Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Standing Committee on Economics
31/07/2018
Impediments to business investment

AITKEN, Mr Luke, Senior Manager, Policy, New South Wales Business Chamber

MILLAR, Mr Robert, Policy Manager, Infrastructure, New South Wales Business Chamber

[13:00]

CHAIR: Welcome. Although the committee does not require you to give evidence under oath, I should advise that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. I now invite you to make an opening statement before we move to questions.

Mr Aitken : The New South Wales Business Chamber is one of Australia's largest business support groups, with the direct membership of more than 20,000 businesses. The chamber's submission to this inquiry focuses on the need for reliable access to high-speed broadband as a source of innovation and investment opportunities. Reliable and affordable broadband services are becoming increasingly important to business, particularly those in regional New South Wales. Feedback from our members suggests that access to reliable broadband is having a bearing on the investment and expansion decisions of New South Wales businesses.

The NBN has the potential to provide tremendous innovation opportunities for businesses across the country. However, the transition for business customers to the NBN has been far from seamless. In August 2017, the chamber conducted a statewide survey of members. The survey identified almost 40 per cent of respondents had to wait more than four weeks for their NBN service to be fully operational, with some businesses reporting no internet or phone during this period. This meant an inability to not only receive or process electronic payments but engage with customers effectively. The survey also found delays and disruptions in the rollout of the NBN were costing New South Wales businesses, on average, more than $9,000. While there are challenges with the technology, the lack of accountability, responsibility and coordination between retailers and wholesalers in delivering broadband services to consumers were some of the most cited issues with the rollout.

To address this, the chamber has proposed a national broadband service guarantee requiring wholesalers, retail service providers and contractors and installers to work together to deliver agreed service standards. The focus of the guarantee would be to ensure reliability, quality and timely fault rectification under a guaranteed service standard. Failure to achieve this required standard would trigger compensation. Importantly, the guarantee in the form that we propose is technology-neutral and covers for the provision of service by alternative providers of satellite, fixed wireless and fixed line services. While the guarantee needs to be implemented to resolve disputes across the broadband supply chain, we believe regulation should be the last resort in resolving service failures. The guarantee provides flexibility for wholesalers, retailers and contractors to resolve disputes without a customer having to rely on the provisions of the guarantee.

The chamber continues to support the government's investment in the National Broadband Network. It's critical, however, that this investment be supported by a regulatory framework that gives business confidence to invest and grow.

CHAIR: Thank you very much, Mr Aitken. I would like to start by asking you about your membership and some of the tax concessions that are now available. You represent 20,000 members—a very large organisation. This is an issue that hasn't been raised today, but, in relation to the $20,000 instant asset write-off, which is obviously a real benefit to particularly small and medium sized businesses, what's your response to that type of policy change insofar as your members' experience is concerned?

Mr Aitken : It's been a very big positive for business. It was something that we called for a few budgets ago, when it was first implemented. Ideally, we'd like to see that implemented as a standing item in the tax code. We don't think we need to reannounce it every budget process. In addition, there are probably some opportunities for expedited depreciation for businesses larger than SMEs to get more of that investment flowing through.

CHAIR: What about other changes, such as the GST reporting requirements? I think that the number of questions that need to be asked in a particular cycle has reduced dramatically. Has that made a real impact on the ground for your members?

Mr Aitken : I think the challenge, especially coming from a state-based organisation, is that federal requirements around tax don't live in isolation. Obviously, there are other administrative reporting requirements at a state level. We've just had a major win in New South Wales around payroll tax obligations—lifting the threshold. There have been some significant improvements, but we do want to see those improvements flow down into the states, leveraging the knowledge of the federal ATO in terms of improving some of the tax approaches that we might be able to take in New South Wales. The GST is an interesting topic in terms of tax administration. Obviously, the GST replaced a number of state-based taxes. When it was initially introduced, it reduced the administrative burden quite significantly for businesses. We think there's probably more opportunity to do some work around that.

CHAIR: In relation to the NBN, you're quite right to raise major concerns about businesses not being connected, missed appointments and lengthy delays in relation to connections. It certainly has been an issue about which the minister has been very concerned. The ACCC has taken some pretty strong action, and not just on that. There are now penalties, of course, to make that clear in relation to those missed appointments, and in relation to misleading and deceptive conduct, where telcos were advertising particular speeds that could be achieved. They were found to have been misleading and deceptive in relation to those representations. There have been some very significant penalties that the likes of Telstra and Optus have paid whereby customers have been reimbursed. We are seeing some tough action by the likes of the ACCC. Have you seen that resonating positively on the ground from your members?

Mr Aitken : We have seen some positives. There has been a change in some of the offerings from the NBN in terms of some of the packages that they're providing to people. Some of the retail offers are changing as a result of the ACCC's action. Our guarantee as we've proposed it is something that we've taken from another area, a large utility which is provided to business, energy provisions. I will get my colleague Robert to speak to it a little bit. There is a National Energy Guarantee to guarantee supply to a consumer and ensure that there is no finger-pointing between retailers, wholesalers and contractors. We think that's a nice analogy to the NBN and would help resolve a lot of the issues that we've been seeing on the ground. It's really about that communication channel a lot of the time, but it is also the confidence that someone's going to turn up when you've asked them to.

Mr Millar : The National Energy Customer Framework is a tripartite framework. We're proposing something similar with the NBSG, to say that there's an obligation for retailers and networks—in this context, a wholesaler being NBN and retailers being companies like Telstra and Optus—to work together to manage site visits, make sure that they coordinate information provision between each other, check installation work, turn up for appointments and understand what service has been asked for. We've thought that that would be analogous to the energy market, and that's why we've proposed the NBSG.

CHAIR: I want to move to planning and zoning, which is often considered to be a major impediment to business investment. What are your concerns in that respect? Is this a particular issue for your members?

Mr Aitken : Absolutely. We run a regular red tape survey. Out of all the agencies that we review, local government is always cited as one of the toughest regulators to deal with. I think the planning act in New South Wales is still New South Wales's second-largest act. It's a very complex piece of legislation. Often, it hits businesses at that point where they're trying to grow and expand their operations. We do hear problems, a lot of them around the interpretation of regulation. We have had a couple of wins around the planning act recently. There used to be development control plans, which some councils interpreted as being black letter law; instead, they were just guidance material in terms of the type of fencing you might approve. We have seen some improvements around that. The big concern that we have around zoning generally is ensuring that there's enough industrial land for our members that are looking to expand and operate. Obviously, we still have a very strong property market in New South Wales with a lot of pressure for residential construction. We do wonder about where we can keep our jobs, especially our small industrial users within the CBD. That is a big concern in ensuring that we get at least a little bit of ring fencing around those areas to ensure that those businesses can continue to operate.

CHAIR: Have you had particular issues with certain councils in that respect, or are you finding that across the board?

Mr Aitken : It's a little bit more across the board. We do find that it is challenging. Local government has skill shortages like many other sectors in the community across business. The lack of quality planners out there and the way in which decisions have been politicised make it very challenging. We have seen some positives in New South Wales with the establishment of joint planning committees: bringing some actual expertise into the council rather than leaving decisions with the council; to actually bring some expertise from industry to undertake some of the assessments. We do see a lot of the big challenges in regional areas, who often don't have the skill sets to deal with some major planning proposals that come through.

Mr THISTLETHWAITE: Countries with less-developed economies than Australia seem to have been able to get the issue of delivering broadband services right—fast, reliable and accessible broadband. Why has Australia messed this up?

Mr Aitken : Kenya is an example of where they have been able to do it quite effectively. We have a lot more legacy infrastructure in Australia that we have to deal with. It is a massive project. I don't think anyone could expect that it would roll out completely seamlessly. I do think though, as we've suggested, that there is far too much finger-pointing in terms of where the problem is at the moment. We need to align everyone. At the end of the day, the customer is the key; delivering the service to their front door is essential. Let's get it out there. Let's get it out as quickly as we can.

Mr THISTLETHWAITE: In your view, the establishment of this national guarantee, working in a similar way to the electricity sector, would help to achieve that, and you're advocating that the ACCC oversee it?

Mr Aitken : Yes, we are proposing that the ACCC would oversee it. From personal experience, I've never been to a house where I haven't been able to get the electricity or gas on pretty quickly. It should be the same around your internet connection.

Mr THISTLETHWAITE: Something that hasn't been raised today, but a few of the submitters have pointed to it, is the notion of providing a bit more stability in the political system in Australia so that you're providing much more certainty about the political environment, particularly for international investors when they're looking to invest overseas. I think that generally Australia's got a pretty good name in terms of the stability of our government, being corruption free and issues such as that, but I often hear that one of the concerns businesses have about the Australian political system is the short period of time that a government is elected for, the three year terms at a federal level. Is that something that members raise with you as an issue and something that we perhaps should be looking at, four-year fixed terms.

Mr Aitken : It depends who's in office from time to time! It is something. States have generally moved towards it.It stops a lot of the second-guessing around what's going on. There are always going to be challenges either way. It isn't something that generally gets raised with us, but there are concerns about where policy is sitting, where issues are up to, challenges in terms of—obviously at the moment—working within the Senate and hung parliaments. These are really challenging things for politicians, but obviously it has an impact in terms of perceptions and how much confidence people might have when investing in a country.

CHAIR: Before I move to Mr Evans: the example of Kenya has often been thrown around in the context of the NBN. I've just gone onto the NBN website. I want to make it quite clear and clarify that Kenya has a total fixed broadband penetration rate of 1.75 per cent. That means that 98 per cent of Kenya's households, 8.8 million premises, don't have a fixed broadband connection, and Australia has a total fixed broadband penetration rate of around 90 per cent. I just wanted to clarify that key fact.

Mr Aitken : Absolutely, it's size and scale. But I think the point I was trying to make was more around that legacy infrastructure—that they don't have to think about fixed copper wire or anything like that; they can roll it out as soon as they have the opportunity to invest.

CHAIR: Except if you're in one of those 8.8 million in Kenya.

Mr Aitken : That's right.

Mr EVANS: Thanks, gentlemen, for being here today and for your submission. Your broadband guarantee is broadly modelled on the National Energy Guarantee, so I'll just ask you the question: do you support the National Energy Guarantee?

Mr Aitken : Did you want to clarify, Robert?

Mr Millar : Yes. Luke possibly misspoke. It's the National Energy Customer Framework. It's a separate framework that already exists in retail law. So what Luke mentioned is something different, which was obviously the National Energy Guarantee, which is currently being discussed, which we do support.

Mr EVANS: Your federal counterparts, ACCI, were here earlier this morning and used pretty colourful language around: 'Get in the room; do the deal; get it done,' in terms of the National Energy Guarantee. Do you broadly support those sentiments?

Mr Millar : Yes. We obviously don't want flip-flopping on policy. We just want to get something that's going to guarantee supply, and reliable supply, but also, importantly, put downward pressure on cost for business.

Mr Aitken : And we've supported it with some provisos that we do think there should be some more rationalisation of some of the energy policies that exist at a state level. We've been having some issues at a state level around some of the legacy issues with the solar feed-in tariff, and with—

Mr Millar : The Climate Change Fund.

Mr Aitken : the Climate Change Fund in New South Wales.

Mr EVANS: On the broader topic of encouraging business investment and strengthening this recent trend we're seeing, where business investment in the non-mining sector is growing again, albeit off a low base: what sense do you get from your membership that the recent increases in business investment are off the back of some longer-term process and policy-making decisions, including around the competitiveness of Australia's tax system?

Mr Aitken : There are probably a range of factors that can play into that. Within New South Wales, obviously, we have major public infrastructure investment going on. So we're seeing that driving some of the investment around it, providing some confidence around it. We've seen some quite distinct improvements around some of the tax administration, just at a state level. I mentioned before that the payroll tax administration changes have been quite good. But the attractiveness is really going to come down to some of those other potential opportunities around Australia being seen as a destination where there's high quality in depth, in terms of human capital. It's a great place to invest. Capital investment is really about meeting with human capital to grow and start a business. So we'd think those were probably the opportunities driving that.

Mr EVANS: Lots of the conversation around the corporate tax rates focuses on this global competitiveness for foreign investment. It's also true, to an extent, though, that the headline and the effective rate also feed into domestic investment decisions. One sector that has been on my mind a bit recently is the unincorporated sector. There is this unincorporated tax discount that exists. I think it's currently at about five per cent and heading to eight per cent, and, under the government's plan, I think, for unincorporateds, it would head to 16 per cent by 2026, as one additional limb to the enterprise tax plan. Does your membership have many unincorporateds? Do you have anything to add to this policy distinction we're seeing opening up in Australia about the tax treatment of the unincorporated sector?

Mr Aitken : Not particularly—not from our membership. Our core membership would probably be slightly larger. We do have a lot of SME members, and very small unincorporated members as well, that might be partnerships or otherwise. But, no—not much that we have heard from them, in terms of that treatment.

Mr EVANS: Thank you both.

Ms KEARNEY: Thank you for your submission; it was very good. Thank you for coming along today. And thank you for raising a really important issue. One of the things that have come out today in the hearings is that a low-level headline or even effective tax rate is not the only thing that people look at when they're looking for investments. It's important pieces of infrastructure like the NBN, I think, that certainly attract investment. We've seen this in places like New Zealand, where Dunedin has been a fabulous pilot for high-grade NBN internet services there. It's attracted businesses from all over the world, and it's actually become a business hub for the IT sector. It's very exciting to see the response of businesses to that sort of infrastructure investment, so thank you for highlighting that.

I'm interested in a couple of things. I've been talking to universities recently about how, through the universities, they have access to high-speed broadband networks; they have their own system. I don't technically know how they do, but they do. They teach young people the skills that are necessary to do amazing things—like run virtual conferences and all the things that are required for television and for businesses et cetera—but because Australia is pretty much lacking high-speed access, none of the businesses can employ them with the high-level skills that they have and we are losing them. It's actually creating a brain drain of all of our best and brightest kids, who are being taught wonderful things in universities but are not being employed because of the lack of infrastructure here. Are you seeing this? Is that of concern to you?

Mr Aitken : Absolutely it's a concern that some of our best and brightest go overseas and don't see the opportunities within Australia, but we do see this from the demand for skills here. Definitely ICT skills are in demand from our general membership. We are seeing some other interesting investments that are happening at both state and local levels. The New South Wales government has invested in the Sydney Startup Hub, which I think is the largest in the Southern Hemisphere. It will agglomerate a lot of those thought leaders of the future.

There is also work at the local level. I've recently been up in the Hunter. Lake Macquarie has established a low-power wide-area network—this is a technical thing, and I won't try to go into the detail of it. This is a network that really allows the Internet of Things, so the connectedness between devices, across that entire local government area. It's being funded by a private-public partnership, and from business application potential it really will allow businesses to manage multisites from one spot, manage their security systems. And because that area has put its foot out first—I think it's the first area in Australia that has one of these networks across its entire region—it will allow it to put itself forward as a pilot opportunity. So there are some smaller scale things that can occur that will actually drive some of those business opportunities off the back end.

Ms KEARNEY: And you would argue that access to something like the NBN does attract investment and businesses, definitely?

Mr Millar : Yes.

Mr Aitken : Yes, absolutely.

Ms KEARNEY: I'm interested also in your submission, where it talks to the review of service access undertaking.

Mr Millar : Yes. That was a bit of a nexus for our submission, because it was dedicated wholly at the wholesale level. Small businesses and residential consumers can't interact with that particular review, so we just wanted to use that as a starting place to really demonstrate that guarantee is premised on all parties working together to achieve mutually beneficial outcomes.

Ms KEARNEY: Okay. My seat of Batman—I'm in Melbourne; I'm not in New South Wales—is one of the last areas to access the NBN. It hasn't been rolled out across my seat, and it probably won't be for some time. And so what's happening is the businesses are getting together and buying access to the NBN through other means, through existing infrastructure and buying their own fibres and their termination points et cetera. Some of them are even looking at getting NBN to the desk, but paying for it themselves. They can only do that if there's a large group of them who can guarantee to the providers that they will buy it for a period of time. It seems to me that there is an enormous amount of frustration with the rollout, and that businesses are trying to find their way round to access it because it's so vital to them to be able to operate their businesses, to draw investment and to grow the economy in that area. I thought that's what you were talking about.

Mr Millar : It is, in the sense that we do believe that there could be some clarity around how buyers groups could be formed so that they can, for example, choose to deploy fibre to the premises where it has been dictated to be fibre to the node. The ACCC might be able to provide some guidance around that, because obviously, when you have a buyers group, there could be some competition concerns there in terms of being one buyer and one seller. But I would have thought that could be worked through pretty easily.

Ms KEARNEY: But, again, it just reiterates to me the importance of these types of things in attracting investment to an area. Certainly, as someone whose seat doesn't have this, I know that it has impacted greatly on attracting investment to that area of Melbourne—to the northern suburbs generally, not just to my seat. I thank you very much for your comments.

CHAIR: Gentlemen, thank you both very much for your attendance here today. If you've been asked to provide additional material, could you please forward that to the secretariat? You'll also be sent a transcript of your evidence, and you may make corrections of grammar and fact.

Proceedings suspended from 13 : 25 to 13 : 54