SPEECH - SMALL BUSINESS: A LABOR IMPERATIVE - 28 APRIL 2016

I acknowledge the Gadigal of the Eora Nation as the traditional owners of this land.

Thank you to the McKell Institute for inviting me to speak.  McKell’s work has a real impact on public policy in Australia.  Sam and his team make a positive contribution with each piece of research they produce and every discussion they host.

A special thank you to eBay for generously hosting us tonight.  You couldn’t pick a more appropriate multinational business to talk about Australian small business.

eBay has changed small business forever.  Instead of solely relying on bricks and mortar, human capital has created a global platform for buying and selling, opening up millions of small business opportunities across the world.

How many small businesses simply wouldn’t exist today if it weren’t for eBay?  Hearing the story of how Pierre Omidyar sold a broken laser pointer for $14 after writing some code brought home to me just how powerful a transition we are experiencing - and that was over 20 years ago.

eBay gives us an insight into how skills, technology and innovation will shape the future environment for businesses more than ever before.  The trend is clear.

 

A changing environment for small business

Yes, the trend is change – the one certainty we all have, the inevitability of change.

In the last Parliament, I relished the opportunity to discuss the transformational power of technology and the economic and social benefits of ICT.  I recall in the 2013 election campaign being asked to address a small community group in my local area on the topic of my big vision for the future, one which I expressed as being driven by the desire to maximise the public benefits of innovation, that government had a role to play in facilitating future job creation by starting bottom-up with a focus on needs-based education funding.

Sound familiar?

I attended a major awards night last year where the MC duly read out a message from the Prime Minister.  We were told that we lived in the most exciting of times.  A neighbouring table yelled out, “Bingo!” at the third mention of innovation.

It isn’t good enough to spray rhetoric about how today is the most exciting time in Australia’s history and not back that up with real policy options.

The reality is that not everyone is going to create a multinational tech giant from their living room.  In fact, hardly anyone is going to.

The conversation we are currently having in Australia about the future needs to be more encompassing and it needs to happen quickly.  It cannot be just a gimmicky attempt to squeeze every tech-friendly word into the Australian lexicon.

It is right and proper that Labor has been leading the dialogue on the startup ecosystem with more than words.  We announced a comprehensive suite of Innovation Policies in late 2015.  As my colleague Ed Husic, our spokesperson for Digital Innovation and Startups has pointed out, this has given the sector evidence of a distinct difference between small business and startups.

That said, it is also true we should focus our policy attention on recognising the role of innovation in small business.  As small businesses will tell you, and as I have observed, they must be innovative irrespective of where their place may be on the tech spectrum.

Consider the dry cleaner who designs a system which allows customers to drop off or pick up their clothes 24/7 from a hole in the wall.

Or the online boutique fashion business which figures out how to make same day delivery a cost effective practice.

Or the the new breed of contractors, the rise of freelancing, entrepreneurs who work for themselves, beyond the traditional boundaries of the office environment.

A strict tech focus misses the point about the economy-wide benefits of innovation, across industries, across occupations and across small businesses.  Labor recognises that innovation is an economy-wide process, not a buzzword of limited application.

Most small businesses today, and into the future, still need the basics. They need skills, they need opportunity, they need access to finance.

 

Policy principles

I want to briefly discuss two key principles, how they shape the challenges for small business policy and how Labor is best placed to address these challenges.

Both of the principles I’ll touch on are shaped by my experience before I entered Parliament, when I was a lawyer focusing on technology and competition issues.  I saw first-hand working in different countries and across industries how important new businesses are to an ecosystem that fosters creativity and generates jobs.

 

Diversity

The first principle is that small businesses are diverse.  This provides a foundation for policy makers.

There are 2.1 million small businesses in Australia, accounting for 4.7 million people in the labour market.  These businesses have distinct needs and different visions of what success looks like.

In the last six months, I’ve been talking to as many small businesses as possible, from shops on the main street in regional Australia, to home-based hairdressers and suburban manufacturing suppliers.

In addition to the emails and phone calls with white-collar accountants to subbies in the construction sector, this experience has convinced me there is so much more to the small business policy agenda than penalty rates and industrial relations.

This principle extends to who we think of when you hear the words small business.  Perhaps a shop, perhaps a tradie.  Too often half the population – women – are forgotten.

Too few know the most entrepreneurial people in Australia are humanitarian migrants. Those fleeing persecution and war turn out to be incredibly resilient in Australia.  In 2016-17, we will see one of the largest ever humanitarian programs in our history and I for one welcome it.  This is a positive for the Australian economy in an age where imagination and perseverance are more important than ever.

 

Role of Government

The second principle I want to discuss is the role of government.  Unfortunately I hear the following words far too often in politicians’ discussions about small business: ‘government just needs to get out of the way’.

At its best, government regulation and expenditure address market failure, mitigate risk, and should be able to step up at exactly the right time to stimulate the economy and small businesses.

Indeed for Australian small businesses, there are a number of important features of governments getting it right, like ensuring younger people today have skills to start or be employable by small businesses.  Small businesses cannot afford to run expensive training and graduate programs.

While apprenticeships and traineeships play a strong role, nearly all employing small businesses rely on governments to make sure people have a minimum set of skills for the modern workplace.

A small business looking to put on another staff member has to have confidence and certainty in the education system, hence the importance of funding education based on need and not postcode.

Infrastructure is another area where governments cannot simply vacate the field. I’m sure people in this room could tell me the damage being done right now to Australia from our sub-standard broadband infrastructure.

Small businesses can’t rely on a copper connection that is kilometres from the nearest exchange, that randomly drops out and can’t provide the upload speeds required by small businesses.  It is no wonder that the single biggest unsolicited complaint I receive from local residents is lack of accessible and affordable broadband, and a large number of those aggrieved are home-based small businesses.

And governments need to think very carefully about a regulatory agenda for the coming decade. I’ve touched on innovation for the broader economy.  How do we get the most out of legislation and government action to foster this?

I know what isn’t the answer.  When the bar set by a government is so low that removing commas and full stops in legislation counts as ‘red tape reduction’, something is seriously wrong.  Even the Australian Chamber of Commerce and Industry’s regulatory survey from 2015 found the vast majority of businesses thought regulation had remained the same or gotten worse, all on this government’s watch.

 

Labor’s policies for small business

Combining the diversity of small businesses with the role for government, I see the major challenge for the future as creating a regulatory framework that facilitates small businesses – new, old and in varying stages of their life cycles – to achieve their goals in a manner which suits them.

And I believe Labor is best placed to achieve this.  Bill Shorten understands small business and so does the Labor caucus.  In his Budget reply speech last year, Bill Shorten offered to work with the Abbott Government on lowering the company tax rate for incorporated small businesses in Australia.

He knew this wouldn’t be easy, requiring bipartisan support and to occur over a number of years.  After nearly 12 months, nothing we have seen from the Government indicates they want to work towards this goal.

Nevertheless, my consultations with my caucus colleagues and small businesses have been instructive in identifying the barriers and the practical alternatives to overcoming them.

Last month I outlined, alongside Chris Bowen and Andrew Leigh, how we can make it easier for small businesses to bring actions and seek remedies in cases of alleged anti-competitive behaviour.  It was made clear to us that the biggest barrier in bringing such actions was the threat of adverse cost orders in the event that a case failed.

Labor’s approach in our Access to Justice for Small Business policy is to empower judges to remove the liability of defendant’s legal fees if a small business brings a case in the Federal Court.

Where small and medium businesses allege anti-competitive behaviour, they will be better placed to fight it in the courts because this reform will even the playing field.  Effective competition law should not be about the deepest pockets.

Such policies are practical and help small businesses address first order issues.

One of the key refrains from small businesses in past few months in my discussions has been:  what are the government’s plans?  Long before opinion polls told us the honeymoon was over for Prime Minister Turnbull, the lack of a comprehensive economic narrative – combined with a concerted campaign to increase the GST and the thought-bubble of double taxation – left small businesses wondering who was in charge of the economy.  This is not to mention the unedifying spectacle of a Treasurer insisting the Budget would be delivered on May 10, only to be contradicted by his Prime Minister.

Like all Australians, small businesses seek confidence and certainty from their government.

 

Comprehensive Credit Reporting

With the house prices to income ratio rising from about 3 to 1 to over 6 to 1, a generation of potential small business owners are left to scratch their heads and find different ways to finance their ventures.

This is why Labor wants to make it easier for potential new small business owners to access to finance and promote competition in small business lending.

We don’t believe in picking winners, but we can ensure a regulatory environment to encourage and promote efficient and fair lending.  That’s why Labor supports David Murray’s recommendation in the Financial Services Inquiry concerning Comprehensive Credit Reporting.

We already know how important information is when making investment decisions.  Comprehensive Credit Reporting is about sharing positive client information to allow financial lenders to make better decisions.

Allowing more lenders to access positive information about clients, such as account information, will promote competition for small business financing in the banking sector.

This is good for consumers, good for small business and good for banks. David Murray noted, “personal credit history is a major factor in credit providers’ decisions to lend to consumers, but also to new business ventures and smaller firms”.

Historically, Australian banks have shared negative credit information. Yet we lag the world when it comes to sharing positive information. This inhibits competition and reduces the potential number of successful loan applications. Other OECD countries like Japan and New Zealand have pushed ahead with positive credit reporting.

Importantly, while supporting consumers and potential new small businesses, positive credit reporting also has a benign economic impact.

An ACIL Tasman study found a one-off improvement in capital productivity of 0.1 per cent, worth up to $5.3 billion over a decade. International studies also show a decline in the default rate of loan applications.

I acknowledge the banking industry has come some way towards sharing more information with a voluntary industry code driven by recent changes to the Privacy Act.  This is a positive first step.

However, there are already reports that not enough is being done to support the voluntary industry code. Smaller lenders are saying they do not have access to the information they need to make more informed credit decisions.

David Murray recommended a formal review into Comprehensive Credit Reporting and Labor will undertake that review. If the review finds the industry code isn’t up to scratch, we will introduce mandatory reporting to share positive credit information amongst lenders.

The debate over what regulatory framework is appropriate for the 21st century is not simply about technology.

The Turnbull Government’s recent announcement on data sharing was entitled, ‘Supporting Australia’s FinTech Future’.

But again, the question we should be asking is: how can we get more benefits for consumers and small businesses?

We have yet to see this reflected so far in the public debate.

As I noted, David Murray explicitly promoted the idea of positive credit reporting to benefit small businesses.  This is where the economic benefits will flow, as more jobs and economic activity is stimulated with access to better lending terms.

Not only FinTech start-ups, but banks who have looked after their small business customers for years.  Small banks who are looking to engage more with small businesses.

This is about how rules designed to share positive credit information, as David Murray said, “would likely improve credit conditions for borrowers, including SMEs”.

Small businesses are the key winners from positive reporting.

Disruption and new business models built on information are important.

But the central question – how can small businesses obtain better access to finance – has been missing in action.

In a post-GFC environment where small businesses are telling us that lending is harder than it has ever been, we need to ask how we can better support young businesses to grow into job creators.

Comprehensive Credit Reporting, sharing positive credit information, isn’t simply to underpin technology start-ups.  The purpose is so much more.

As I said, innovation occurs each and every day in millions of small businesses across Australia.  Leaving them out of this conversation will create a massive opportunity cost.

I believe we can do better when it comes to overcoming the barriers of scale for small businesses.  Regulatory measures, like fostering positive credit reporting, can help achieve this.

 

Conclusion

Finding and supporting the right regulatory frameworks to foster greater information sharing will be amongst the more important public policy decisions governments can make over the next decade.  Getting this right means renewing the potential of small businesses to grow and support new net jobs.

I know that the most effective way to facilitate the creation of more net jobs in the labour market is to support the growth of small businesses.  I take that responsibility very seriously as Shadow Minister for Small Business, which is why I have made this a priority.

As a Labor imperative, there are many other areas of concern to us that will be reflected in the policies of a Shorten Labor Government.  That includes recognition of the need to take care of the workers in small business.  Recent revelations of exploitation in the franchising space, for example, are intolerable and must be remedied.

We will make it easier to grow and operate small businesses across Australia.  This is not just rhetoric.  It’s about an even playing field and promoting fairness and opportunity for the next generation of small business owners.

Thank you very much.