Pollies must stop playing the David v Goliath game

This opinion article by Jennifer Westacott was published in The Australian on 29 June 2017.

Australians love a good underdog story. After all, what is more romantic than the idea of the intrepid battler David sticking it to his neighbourhood Goliath?

This is well understood by politicians, and their pollsters, so it’s unsurprising that governments and oppositions like to frame themselves as the champions of earnest small businesses taking the fight to the “big end of town”.

The problem is that the David and Goliath narrative, while fit for the melodrama of question time, simply doesn’t square with the reality of Australia’s dynamic, export-driven economy.

In the real world, businesses are interdependent. They enhance their own productivity by sourcing goods and services from each other. It is an ecosystem that accommodates vibrant businesses of all shapes and sizes, each playing to their strengths.

A company might be smaller because it serves a niche market, while larger companies form the backbone of industries that require large investments, such as mining or manufacturing.

The trade between large and small-to-medium businesses is massive, totalling about $520 billion in income each year. That is almost one-third of our $1.7 trillion national economy.

When the system isn’t functioning well, there should be collaborative mechanisms to fix the problem from within.

This is exactly what the Business Council and the Council of Small Business Australia are seeking through the Australian Supplier Payment Code, which will alleviate pressure on small businesses whose cash flow and viability can depend on timely payments.

Although payment times were already falling markedly across the economy, the major players understood that this progress simply wasn’t happening fast enough for small businesses. Businesses small and large have therefore come together to deal with a problem that is weakening our ecosystem.

The code, launched last month, not only requires companies to pay their small business suppliers within 30 days, but also tackles the underlying causes of late payment by requiring bigger firms to work with their small business partners to roll out new practices and technologies. It’s obviously a lot easier to pay a small business supplier who is invoicing online, rather than with a carbon paper book.

The new code has garnered the commitment of more than 40 organisations with annual revenue of more than $374bn, including the nation’s biggest construction, banking and resources companies.

I am urging every business and government agency that depends on small business suppliers — from suburban builders to multinational conglomerates — to get in touch with the Business Council and join us on this mission to improve supplier payment terms.

Some critics, such as the Greens, who wrote off the Australian Supplier Payment Code within days of its launch, are demanding an immediate leap to government intervention and regulation. However, more moderate politicians understand that the regulatory path is costly and won’t necessarily work.

If we’ve learned anything from policy debates over recent years — from the inability to drive new investment in electricity generation to wasteful stimulus spending — it’s clear that hasty government intervention has unintended consequences.

Both the Turnbull government and Shorten opposition should be commended for giving the voluntary, industry-led approach a fair crack before leaping to government intervention.

Legislating as first recourse, as the Greens suggest, could actually deliver a worse outcome for small business.

More can be achieved through goodwill, mutual learning and co-operation than a culture of compliance.

Bad regulation can be crippling for businesses that are champing at the bit to expand and employ. As our parliament has repeatedly been warned, our country is failing to create the business environment that our nation needs to really thrive.

Australia this year slipped out of the top-20 nations for competitiveness for the first time since 1996, according to the IMD World Competitiveness Center, overtaken by countries such as Iceland.

Australia remains one of the easier countries for aspiring entrepreneurs to start a business, but World Bank statistics show we still lag countries such as New Zealand, Azerbaijan and Macedonia.

Our tax system is also substantially more difficult to navigate, behind the likes of Finland, Canada and The Netherlands.

Regulation, when it is proportionate and serves a legitimate goal, is sometimes necessary. But for small businesses, bad regulation can be crippling. Forcing them to run the gauntlet of red tape so a bureaucrat can check the right boxes is not only self-defeating, it’s demoralising to businesses and their employers.

Business employs 80 per cent of working Australians, all hired on the expectation that they will contribute at least as much to the business as it costs to pay them. Each additional restriction or cost imposed on a business — especially on a small business — limits their ability to take that bet.

Some regulations simply defy logic. Why are hardware stores in Western Australia allowed to sell outdoor lights but not indoor lights before 11am?

Other areas of business regulation require a more delicate balancing act. In the case of penalty rates, the Fair Work Commission looked at all the best evidence and determined that the impact on some of bringing Sunday rates more in line with Saturday rates was offset by the greater benefits of allowing more unemployed and underemployed people to work more hours.

In short, they decided it was fair that a Sunday retail employee earn time-and-three-quarters, instead of double-time, if the pay-off was for an otherwise unemployed person to get a job.

Whatever you think of the call, it was an ethical, evidence-based decision that had the best intentions of workers at heart. The kneejerk excoriation of the commission by some politicians and activists is most concerning.

While many large businesses are not directly affected by the penalty rates decision, they care because they benefit from sharing an economy with successful small and medium-sized businesses, where more young people have an opportunity for their first job or more hours on a weekend.

The David and Goliath myth can have real, irrational effects on political decisions. Take, for instance, the Senate’s reluctance to pass the government’s full Enterprise Tax Plan — a modest proposal to steadily reduce the tax rate on company profits from 30 to 25 per cent — by excluding companies with annual turnover above $50 million.

This is an economy-wide measure that is designed to increase Australia’s attractiveness to global investors. As Treasury secretary John Fraser told parliament in March, depressed business investment remains the “missing link” in the economy.

In the world of pollsters, confining tax relief to small business makes sense as small business is more popular. Yet this overlooks the real-world fact that the biggest investment and employment gains will come from big businesses making big investment decisions.

In fact, large businesses were the only segment of the private economy that increased its overall number of employees last financial year. Big firms created 80,000 jobs last year, while small and medium businesses lost 14,000 jobs in net terms, according to the Australian Bureau of Statistics.

With youth unemployment running above 20 per cent in some regions, Australia desperately needs its biggest employers to create as many lasting jobs as possible.

While nobody would refuse tax cuts for small businesses, big business tax relief would make new investments in Australia more attractive to global capital markets, sucking in billions of investment dollars that would otherwise flow to other countries.

We can’t expect to thrive in the Asian century with a two-tiered company tax system that penalises the only businesses with the scale to help small suppliers access huge export markets. This is why the National Farmers Federation and Australian Chamber of Commerce and Industry have joined big business in calling on parliament to pass the Enterprise Tax Plan in full.

Ultimately everyone wants small and medium businesses to expand and become bigger businesses — a suburban cafe becomes a franchise, or a vineyard expands and exports its wines around the world. But imposing higher tax rates on larger companies discourages smaller businesses from expanding their operations out of fear that they’ll overstep the $50m threshold.

Businesspeople of all stripes have rightly resisted playing the politicians’ David and Goliath game because it is ultimately self-defeating. Businesses of all sizes depend on each other, so an attack on segment of the economy is an attack on them all.

The mainstream centre of politics accepts that a thriving business sector — comprising small, medium and large enterprises — provides the best opportunity for Australian workers and their families to get ahead.

The alternative is a cottage-industry economy that leaves workers unprotected from the tumult of global change. There’s no use hiding from this change, and history will not be kind to countries that fail to think big and aim high.

The opening of our economy under successive Labor and Coalition governments unleashed our country’s energy and creativity, enabling real incomes per person to grow by three-quarters over this time.

Building on this achievement will require a collective effort from all businesses, and a relentless focus from government on providing the best environment for them to succeed.