—

Senator O'NEILL: This is an ideological debate, Ms Carnell. I think if we're all here working on Saturday and Sunday, then we would know that every day is just the same, and you get the rate averaged out across. But the fact is we're not here on Saturday and Sunday, because we're trying to be with our families. There's still a difference.

Ms Carnell : I'm just saying I was really pleased to see the Fair Work Commission come out and say that it was something we should do more some work on to try to reduce the complexity of the current system. That's something that we've said regularly.

Senator O'NEILL: Yes, and this morning I think we had debate about the number of complex awards that were in place when Mr Howard was the Prime Minister—

Senator SHELDON: Is was 1,500 down to—

Senator O'NEILL: It was reduced to—

Ms Carnell : One hundred and twenty-two.

Senator O'NEILL: We've got more technology and more capacity, and now the argument is, 'It's too hard for us to do; it's too complex.'

Ms Carnell : It's always been that.

Senator O'NEILL: It just doesn't wash.

Senator PRATT: I have some questions in relation to supply chain finance. Your office is conducting a review. How many submissions have you received so far?

Ms Hordern : We've received 17 submissions so far and are expecting another two in the next couple of days.

Senator PRATT: Are they from individual affected businesses or are businesses collaborating on those submissions? Would you say that number of submissions is a reflection of concern? How do you characterise the impact of it?

Ms Carnell : These are submissions to our current paper, which proposed a number of questions. As you'd know, we released the supply chain finance review report and that was done after a whole lot of consultation with various players. That paper put out a number of questions, and the submissions are answering those questions.

Senator PRATT: Who are those submissions from and what's the nature of those submissions?

Ms Hordern : We've received a number of submissions from a range of businesses, including Vodaphone, Telstra, the Business Council of Australia, Chartered Accountants ANZ and ANZ Bank. So there are a range of large entities that have made submissions, including some of the supply chain financing companies, Earlytrade and Lion Beverages. We've received a couple of individual submissions as well and one or two from small businesses.

Senator PRATT: In the main, those are from users of supply chain finance and people who manage those systems responding to the issues raised in your original paper?

Ms Carnell : Yes, that's right.

Senator PRATT: Do your stakeholders as a whole—not necessarily the ones that have responded in those submissions—consider supply chain finance, and in particular reverse factoring, a financial product or a service?

Ms Carnell : I'm not sure that small businesses spend too much time trying to decide whether—

Senator PRATT: I'm sure it's not doing much of a service if they're—

Ms Carnell : No. The reason we did the inquiry is that we were very concerned that the feedback we were getting from lots of small businesses was that some large businesses were using supply chain finance as a method of having long payment times—pushing out payment times and saying: 'Here it is. We're going to go to 60 days, but do we have a deal for you! All you've got to do is sign here and you can get paid when you should have been paid anyway'—which was 30 days or less—'and, by the way, it's going to cost you.' So we were really—

Senator O'NEILL: And, if you don't agree, the story is: 'I'm sorry, we might not have any more contract work for you next month.' That's what the story is.

Ms Carnell : That is what the story is. So that's the reason we did the inquiry: that was the feedback we were getting. We were getting small businesses coming to us and saying, 'This is simply unacceptable.' And it is unacceptable. Supply chain finance or reverse factoring or whatever, when it's used to get five-day payments when you have a 30-day contract, is absolutely fine. You might need that. But what isn't okay is it being almost forced on small businesses who need to be paid in 30 days or less and they should be paid in that anyway.

Senator PRATT: Have any big businesses who use this, in responding to your review, explained why they use it? Is it essentially that they get to bank someone else's money for a few extra days and make some money off that?

Ms Carnell : Absolutely.

Senator PRATT: They're the companies that can probably afford to pay in terms of the volume of payments that they're making, relative to when small businesses owe other small businesses?

Ms Carnell : I think that's the thing that's really most distressing about this: the businesses that are using it are really big businesses. They're not, on the whole, middle-sized businesses. These are, in some cases in the food industry, major multinationals, mining companies, major engineering companies—big guys—and they're hitting the small businesses that deal with them. So this isn't small business to small business stuff.

Senator PRATT: Does the practice have different impacts in different sectors of the economy? If you're a large supermarket chain and you're doing that to a lot of your suppliers—are the impacts similar across different industries?

Ms Carnell : It will be a little different, because some industries have smaller margins than others. But generally the dilemma for small businesses is that they have to pay their employees, their suppliers, their landlords and whatever in less than 30 days but in some cases seven days or cash on delivery. So, having to wait for 60 days is just a huge, huge cashflow problem for them.

Senator PRATT: And if you're a small business doing business with a big business, they will push your price right down to start with, I'm sure.

Ms Carnell : Yes. They're already on pretty low margins. You don't deal with big businesses from a good negotiating position. But the thing that I think upset us more than anything is when we saw some of the people who were offering supply-chain financing or the various goods that sit in the same bracket using artificial intelligence and data to determine how desperate a small business might be and therefore how big a discount they might be willing to take.

Senator PRATT: Which just compounds the financial—if a business is desperate to be paid quickly, then forcing that business to take a discounted price for the work they've done for you is pretty abominable.

Dr Latham : There are also bidding platforms, where those who are willing to give up the most, to take the largest cut, get to use supply-chain finance.

Senator SHELDON: I experienced that in the trucking industry, and you would have seen that with small, medium and large companies bidding on contracts.

Senator PRATT: So, in a sense it will be just another way of driving businesses that lower margins further out. They'll become more and more marginal. Are you seeing that trend already because of this?

Ms Carnell : Absolutely. And I've said this publicly, so it's not new, but one of the areas where we were concerned was Whyalla, where it was used by the Gupta Family Group. Those small businesses in Whyalla have had a pretty rotten time over the past few years. So, it was really disappointing that this sort of product and 60-day payments were put on the table. I believe that situation has got better, which is great. But it was pretty tough on those small businesses.

Senator PRATT: Yes, but we do need a universal solution to the problem—

Ms Carnell : We do.

Senator PRATT: to stop the practice. I'm assuming that you've put in a submission on the Payment Times Reporting Framework consultation. What's your involvement?

Ms Hordern : Yes, we have submitted on that legislation. We also participated in a round table with the department and provided feedback over the process.

Senator O'NEILL: Can you provide us with that?

Ms Hordern : Yes.

Senator O'NEILL: That would be terrific.

Senator PRATT: Has ASIC provided advice about the application of financial report and audit requirements in its remit that apply to reverse factoring?

Ms Hordern : ASIC have not provided us with advice on that.

Senator PRATT: So, we'll be able to get a copy of your views about the consultation. But I'm assuming that your concerns will cover reporting entities' penalties and how those penalties are calculated daily?

Senator O'NEILL: That question's really related to some evidence we received just before—

Senator PRATT: Yes.

Senator O'NEILL: We're keen to actually get your view.

Ms Hordern : Yes.

Ms Carnell : It's one of the issues in our submission.

Ms Hordern : In our submission we've asked that it be clarified in the legislation that the penalty is applied daily, not just per instance of noncompliance.

Senator PRATT: Good. So, is this the right way to go about stopping the practice in terms of simple solutions to it?

Ms Carnell : We have been supportive of a transparent reporting framework for large businesses in terms of payment times, and we believe that the use of supply chain finance should be clarified in that reporting framework. We don't believe it's the whole solution to the problem—because, remember, you can report that you've got 90-day payment times.

Senator O'NEILL: That could be sorted out in legislation, couldn't it? New Zealand have been doing some stuff.

Ms Carnell : There's certainly some work that's been done. The EU have legislated 30 days or less. There's the capacity, but the reporting framework legislation—which is different—doesn't require quicker payment times; it just means that you have to disclose your payment times. The dilemma is that big multinationals have said to us that they will continue to have the sorts of payment times they have because they're set in head office and, if there's no legislation in the country that they're operating in, they'll set their payment times in their head office.

Senator PRATT: So, in effect, banning reverse factoring and supply chain finance won't necessarily fix the problem. Is there a role for supply chain financing in terms of keeping money in the system?

Ms Carnell : There really is. I think the comment was made earlier that there are situations where it can sometimes be a quite cost-effective source of capital for small to medium businesses. I spoke to one guy who has fundamentally grown his business off the back of using these tools. He is growing really quickly, particularly in the export market, so he needs to churn his capital really quickly. There's some quite long payment times in the export market, so by using the supply chain financing—

Senator PRATT: He can voluntarily do it.

Ms Carnell : Yes.

Senator PRATT: So is the question whether you can volunteer for it as opposed to have it imposed on you? Will the approach that's been taken on addressing it kind of set that standard that says that you can opt in rather than have it forced on you?

Ms Carnell : It is our view that you shouldn't be able to have it forced on you. In the reporting framework, the view is that it needs to be transparent if you are using it. The other thing we've suggested is that accounting standards need to be a lot clearer to ensure that, for big companies who are using it, it's clear in their accounts that they're using it, because there is a capacity to, I suppose, make your accounts look a bit better by using this form of financing.

Senator PRATT: So you can vary the level of debt that you owe your suppliers because you're calculating it on a discounted payment?

Ms Carnell : And the time frames you've got. You can push out your payment times—because you owe this company and not this company. There needs to be clarity in accounting methods.

Senator PRATT: So they can vary the debt they owe, falsely, because ultimately they still owe the full amount of debt unless it has actually been discounted—which it may or may not have been. I look forward to engaging with you further on those issues.

Senator O'NEILL: Can I just indicate no lack of interest in the issues that you raised in your opening statement—for example, financial planners. I was on that committee that made all those recommendations, and I remain extremely concerned about the delay in the government getting to it. They finally did something and there are further delays. I'm very worried about it. Could I ask you to write to the committee formally giving us advice about the 80 AMP cases, your concerns about individual operators and delays in compensation—all those issues that you raised. A short report would be great. Could you also give us an update on where you are with the insolvency issues and the concerns that are becoming prominent. I invite you even to put the R&D items on. In the last quarter you indicated 1,865 interactions and 1,488 complaints or disputes. If you could categorise those to give us an indicative scale of where the issues are again that would be helpful in writing.

Ms Carnell : We can do that.

Senator O'NEILL: Given the time and because the chair's given us a great day today, I'm going to ask a few questions if I can around franchising and indicate that we might need to have another meeting perhaps even as part of our ongoing work as a committee around this issue.

I don't quite read it every night but I do have this report on franchising at my fingertips on my desk all of the time. I have the industrial manslaughter one because these are two matters on which, I'm sure like Ms Carnell, the stories people come to you with are harrowing. There are things happening in this country around franchising that are hard to believe—profoundly exploitative business practices. There is an incredible set of recommendations here in a unanimous report that was delivered in the last parliament. I want to put on the public record what I've said in private meetings—that I am extremely concerned that the first recommendation, which asks for an interagency franchising taskforce, essentially to find ways to implement the recommendations, was usurped and instead used as a vehicle to reprosecute the inquiry that senators had undertaken. Now that's just wrong in all sorts of ways but particularly wrong because there were so many confidential submissions that were received to enable us to write this report. So if I ask you a question in response to this report and concerns that I expect you may well share about the situation I've just described, where are we and why is this going nowhere?

Ms Carnell : I hope it is going somewhere. The problem is it's going somewhere really slowly. The report you're talking about, I think, was handed down in March two years ago.

Senator O'NEILL: Yes.

Ms Carnell : Oh, no, it was 12 months ago. Sorry, the inquiry started two years ago. The report was March 2019. There are a lot of small businesses that are hurting out there on this one, so I think the challenge is to speed up the process. We've got a paper that is asking for submissions, as you know, for the supposed RIS. But from the joint parliamentary inquiry, we just think that this has been going for too long and people deserve a quick outcome.

Senator O'NEILL: Given it's taken so long to get to this point, I'd hate to think we'd just go with what the task force has indicated. The fact that they reshaped it into principles that don't match anywhere, in my view, the scale and the sequencing of recommendations makes me very concerned. When I read the RIS, while there were bits that I could pick out and think there were some parallels, huge amounts don't relate to the recommendations at all. One particular element that was very problematic was the documentation that was core to the way the code currently operates. The code requires disclosures, and we've ended up with this increasingly enormous document. We know from the stories that we're hearing from people that those documents are used basically as tools of abuse. In this room I was told they were full of such unconscionable contract terms that they had locked any form of litigation up for those who did have the money, and many didn't have the money. So what's the solution to all this documentation that's out there? Have you given any thoughts to a register of franchise documents? Is that going to work, not going to work? What are your thoughts?

Ms Carnell : We have a view that there are a couple of approaches to this. First off is a disclosure summary, which would be a plain English, high-level disclosure that has basic information that you need if you're going to sign up to do one of these things, like number of operating franchises, annual new entrants, exits, people you can talk to—just basic sort of stuff that you need. We do believe there needs to be a franchising registry, a register of disclosure documents that are transparent and available. We fully accept that there might be some commercial-in-confidence information that could be kept separate but we don't see why disclosure documents and franchising agreements shouldn't be part of a registry that makes them transparent.

Senator O'NEILL: Have you given any serious thought to the structure of what a registry would need to include to make it possible for people to see where franchisors establish and then churn and burn through a whole lot of people? Have you given thought to what the register would need to do so that people can go and see when that shop has been sold three or four or five times and every time somebody has failed; they've gone out bankrupt?

Dr Latham : That disclosure summary, in our view, should have a number of elements in it which would include things like your churn and burn—exits from the franchise, who's coming in, how many new entrants are there to it, the overall number of franchisees, some of the key financial performance indicators and a bunch of other things. You have that in a high-level document and that could be the thing that sits on the register. You could have a register with all sorts of other documents sitting underneath it, but at least that disclosure document sitting there in a form that is consistent across all franchises so that you can compare them as well.

Ms Carnell : We think that the approach that is taken in some places in the US of franchising agreements being looked at by a small group—that could be franchisees, franchisors and maybe us, or someone—to ensure that it does comply with unfair contract terms and other requirements. I'm not saying that it's—

Senator O'NEILL: Do you mean registration of your actual agreement? So you couldn't just start up a business, three months down the track, call it a franchise and then off you go, sell it to somebody else, use their capital, burn them, move on?

Ms Carnell : That's one of the things we're trying to stop. We're also trying to overcome some of the issues of franchises where it would be actually impossible to make a quid if you paid people properly—that sort of scenario—where the business model is simply too murky, not transparent enough and couldn't work if you opened the hours you had to open and the costs were what they were. So we've got—

Senator SHELDON: Domino's pizza comes to mind, amongst others.

Senator O'NEILL: Pizza Hut went out of business because of the way they were told to price by their franchisor.

Ms Carnell : Those are the sorts of issues. We've got to remember that people go into a franchise usually because they might not be all that experienced in business. As we know, a number of franchises end up with people who are new arrivals in Australia—

Senator O'NEILL: Yes.

Ms Carnell : refugees—people for whom English may not be their first language. We have to understand that that's a chunk of the people we're dealing with here, so we need to have a system that is easy for those sorts of people to understand what it is they're signing and that the transparency around it is reasonable. The document, the basic agreement, should have to pass a few hurdles, not a stamp to say, 'You can make a quid out of this,' because that's business, but to say that there are not unfair contract clauses, that there are not clauses in this that would make it impossible for somebody to be able to run a decent franchise if they work hard and do what they're supposed to do.

Dr Latham : The other critical thing alongside the transparency of what it is you're actually getting into is an ability to have any disputes resolved in a timely way and in a determinative way. That's where arbitration comes in. At the moment, mediation is the prescription here but, as long as the parties come together in good faith, that's all they have to do. They don't have to agree. I describe franchising like a marriage; you're bound to each other. So what do you do if you can't agree and you're bound? That's where arbitration comes in. I'd still say mediation is your first point of call because that preserves relationships in a good way. But then, if you can't resolve it, you need somebody to come in and say, 'Right, no, That's the answer.'

Senator O'NEILL: Divorce clauses need to be there ready to go. Can I ask about FRANdata? Are you aware of this business? How would you characterise FRANdata? What is it? What does it do?

Dr Latham : I shouldn't talk on their behalf but I understand they bring data together to make sense of things.

Ms Carnell : We know who they are but we have very—

Senator O'NEILL: I'm putting this on the record because I want to alert you to it. It's a business. In the absence of transparent data of the kind we've just been talking about, someone I recall—I hope I'm correct in saying this—is quite closely associated with the Franchise Council, who have dominated in this space and, I understand, have hundreds of franchisors. For a long time they have purported to represent franchisees as well, but I don't think there's any evidence to support that case. FRANdata is a spin-off from that particular organisation and is now making a business of arbitrarily determining the quality of different franchises. I've looked at it a few times and I can put on the record my great concern, given the evidence we've heard, about the high star rating that has been given to some of the companies that I thought were the most recalcitrant. I'm keen to get a comment from you but I'd really like you to have a look at the FRANdata site and determine how it matches up with the kinds of complaints you're receiving from the entities that are being assessed and given congratulatory stars on that site.

Ms Carnell : We would be more than happy to do that.

Senator O'NEILL: Thank you. Do you have any comments on FRANdata at this stage?

Ms Carnell : No, I don't.

Dr Latham : No.

Senator PRATT: I have a quick question in relation to your report on the R&D tax incentive. Has the government responded to your report?

Ms Carnell : Not at this stage.

Senator PRATT: Minister Cash, when does the government intend to respond to the R&D tax incentive report?

Senator Cash: That would be a matter for—

Mr Fredericks : That would be outcome 1 in the economics committee that we were in today.

Senator PRATT: But it's a report of the ombudsman. It was answered there today, was it? I was in that committee. We talked about the report—

Mr Fredericks : Yes. It was in—

Senator PRATT: and we noted that it hadn't been responded to.

Senator Cash: I'd have to take that on notice.

Senator PRATT: I'm just trying to connect the dots now that I've got the ombudsman here.

Senator Cash: I'll take it on notice.

Senator PRATT: But I'm sure we'll be able to go through those issues in the economics hearing, at which I hope you'll be able to give evidence.

Senator O'NEILL: I foreshadow a much longer conversation around franchising with you, with the committee—very, very soon, I hope—because I think we need to have a very serious counterweight to the task force and what it's said and done in the sector, and the hopes that it's dashed for so many people.

With regard to small businesses affected by the bushfires—

CHAIR: Could I point out that, because I was under the impression we were going to finish early, we didn't actually have the break for Broadcasting and so forth. I'm thinking of people, so if we could finish in two minutes time then that would be good. I apologise for not having the break.

Senator O'NEILL: Has the government response for small businesses affected by bushfires, both directly and indirectly, been adequate?

Ms Carnell : At this point in time, as we know, it is the responsibility of state governments to deliver disaster-recovery programs. I'd have to say that our feedback is that the system in its current form is difficult, convoluted and hard for small businesses to navigate, particularly the loan scenario. I think everyone accepts that currently the requirements are pretty hard to get around, and that's probably the reason that the number of successful applicants for both the grants and the loan is pretty low. We've spent a lot of time speaking to small businesses that have been affected. It's hard, when you've been through what a lot of them have been through, to then also have to manage, say, the loan scenario. They have to outline what they're going to use the money for and then get quotes. You have to do a range of things. Remember, this is being administered by the state government, so it is important to put it there. You have to ask the question, 'Why are we putting impediments in the way for businesses that need money now?' In three months time—

Senator O'NEILL: Once they have their three quotes, they won't still be standing. They'll have left the area, they'll have shrunk the local economy, they'll have made decisions.

Ms Carnell : I think that's the issue. As one small business was telling me—she was sitting over the road from the pile of rubble which was her business, so it wasn't terribly hard to work out that the business had been burnt down—the hard bit was that she didn't have a premises yet. Her business was hot yoga, quite successful, but that means you have to put heat in the floor and do some other stuff, and getting a quote on doing that is really hard until you have a premises. It was the cyclic problem of getting a quote for something that didn't exist yet and you weren't quite sure exactly what it was going to look like. There are any number of cases that we could talk about.

Senator O'NEILL: Could you provide us with a summary of the cases that are emerging for you.

Ms Carnell : We can give some—

Senator O'NEILL: Yes, some vignettes of what's happening and any thoughts you have given to solutions to these problems that would still allow fair and adequate management of the program so it's not exploited or fraudulently accessed but at the same time is flexible enough to deal with the complex realities of life. Life is messy. It doesn't fit the paperwork a lot of the time.

Ms Carnell : The challenge, as you'd know, is that to get money out of the door quickly does require accepting a level of risk that some people will abuse the system. I think there's a balance between getting a system that gets the money out the door and minimises the risk, but you won't get rid of it. I think the current system is attempting too hard to minimise risk to a point that's tipping it the wrong way, but we all know that that's the challenge for government. It's taxpayers' money. You don't want the wrong people getting the money but some of the stuff we know is that if businesses aren't up and running in the next few weeks, really—

Senator O'NEILL: They're not going to be.

Ms Carnell : they probably won't be. The evidence of previous scenarios is they have to get up quickly. They have to have stock. They have to have a capacity to employ people and so on in a reasonable time frame. Therein lies the problem, shall we say.

Senator SHELDON: In a nutshell the problem is that of course we don't want the wrong people getting the money but the fact is that the right people are not getting the money.

Ms Carnell : I think that we've tried too hard to ensure that the wrong people don't get it that it's slowed it down to the people who really need it. It's a great loan, it's low interest, it has all the right bits in it, but it's just not being taken up. The feedback we get from small business is that they're just not confident enough to take on debt.

CHAIR: We'll just call stumps there, if that's okay. There are many questions which people can put on notice. This concludes the committee's examination of employment, industrial relations and small business matters. I thank everybody who should be thanked. I particularly thank Hansard, broadcasting and the secretariat. Thank you very much. This concludes tonight's proceedings. You are all released and we will see you tomorrow morning.

Committee adjourned at 22 : 49