Labor’s plans for small business

Federal Small Business Minister Craig Emerson has faced a baptism of fire in his first half year, with business confidence in sharp decline and small business support for Labor at low levels. He explains to SmartCompany his small business vision

By Mike Preston

Federal Small Business Minister Craig Emerson has faced a baptism of fire in his first half year, with business confidence in sharp decline and small business support for Labor at low levels.

While the economy, a key factor in negative sentiment among small business, is largely beyond the Government’s control, Emerson has also been forced to defend heavy budget cuts to popular business support programs such as Commercial Ready.

But in this extensive SmartCompany interview, Emerson makes no apology for the abolition of the Commercial Ready program and mounts a strong defence of the Government’s policy approach.

Not only did the battle against inflation demand a disciplined budget response, Emerson argues, but small business stands to reap significant benefits from the Government’s extensive red tape cutting agenda.

Underlying that argument is Emerson’s clear philosophical support for the risk-taking entrepreneur – and his belief that in many cases the best thing a government can do to help is get out of the way.

Is Emerson on the right track? Or is there more he should be doing for small business? Read the edited interview and let us know what you think at feedback@smartcompany.com.au.

SmartCompany: How do you think small businesses in Australia are faring at the moment?

Craig Emerson: There’s no doubt there’s been a dip in business confidence, and that’s been triggered mainly by 12 successive interest rate rises since 2002.

It is the Reserve Bank’s job to ensure inflation doesn’t stay above 3% for an extended time, and it’s clear they’ve been worried about inflation since 2002, and we’ve seen 12 interest rate rises as a consequence.

That obviously is affecting the outlook for small business. That is why the Rudd Government has brought down a tough budget and built a strong surplus, and the last thing that we want to see, and that small business should want to see, is a $22 billion raid on that surplus by the Opposition, as they have said they are planning to do.

How do you think petrol prices are affecting small business?

Petrol prices are operating as a further brake on sales and on business confidence. The world oil price has reached $139 a barrel and that too is having a very substantial dampening effect on the business outlook, particularly for those businesses in the tourism and hospitality industry that rely on people travelling around Australia.

I’ve been at a conference this morning with the Hotel Motel and Accommodation Association and there is no doubt small businesses in rural and regional Australia, particularly on the other side of the Great Dividing Range, are feeling the pinch simply because less people are taking self-drive holidays.

You ran a small consulting business before entering Parliament. How did you find that experience and how has it informed your time as Small Business Minister?

It has had a profound effect on my thinking, and I know Kevin Rudd’s experience in running a small business himself has strongly affected his thinking in favour of small business.

Probably the strongest message coming out of that experience is that small business owners really take big risks in going out on their own – striking out for freedom, but at the same time facing the risk that if sales don’t come in or clients aren’t engaged then the money doesn’t come in and there are financial problems.

It’s an experience that certainly strengthened my understanding and empathy for those Australians who decide to strike out. They go out on their own and work for themselves and their families, and then create jobs for other families as well. There is no doubt in my mind that small business is an enormous generator of jobs and a contributor to our national prosperity.

SmartCompany readers love cuts to red tape in all forms, but they were quite disappointed with the budget where a lot of cuts to programs that did help entrepreneurs and small business people, particularly the Commercial Ready grants program. Were they necessary?

I think so. It’s an understandable feature of the Australian community and any community that people generally support overall reductions in government spending but oppose any that affect them. That’s not a criticism, just a reality. But governments can’t achieve overall reductions in spending without making cuts that are unpopular.

We knew that, and we went into the budget exercise with our eyes wide open; and of course different people have different views about priorities on reductions in spending.

Our great lament, however, is that the Coalition at the moment doesn’t even seem to acknowledge the need to rein in Government spending. It was out of control under the previous Government – an increase in the last year of 5% in real terms – and yet they basically said that there is no need to cut Government spending.

Are we seeing a change in philosophy in the small business portfolio, with getting out of the way of small business and letting the market do its work being prioritised over Government support to business in the form of programs like Commercial Ready?

I am a strong supporter of the open and competitive economy because all businesses, small and large, thrive and prosper in an open and competitive economy rather than in a heavily regulated economy.

But there is a case for government support where the benefits to the community are wider than to an individual business, and innovation and education and training are two areas where I think that is the case.

Where people are better trained, for example, and are more likely to then buy a business, they end up very often going into another business, generating activity and employing people, so there are these wider benefits.

It is completely consistent and compatible to have an open competitive economy and Government support for those activities that would be under-provided by the private sector alone, and innovation and education fall into that category.

Even if budget circumstances were different, would still you have a philosophical problem with a program like Commercial Ready?

As I say, I strongly support innovation, but we do have a national innovation review well under way so it’s a question of the best design for a national innovation system.

There was a Productivity Commission assessment of Commercial Ready and it suggested that to a substantial extent – not to a total extent, but to a substantial extent – Commercial Ready funded activities would have occurred anyway. Now they’re not my words, they’re not the words of anyone but the Productivity Commission.

We should always ensure our innovation policies are not only well funded, but well targeted to achieve the desired outcome.

So that spending is not gone; you’re just figuring out a better way to use it?

We have made savings in the budget as a result of the Commercial Ready decision, but we’re not having a national innovation review just so that we (end up with no) Government innovation support.

We will support innovation and the challenge in the 21st century is to ensure that innovation policies meet our objective to boost private sector innovation. So that’s always the trick – rather than getting into any hypothetical situation of funding activities that might have occurred otherwise. What we need to do is come up with policies that actually stimulate innovative activity.

Many of the areas that affect small business heavily – examples are Commercial Ready, the solar panel rebate and industrial relations – are actually in other portfolio areas. Does that make your job harder?

Government doesn’t operate in 30 different silos without people talking to each other. We do talk to each other and you can’t even begin to imagine having a set of policies that are specific and unique to small business that don’t apply to the general economy.

With skills creation, for example, Julia Gillard has succeeded in getting support for investing $1.9 billion into skills creation in Australia, reversing a period of very great neglect of skills development. Now Julia is the Education Minister and I’m glad she’s doing it. I’ll take that any day. So we just don’t operate in silos or in complete isolation from each other.

On another issue, what are you hearing on unfair dismissal as you travel around and talk to small business groups?

It’s pretty quiet at the moment. We are developing a fair dismissal code with a small business working group – these are people who have got practical experience in the area of unfair dismissal.

The fair dismissal code would, when followed, constitute on the part of the employer a fair dismissal, so I’m quite encouraged about that work, and we’ll make a statement on that in due course.

Another issue many small business owners feel strongly about is payroll tax. What’s your view on payroll tax, and would you consider working with the states to help them cut or abolish it?

The states draw something in the order of $4 billion in revenue from payroll tax, so you don’t abolish $4 billion without creating a hole. That’s a pretty self evident truth. If you create a $4 billion hole then you have to either cut other programs or increase taxes elsewhere. Another self evident truth.

It’s easy for people to call for the Commonwealth to achieve an abolition of payroll tax, but I think it would be more helpful if those same people then said either which other taxes should rise or which programs should be cut.

We actually have a responsibility to make ends meet with Government finances. We take that responsibility very seriously. The way I see it, states do compete on payroll tax rates and thresholds and that’s a good thing – a state that wants to attract more business is more likely to have a lower rate of payroll tax or a higher threshold for exempting more small businesses.

What Lindsay Tanner and I are working with the states on is an initiative to harmonise the definitions and the base of the payroll tax, so for those employers who operate across state boundaries there’ll be reduced compliance costs.

Turning to the deregulation agenda, of those red tape hot spots will you be cutting, which do you think will be of greatest benefit to small business?

We’re hoping we might be able to move to a national system of registering business names. We’ll see how that goes. There are an increasing number of small businesses operating across state boundaries, particularly those who operate on the internet, and at present you need to register your business name in each and every jurisdiction and pay a separate fee. If we can get the agreement of the states to run that, a national system of registering business names will help make things easier.

We would also like to be able to see tradespeople, and they are small businesses, move effortlessly across state boundaries instead of having to apply for new licenses whenever they do.

We’re also working towards a system of standard business reporting which, if agreed to, would greatly simplify the financial information that is required of businesses by various Government agencies.

So there are enormous opportunities for reducing compliance costs for small business, and Lindsay Tanner and I are pursuing them with great vigour.

COSBOA chairman Bob Stanton recently called for the small business portfolio to be in Cabinet. What do you think of that suggestion?

I’m very happy with the role I have. I love the small business portfolio and I’m very happy with the receptiveness of the Prime Minister and my ministerial colleagues, Cabinet and non-Cabinet, to the arguments that I put forward.

I think it’s really a question of how effective you are as a small business minister. I like to think I’m being reasonably effective and I’m encouraged by how conscious my colleagues are of the small business community and its contribution to prosperity and how receptive they are to arguments from that point of view.

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