SMALL BUSINESS AFTER THE 2015 BUDGET

The Hon Bruce Billson is the Minister for Small Business and was also a minister in the Howard Government in 2007. As reported in the Herald Sun business section after the 2015 Budget, Billson has first hand experience of running a small business As the Herald Sun reported: “Tapping into his own experience and consulting widely with industry, Mr Billson is viewed as having delivered with the $5.5 billion small business package in Tuesday’s Budget.” Bruce Billson addressed the Sydney Institute on Wednesday, 20 May 2015

SMALL BUSINESS AFTER THE 2015 BUDGET

BRUCE BILLSON

Isn’t it great, isn’t this a fantastic venue and we want to thank Maddocks for that as well. And thank you to all of you for being here this evening.

The good news I have to report is small business is the new black. Everybody is talking about small business. For me, that is a great achievement in its own right.

Some of you would know I have been either the Cabinet Minister for Small Business or the Shadow Minister now for some six years. And this community percolates through my veins; I believe so greatly in what they do. And for the community I represent – the electorate of Dunkley, the Riviera of Melbourne, small business and family enterprises – they are the economy for the community that I represent.

I am sensing we are at a great time in our nation’s history. The start of a great era where enterprising men and women know they are valued, they are supported with their entrepreneurship and they have a government keen to encourage them to take an idea or an ambition and translate that into economic activity. And I think that is where we need to be. That was the story of the Budget last week. I have been accused of being the Budget bandit. I am happy to wear that tag. Although I think “care bear” became popular today in the Australian – I am not quite sure what that was about.

The Budget was a task of reassigning priorities, about encapsulating the convictions and the key objectives of the Abbott Government. What that involved was an identification of savings to be able to fund the largest small business package in our nation’s history. $5.5 billion through the Growing Jobs and Small Business package has been developed over a number of years. We have been making progress, all the while realising that whatever it is we want to do we need to be able to fund it. I assure you there is a whole bunch of other ideas and initiatives as well and that this package represents and instalment in what it is we seek to achieve.

My work will be done when our nation is the best place to start and grow a small business. We are not there yet, but we are making gains and enterprising people both here in our economy and beyond are taking notice of what we are doing.

It is really important I think to grasp the significance of small businesses and the family enterprise community. They play a crucial role in the vitality of our economy, in the vibrancy of our communities. They are not handcuffed to a mining pit. They are not attached to a tower of financial services workers. They are in every corner of our vast continent. Taking a risk, often mortgaging their houses, to provide opportunities for themselves and others.

It is that kind of spirit, that kind of endeavour, it is that ambition and that entrepreneurship that we wanted to not only recognise and celebrate through the Budget but put meaningful support around what I call the entrepreneurial eco-system.

Is it supportive? Is it encouraging? Does it nurture ideas and ambition and the growth and jobs that flow from the enterprise of our men and women. That is a key priority for me and our government.

It is important for a range of reasons. Not only because small business is personal – I have had one and I admire small business men and women who continue to compete. Our business failed and the decision to close it was one of the toughest professional decisions of our lives. It did not matter that I had a Masters in Business Leadership and all those sorts of things. Along with the spunkiest, neatest, nearest correct business plan you have ever seen. I had married well with my wife a young retailer of the year candidate.

We had all the acumen and talent that we needed – great supplies, a great team, the right location, a mighty expensive rent. I should acknowledge the shopping centre council while I am on my feet. It was not one of your member’s properties – it was just a suburban premise in Mornington. Sixty kilometres out of downtown Melbourne where the lease rate was the same as Southbank. Delicious real estate. Highly sought after retail precinct. We had the best art and fine craft, Colin Heaney’s blown glass, spectacular stuff. But a discretionary spend it was as well.

No one wakes up in the morning thinking what do I spend my last $600 on. Rarely is it a piece of blown glass. But we persevered. The pillow talk of cash flow. The idea of what else can we do. The all-encompassing nature of that kind of family enterprise. I have said, facetiously, for my wife and I it was the greatest contraceptive ever invented.

All-encompassing is the life of a small business person. We did not make it and that is why I have great admiration and salute those that continue to thrive and succeed. I want to dedicate my efforts to supporting their entrepreneurship.

So it is personal, and that should make it a priority in a nation that wants to support endeavour and enterprise because that is what has helped grow our economy and that is the strategy for the future.

But is also a very significant part of our economy. Small businesses make up 96 per cent of all of the enterprises operating in our economy. They provide just over 4 out of 10 of every private sector job. They are generating $330 billion of economic activity. It was interesting to hear after Budget Night, alongside the accolades from the small business community and their representatives, that even the social security and welfare community was saying “good on you government”. Because for people who have been out of work for a while, or are seeking to return to work, it is often a small business or family enterprise that has the courage to give someone that start.

So it made a lot of sense. But another key attribute of it is what is going on in our nation and what is going on amongst us as a people.

We have seen through the intergenerational report the ageing of our population. How we will need to be more productive, more able to generate wealth and income if we are to sustain the improvements in living standards that have been the hallmark of our country for generations.

If we do not act, if we leave those policy settings where they were when we inherited them from the previous government, we would fail that great promise. We would be the first generation to gift to the next a lesser standard of living than the one we have enjoyed.

That is not why I got into public life and that is not what we are about as a nation. And that is why energising enterprise has to be at the heart of sound and considered, and sure footed, policy making coming out of our nation’s capital.

If you look at the ageing population and what that means for the workforce, think also about the demography of our small business community. We all know, and let us be kind, mature age small business owners anticipating the sale of their enterprise will fund their retirement. Then they find the appetite to buy an established business has diminished as disruptors in our economy have changed the whole concept of what the value proposition is.

The appetite to spend on goodwill diminished greatly as well because of the mobility and agility of consumers. And, of that next generation of entrepreneurs, do they have the resources to purchase? In our case, we mortgaged our house. We had a house and some equity in it. But for many thinking about a career in entrepreneurship and being their own boss and creating their own opportunities, that asset nest egg is not there. So we need to think about that also.

So bright has mining shone that I fear it has blurred the vision of what else is going on in the economy and what else we need to do to provide the deep, diverse and resilient economic future for our country. Those highs have been very high but we have seen that there is currently a fairly flat area of our economy. The terms of trade are nothing as spectacular as they were in the past. And, of course, when commodity prices are so high you get a supplier response and everyone else wants a piece of the action. In part, that explains some of the movement in price.

So we need to take stock of what that means for us. And that means we need to be better able to improve productivity, economic growth, to support innovation and through that, create the jobs and the incomes and the quality of life of the future.

For me, the pathway is all about energising enterprise. This was a conversation that we have heard not only as I have advocated and others in our nation’s capital, but in capitals around the world. Look at the G20. All the talking about accelerating the rate of growth in development economies. Look past those statements of reform and what do you see? An ambition to get behind the innovative, adaptive, agile and creativity of small business and family enterprise.

This is about shaping our destiny, building from the strength of our people, and the appetite for entrepreneurship and the support for private endeavour that has to be at the heart of our economic future. We need to look into the hearts of those risk takers and ask them what is it that we need to do to encourage you to take an idea and turn it into action. We need to look to those entrepreneurs and say what kind of environment will bring out the best in you so that through you and your endeavours opportunities will flow to others.

We need to get back the small business mojo that suffered so greatly under the previous government. 519,000 jobs were lost in small business over those six years.

At the end of that six year period, fewer small businesses were employing people than was the case when the Howard Government left office. The share of the private sector workforce went from 52 per cent of every private sector job to 43 per cent being hosted by a small business.

That atrophy has to stop and we have to turn it around. That is what the Budget was all about. We said as a government, get that eco-system right and small business and enterprising people will create the jobs and economic opportunities of the future. That will involve dealing with and creating new possibilities that recognise that mining is not going to be there and deliver all that we need into the future. It will still be important and it will still be significant.

But let us not lose sight of the mining services and technology. Top know-how has enabled extraordinary projects and systems that have created wealth to be delivered in our country. Mining is not just about what we dig out of the ground. It is about how we do it and the way we turn that into wealth and opportunity which is what is happening in that construction phase in the mining industry. There is a $40 billion differential in mining infrastructure investment.

The Mining Tax spooked a lot of some investment coming off the cliff. But it also has impacts far beyond those mining sites. Those pilot boats that have to ply the sea in the Indian Ocean to get out to those gas platforms off the north-west shelf are made in my electorate in Dunkley. You could not be further away. But at Hart Marine is a small business that needs to be world class in what it produces, internationally cost competitive and also ensuring they are at the leading edge of innovation.

What is their offer? World best technology. Pilot boats that self-right. No one dies, the work can continue. That is a value proposition they can take out and win work from the rest of the world. And that is what we need to think about in terms of our future. It is not just about the news agents or the shop corner.

It is about those independent contractors offering legal and professional advice. The IT consultants that are building up some of the technology capabilities that are needed for the future. The mums starting a business. A renaissance in mumpreneurs. The fact that more women today are starting a small business than blokes. And is that not great? It is a story of people aligning their economic ambition with what they aim for as a family and as a community. We should celebrate that and commit ourselves to supporting that kind of entrepreneurship.

The productivity piece needs the small business community. The agility, the adaptability, the capacity to innovate and introduce new ideas and new concepts of value, new service possibilities, new ways to delight customers to see and then spread its way and disrupt its way through the broader economy.

This is why I am evangelical about what I do. It is so important to my community and our nation and our future prospects to be left to a discussion that only happens now and then. Let the new black of talking about small business continue to be in fashion every season. The people in small business deserve that and I am up for that conversation.

That is why we have said let is pick up what we have got, what we inherited from the previous government. Let us understand the trends and trajectories in our people and in our economy and what other economies are doing as well. Let us play to our strengths. Let us nurture that entrepreneurship and let us support the value, creation, jobs and growth that enterprising people will create.

It is private endeavour. What characterises that $5.5 billion from other measures that may seek to achieve similar outcomes is that we are not telling people that government knows best about how to spend your tax dollars. We are saying to enterprising people who are spending their own money, you can have a chunk of it back sooner.

We will accelerate the depreciation of that asset. That new piece of plant. That extra coffee machine that means when people walk past your shop to catch the commuter train in the morning you do not lose half those customers because you are not tooled up and able to meet that need. If you want to cater for places like Maddocks for a corporate function, why not buy that small van? Why not get that oven? Why not buy that technology that lets a dry cleaner send an SMS out automatically when an item of clothing has been processed?

These are what the ideas are and this is why there has been such universal acclaim for this package. The $20,000 instant asset write-off is a substantial commitment to innovate and re tool and equipping these enterprises to delight customers and grow their business into the future.

It started on Budget night. You needed a turnover of under $2 million. A business related purchase and you could deduct it in the year of purchase. Not extend that depreciation over a number of years.

We also want to encourage behaviour through reward and incentive, not just the asset write-off but the company tax cut. 1.5 per cent. Some say “you should have gone further”. I would like to. Believe me. I have ambitions to but we need to fund it.

What we are doing will take the small business company tax rate down to the lowest it has been since 1967. When Sadie (The Cleaning Lady) was number one. When Sgt Pepper’s had just been released. And when I was a newborn. But we know that two-thirds of small businesses are not structured as company. And that was the error that the Opposition Leader made in his speech where he outlined an ambition without a plan to get anywhere with it.

He ignored that two-thirds of small enterprises are independent contractors. They are self-employed. They are sole-traders. They work through partnerships and trusts and that is why we have come up with an agile measure that says calculate your tax liability on your income as you normally would and we will give you a 5 per cent discount, that is exactly proportionate to the company tax cut.

That is recognising the diversity of small business across our economy and giving them some encouragement. We have been able to achieve that because I am in Cabinet. I am able to advocate the interests of the small business community every day. And able to contest ideas that are unhelpful to that ambition or to advocate further action where more needs to be done. The Small Business portfolio is now no longer tacked onto the side of industry.

Industry does some good work. They do their best work with industry sectors. With homogenous challenges and a single plan that will meet everybody’s needs in that sector. That is not the life of small business. The diversity, the agility, the curiosity, the marching to their own beat which is what I love about small business men and women, needs a broader economy-wide approach.

Those policy settings are formulated and analysed by Treasury. Small business is now a Cabinet position in the Treasury portfolio. And when the economic policy powerhouse of the Commonwealth is doing its work, it has no choice but to confront and address, to embrace and consider the needs of small business. And they do that as a matter of course, otherwise I get cranky. Despite being a care bear in the Australian today, I am pretty driven by conviction of the importance of this work.

They need to get past the macroeconomic analysis to understand the behavioural economics in the small business community. What turns that sparkle in the eye into a business idea? What can we do to stoke the fire in the belly of having a go and of creating wealth and opportunity for yourself and others?

Our strategy is largely three-fold, three key elements. First, get the road blocks out of the road. Get the choke points, get the headwinds, get the unnecessary obstacles out of the road. Second, make sure government gets its act together. Many small businesses compete internationally. They need to be world class. Surely that should be the benchmark for our policy formulation. To be a supporter and an ally, not led in a saddle bag for that entrepreneurial contest.

Thirdly, get those incentives, the rewards and the opportunities for private endeavour right. And that is the way we have gone about it.

We could talk at lengths about red tape reduction. The World Economic Forum said at the last election, we were 128th in the world. Only 127 other economies less gummed up than ours. Does that help us compete? I think not. Does that displace effort? The opportunity cost is enormous. We need to tackle that.

When the Howard Government left office we were 68th in the world. That was mid table, that was mediocre. I will let you in on a bit of a secret. When politicians are being called to act and they have run out of money, you know what the only other tool is in the tool kit in most cases? It is to regulate.

You look like you are doing something. You might convince yourself it is only a little bit of an extra straw on the camel’s back that would rather not be a camel but a gazelle. That is why, after 21,000 new and amended regulations, our ranking is appalling. Unlike the sporting field in this country, you do not get any early draft picks to lift your game. You have got to work your way out of it and we have done that.

The billion dollar commitment has been turned into $2.5 billion already. Going beyond that, it is the conduct of the regulators as well. Are they right sized in their interventions? Are they problem solving or are they trying to be combative? Can we get the consultation processes right? So that when government is considering a program that it is formulating or a policy it is developing – you know it is really easy to talk to big business and big industry organisations.

If you want to see how that works, have a look at Fair Work. The whole architecture is designed by industry associations and big unions. Yet 96 per cent of the respondents know little about either. Yet they are fitted up with that architecture and have to navigate it even though they do not have 20 people in a compliance department.

In our own area of work, what is the point of having an Export Market Development Grant program designed to help small business if you cannot climb over the requirements to access it. What is the point of having an Export Finance Insurance Corporation designed to help SMEs bring in export income if the requirements are well beyond the scope of the average small business. What is the justification for that government funded institution backing Rio Tinto when its balance sheet is better than the Commonwealth of Australia? While the small business with a service idea that would delight the market place in China looks for some help and assistance to get paid and to scale up to meet that chance.

Free Trade agreements offer hundreds of millions of prospective new customers. But opening the door is not enough. Those agreements are a remarkable achievement from Andrew Robb but let us align our efforts to make sure small and medium enterprises can make use of them. Seventy per cent of our economy is the service economy. One in seven of our export dollars is services. This is a huge gap. But also a huge opportunity and an example oft the government getting its act together to support the entrepreneurship of small business.

Finally let’s look at the rewards and the opportunities and the competitive environment. It is 22 years since Fred Hilmer did excellent work on competition policy. The market has changed dramatically since then. Our goal now is an economy where efficient businesses, big and small, can thrive and prosper, where the rules of healthy competition are known and encourage investment. That is an ambition that is in all of our interests.

The idea that durable consumer interests is what will delight our market place prepares us well to win those opportunities in the north Asian markets where doors have been opened by Andrew Robb’s work. You might have picked up that I am pretty upbeat. I am that every day, because it is that positivity and optimism that encourages people to act.

The 2015 Budget has been universally welcomed by the small business community. Even some big businesses have realised that if we are going to buy a new piece of technology to improve our business, it has got to come from somewhere. We have seen encouraging signs about the optimism percolating its way through. That is a confidence building Budget. That it will go some way towards recovering those 519,000 jobs that I touched on earlier.

The Budget recognises the market is changing and small businesses are agile and able to make best use of those opportunities. I am trying to position the Commonwealth as a collaborator, an ally and an advocate. Not an adversary.

It is an institution in our economy that supports entrepreneurship, not stifles or dampens it.

We have offered a range of ways of doing that. A voice in Cabinet. Policy formulation that continues to be rolled out. Reforms in the area of the Franchising Code where that relationship between a franchisor and franchisee starts with music and the equivalent of a commercial marriage proposal and can turn into rather unpleasant parent-child when a dispute arises. The take it or leave it contracts that a big business can enforce on a small business with no capacity to push back. That allows a universal right to vary terms for one party and not the other.

That encourages or facilitates legal action by the big party but seems to contract out the right of the little party to do it. That advertising contract that says unless you advise us you are cancelling it between the 16-21 May it will be deemed to have rolled over. And if you realise and ring on the 22 May you have to pay out the two years to get out of it.

That is not the way to build our economy. And no business whatever size should seek to advantage its position from unfair contracts. We recognise the right to repair. If you buy a car you should be able to take it to any competent mechanic to repair it. Not have some kind of exclusive dealing arrangements achieved by an inability to access IP and technical advice and tools.

It is not too much to ask our big supermarkets to actually have a grocery supply agreement available to their suppliers. That tells them what they are buying, what the prices will be and they will actually pay on time. And there is no right to unilaterally vary it and change the rules and demand promotion payments and all sorts of things or even reimbursement if some of your stock in the hands of the retailer or wholesaler get shoplifted, and you as a supplier have to pay for it. That is not the way to encourage investment and a healthy supply arrangement.

I could run through a range of other policy commitments that we are implementing but our work has not finished. As I said, my goal is to make our economy and our country the best place to start and grow a small business. It is astonishing to go to debutante balls and not hear young men wanting to play for the Melbourne Storm, but instead to hear them talking about wanting to be entrepreneurs. To realise that a job is important id good, but to be thinking of creating one for yourself and others is to be heralded and celebrated. We need to focus on what happens to our science, engineering and technology undergraduates, three-quarters of whom aspire to be an entrepreneur when they start their degree but by the time they are finished only one-third do.

We need to get our intellectual property laws right. To work out why becoming a venture capitalist is sometimes too difficult. We need to get in place a crowd source equity funding framework and energise employee share schemes as a great way of aligning business goals with that of your team. This is the work we are involved with. This is the work that is about our nation’s future. This is a renaissance in enterprise that everyone played a part in and has been contributing to.

There is more work to be done. I will be done when we are the poster child of the place to start and grow a business and I am grateful for a few minutes of your time. Thank you.