Franchise Council of Australia Conference

Well it looks like a lot has changed. We’ve gone from worms to smiley faces to stern faces to sad faces and if its any comfort to you its not unusual that people vote in advance and judge their politicians before they say anything. You did say the Minister for Small Business should know something about this topic, that’s often contested I might tell you.

In fact in The Australian today there was someone writing today that all of the pillow talk my wife and I shared when we owned our small business and the substantial debt we have on our mortgage seemed to have nothing to do with our small business. How wrong he was. But I contrast that practical journey and the weathering that it brings someone with a small business sparkle in their eye and fire in their belly to this role where I’m very much coloured by and influenced by that journey. I still remember to this day that in Mornington, where we had our retail business, it was $4,667 a month in rent and on a bad day when the rain was coming in sideways and the only positive thing about it was the natural exfoliation you could get of your skin when you walked down the main street, we thought yeah this is going to be another month of red ink. So to John Pasquarelli, sorry mate you’re dead wrong, and I am pleased to be here advocating for the interest of the very courageous small business men and women that are crucial to our economic livelihood and prosperity.

I should acknowledge Michael, thank you. It is always good to be here for when there is a message for the Government, thank you for that, I appreciate that message. I heard well and embrace the sentiment of it and look forward to working very closely with you and the FCA for the years ahead.

I say years ahead because you have had a different Minister here every year.

They just keep rolling them over. It was an interesting renewal strategy. Five in 15 months. For any of you that are involved in the printing industry there was a business card led recovery happening for a while there.

Alas I hope not to add to that and hope to continue for years of advocacy in this area in the role as Minister. Kim de Britt, I would like to acknowledge Kim. Also Steff. How about a cheer for Steff for organising the conference.

One of the reasons I’m here is that I am incredibly cheap.

That has helped keep costs down and participation up. I should also acknowledge the Steve duo which is here. Steve Romaniello, chair of IFA and Steve Caldeira. I believe there are other Steve’s in the United States delegation.

I am not pulling your leg. My name seriously is Bruce and I am from Australia. So it’s good to see you all here from the United States.

Franchising is such an important part of our economy, $131 billion is a serious proportion of economic activity in our country. Your focus over the next few days about how to grow your systems and grow your business is incredibly important in this time of rapid change as outlined earlier by Michael.

The way in which we can all nurture opportunities, wealth, prosperity and livelihood chances for our country and for the people that live in it is a crucial task that the Abbott Government takes very seriously. We take that task incredibly seriously recognizing whilst the mining boom has been of advantage to our country and continues to be so, we aren’t blessed with a mine in every community. I come from Frankston in Victoria so what I do understand is, being a former Mccas boy and in a moment of candour before, I’m not standing before you as the world’s greatest small business person. We failed. We didn’t succeed. We were in a highly discretionary area of the market. The day which my wife and I decided we just can’t keep pouring money into that business was one of our toughest days of lives. It wasn’t just a commercial disappointment it was sense of profound personal failure. When you advise your staff that it’s over, when those people that relied on you as a channel to the market place, that you will no longer be in that space, it’s a really tough day. Not everybody is cut out for that decision to take risks, to create opportunity for themselves and others, and not everyone succeeds. But what is spectacular about franchising is that you can be in business on your own but not left to yourself, not on your own in a commercial or in a spiritual sense. There is support and guidance, there is wisdom, there is experience, there is the kind of business planning, market intelligence analysis, position in the market place that Michael touched on that is so crucial for the individual franchisee to know that at mission control there is a lot of work going on to support success. I think that says a lot about the success of franchising during difficult economic times.

We have a plan to try to revitalise small business. A renaciances is needed in enterprise in our country. Over the last six years 412,000 Australians, who in the past relied on upon a small business for their livelihood, those jobs aren’t there. There is actually 3,000 fewer small businesses employing today than was the case when the Howard Government left office. The share of employment provided by small business has shrunk from 53 per cent of the private sector workforce to 43 per cent in the last six years. Yet you don’t see that on the front page of the newspaper. It is a tragedy when a factory shuts and 25 people are out on the grass wondering about their future but it is no less of a tragedy when a small corner store, an entrepreneur down the street, someone in the outer suburbs in the regions has to face the harsh reality that its not happening and their team and themselves will have to call it to a close. That idea of cash flow as a pillow talk topic, that’s living the small business dream isn’t it.

But we want to make sure that small business people with that courage, with that risk taking appetite, with a preparedness to mortgage their home, knows there is support and a Government that is keen for their success and working as hard for their success as they are. That is the change that we’re aiming to bring about since the change of Government just a number of weeks ago.

With so many Australian’s relying on small businesses we’ve got to make it work for the future, it will be the building block of the over the horizon economy. Or in communities like the one I represent, without an office tower of bank workers and without a mine it is small business men and women that are driving prosperity and livelihoods opportunities in our community. This is why we took to the last election a very comprehensive plan. More than 20 separate specific commitments to try to put the business back into small business, to turn around the decay we’ve seen in too many small businesses across the country. Franchising is part of our vision for a robust diverse economy and I will outline the measures that we aim to put in place to support that goal. It is at its heart a need to say this matters. I’m actually in cabinet. I can’t hide from any decisions. I am at the adults table when the direction of our nation is being discussed. Through that decision we are able to ensure small business and family enterprises are front and centre in everything we do every day. The policy area has been shifted out of Industry into Treasury. That has caused some dislocation, I understand that. But those policy settings that shape the environment within which people decide to invest, the returns and the rewards, employment judgments, the climate more generally, they’re shaped in the Treasury portfolio. Small business considerations need to be front and centre in that work every day. They’re some of the structural changes that we have made.

There are also barriers to your success. The carbon tax has not hurt any sector of our community more than small business. None of the hush money, none of the carve outs, none of the compensation. Just told simply to suck it up or pass it onto consumers when consumers are not prepared to pay more. For those of you in the processed fast food areas you know all about that. Everyone is looking for value, margins are already squeezed, yet those costs under the carbon tax keep going up and up yet so do our emissions in the longer term. So we will abolish that.

A billion dollars’ worth of red-tape, 21,000 new or amended regulations, introduced over the last six years. If you feel like you’re drowning in red-tape it’s because you probably are. We want to lift that burden so that the energy is not on what the Government requires people to do but on them investing time and energy and resources in the success of their business and the opportunities that it provides. We’ve also made some substantial commitments, that is a billion dollars’ worth of red-tape reduction. Some specific areas we’ve already identified around superannuation collection and payment, around the paid parental leave and the like. These are important measures.

We want small business to have a voice on the Board of Taxation, the ACCC and the Fair Work Commission so that field evidence and insight is brought to the task of those agencies everyday. Not feeling like many small businesses do that there is big government talking to big unions big business, not appreciative of the fact a small enterprise doesn’t have a dozen people in a compliance department just waiting for the next piece of regulatory burden to implement and to action.

We’ve also looked at the changing economy of our nation. It was a generation ago when Professor Hilmer did some really important work on competition law. You know that simple idea that competition should be based on merit not on muscle. Or in the Sherman act in the United States, aspire to be a monopolist but don’t ever behave like one. Our laws were largely shaped a generation ago yet the economy and the market place and the nature of commerce and the channels to market has changed yet the law hasn’t evolved with it. We’ve got an important commitment to conduct a ‘root and branch’ review into those competition laws to make sure they’re fit for purpose for the future.

I mentioned earlier our modest home on the Mornington Peninsula has a massive mortgage attached to it. That was how we accessed finance for our business. Two thirds of small businesses have mortgaged their houses for the opportunity to create wealth and possibilities for themselves and others. We’ve seen a consolidation in finance sector the cost of those funds has increased quite significantly. Over the last six years the spread, the margin above the Reserve Bank cash-rate for the variable residentially secured mortgage for business purposes has gone from a little over two per cent to four. Yet if you are putting your house on the line surely the cost of default is deceased significantly. If there is a more conservative lending environment, not like 2003-04 where you couldn’t walk down the street without someone throwing an overdraft at you, the new normal is far more rigours credit assessment. Risk metrics which are bewildering for some small business entrepreneurs. So the risk of default is down the cost of default is down but the price of that funding has gone up. It is a real area of work where we need to get alongside the prudential regulators and say surely the new normal would be more encouraging of small business finance than it is now when so many people are having to put their houses on the line.

A company tax cut of 1.5 per cent is an important statement about what we can do nationally to boost employment and to strengthen our economy. And of course we have got the paid parental leave scheme. It delivers real benefits at real wages rates for all enterprises in our economy not just for the public servants and the major corporates who have enjoyed that kind of support for some time.

Commonwealth procurement. What a great mystery that is. When I was a Minister in the defence portfolio I spoke to a conference not to dissimilar to this. It was called Defence Contracting 101. You had to come to a training session to work out how to interact with defence to meet its procurement requirements. I thought there is something fundamentally wrong here if it’s so complex to engage in procurement or to supply goods and service to the Commonwealth and you see big businesses having to have a training program how must it be for the little guys. So we’ve made a commitment and put some money behind reshaping that procurement and tender process so it is more small business friendly. These are some part of the comprehensive plan we have outlined.

Franchising is an important part of that as well. Alan Wein has done a really useful piece of work. He has mapped out what I think is a terrific road map about areas of important reform in franchising. I’m very committed to working very collaboratively with the Franchise Council of Australia. I’ve enjoyed many years of frank and robust exchanges with the FCA. We know each other well and we understand what each of our motives are. I value and welcome the input that the

FCA can provide and I am heartened by the collaborative interaction that has been, particularly in relation to discussions in recent days over the FCA proposing its own amendments to the Franchising Code that will address Alan’s recommendations. This is important because the FCA has the many crucial roles. Yes of course promoting the sector but also building and nurturing confidence in it. Quality control is important for the FCA so that quality franchising opportunities build the appetite for people to invest and participate. It is that perspective and those insights that are incredibly valuable and helpful as we move forward to implement those recommendations. I give you this undertaking, there won’t be any surprises. We will have open dialogue and interaction because I value your insights because at the end of the day success here is as important for of us in this room regardless of the perspective we come from. We will know if we’ve been successful if we can reinforce and buttress a single national regulatory framework and inoculate against the risk of state jurisdictions venturing out on their own in addition to the national code. We will know we’re successful when people go yes, a national framework is what we have and it’s all that we need so that we don’t have to deal with deferring arrangements across the Commonwealth.

There is some good work to be done there and the special characteristics of your sector are best understood by you in this room. I understate to have open dialogue with you to implement those recommendations in a ‘no surprises’ manner.

We have made some other commitments that I know maybe of interest to you. Yes we will be moving forward with the unfair contract term protections that we not only announced at the last election but at the one before. For those of you who aren’t familiar these they are standard term take it or leave it contacts with provisions in them that are unnecessary to protect the legitimate commercial interests of the big party in that transaction. Now these arrangements already exist for consumers. As individual consumers if there are unfair contract terms you can seek relief but as small businesses you can’t. We see no policy logic in that and that’s why we’re moving to extend those protections to small businesses that have no more market power or influence than an individual consumer. What is important is that we don’t want to create forum shopping opportunities. My challenge and invitation to the FCA is show us that there is enforceable equivalence through mechanism such as the Code that achieve that policy objective and we won’t go at these transactions twice. Our ambition is not to have forum shopping extravaganza but to make sure those protections are there.

In closing I ask that you take what you can out of this conference, suck the marrow out of the insights and leave here more energised because when we think about our economic prosperity and our future and where livelihoods will come from, franchising is a key component to our vision for a diverse resilient economy. I respect and admire all of you for the risks you take and the investments you make.

I have lived the small business dream, we didn’t succeed but we love every minute of it. We want to encourage Australians with enterprising dispositions to have a go. We want to support that risk taking, we want to respect the courage that is involved in that kind of commitment and we want to value the opportunities that you provide for so many others in this nation. You create opportunities, you create prosperity, you create possibilities, you have a go. We want to be a Government that supports people who have a go. Thank you for having me for a few minutes this morning.