201401.21

Address to the Mitre 10 Conference, Gold Coast

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Your brand’s been with us for half a century – its trusted, it’s respected, it’s been part of the community that I’ve grown up in and so many across Australia and it’s not a surprise that 450 privately owned hardware businesses are competing in a very competitive space. I’ve touched on the group growth in the two major retail businesses moving into your space and I’ll talk more about that shortly.

It is a big space with $13 billion of hardware and building supplies transacted in our country each year. There have been ups and downs and I understand that over recent years in particular, and I know you have had some specific challenges with tackling them.

We’re expecting some growth in your sector. It’s estimated to be fairly modest but somewhat an improvement on the last few years, with a slight uptick to 2.2 percent in the coming financial year, off the back of a few years around 1.3 percent. We’ve seen some encouraging signs in terms of building statistics, interest in home finance and the like, all of which helps us to understand what is ahead.

But these have been challenging times – our economy has gone through a difficult phase and it’s been particularly challenging for small businesses and family enterprises. When the Howard Government left office 53 percent of private sector jobs were in a small business. Today, six years later it’s down to 43 percent. We’ve gone from seeing more than 5 million people employed in your businesses to now only 4.6 million.

That contraction has happened over the past few years and we’re concerned about that trajectory and are very committed to seeing it turned around. Worryingly, there are today 3000 fewer small businesses than was the case in 2007 and we’ve seen a number of reasons for that. We think there hasn’t been adequate focus on the specific challenges that small business face. In this difficult time, when many have been struggling to stay afloat we’ve felt the previous Government’s attention wasn’t on small business and we aim to change that.

We will cut the red tap burden. There were 21,000 new or amended regulations introduced in just six years thanks to Labor. It’s as if no problem couldn’t be solved without more red tape. Yet we know that regulatory burden is gumming up so many businesses and our economy. It is displace and effort that could otherwise go into building businesses, finding new opportunities and increasing the livelihood potential and wealth in our country.

What we’ve also seen is a sense that small business, over previous years, appears to have ranked fairly low when it’s come to the decision making that’s affected our economy and the direction of our country. It’s not surprising to see small business confidence has also eroded over that time.

Well we want to stop all that. We want to arrest that decline and reverse it so that there is a renaissance in small business and family enterprises.

I come from a great southern hemisphere capital and I’m not talking about Santiago or Buenos Aries – I’m talking about Frankston. It is a great Capital; it’s the Riviera of Melbourne. The small business and family enterprises are our economy and when there isn’t confidence in this crucial sector, we miss out on livelihoods and the chance for young people to get a taste of the workforce, opportunities for people to invest and create their own opportunities and wealth that we as a nation will benefit from.

I also come to this task not as the World’s greatest small businessperson. My wife and I, we had a go and we loved our small business enormously. On a cold winter’s day with the rain coming in sideways, the natural exfoliation you got walking down the main street was quite a treat. But it also meant we didn’t have any customers. To this day I still remember the $4667 in rent we paid regularly and how despite our best efforts we didn’t succeed and I still have our behemoth mortgage to show for my failure.

And I’ve got to say owning your own business was the greatest contraceptive ever invented. The pillow talk of cash flow just really does something doesn’t it? I’d be back from travelling, representing the country somewhere, and my wife would think “he’s got a sparkle in his eye, I wonder what he’s thinking?” And she would quickly remind me that our BAS was due.

So I don’t profess to be the world’s greatest small businessperson, but someone who’s had a go and hasn’t succeeded. Every month when my mortgage needs to be paid I am reminded that I’ve lived the dream of owning my own small business and that has taught me a lot. It’s made me commit to working as hard for your success and as each of you. The lessons that I’ve learned have been put into the policies that we are seeking to implement.

As Shadow Minister during the last four years, I had six Ministers in the previous Labor Government – it was like a revolving door. We had five in 15 months. You know it might say a lot but it certainly didn’t suggest that small business was a priority.

That’s why we need to change that, that’s why my role is in Cabinet. I sit at the adults table around with the 20 individuals that seek to govern our country well for the future and for all of its citizens. Where small business interests are included in the decision making process. We’ve put out a comprehensive plan to put small business at the front and centre on our agenda to support that renaissance that we’ve touched on and we are committed to restoring confidence and rebuilding fortunes in the small business community.

Finance – I talked about it earlier – our small business. Fortunately we had to mortgage our house to finance our small business. That is the story of two thirds of all small business lending in Australia – that it is secured by a residential property. Yet we’ve seen from 2007 to 2013 the cost of that finance, even though you’ve mortgaged your house and your first born, the margin on top of cash flow is actually double. There was a 2.05% spread in 2007 on a secured variable small business loan. Today its 4.6%. Now that’s not just because of the GFC – this was going up before and has gone up after. And it underlines our view of the need to focus on affordable and available finance – the Murray Review will re-instil some competition in the banking sector as part of that.

But it’s also the way the regulators operate. Where the prudential rules actually say to your bank there’s a greater risk to lend to small business therefore retaining more of your capital to cover that loan. Yet we’ve seen conservatively linked practices, the need for security and a hiring cost for the very facilities that are less risky than they were some years earlier when finance was more readily available.

We’ve seen more in the finance sector – new demands from banks urging those lending institutions to communicate more effectively with each and every one of you so that they understand good business better and can better support your growth and opportunities for the future.

We’ve also focused on this employment growth area. What is it that stands in the way of small business adding an additional person – reactivating that level of employment we saw a few years ago.

Red tape is a key area – $1 billion we will cut by removing unnecessary compliance costs in this economy. Twenty-one thousand new or amended regulations have made doing business in our economy much more difficult than it needs to be. In some cases reaching well beyond what is justified by policy and in too many cases being worked up by big governments talking to big business and big unions not realising that the rules and any impositions have to be implemented by smaller entities as well.

Small business doesn’t have a compliance department. Every department in the Commonwealth has a contribution to make. In the Treasury portfolio we’ve moved small business policy so that it is front of mind in all of the economic decision making in our country and we’ve got to find a significant share of that $1 billion.

That means looking at ways of streamlining the ways small business interacts with the Tax Office, with ASIC, getting small business out of being the pay clerk for the Government’s paid parental leave scheme, looking at having superannuation paid to the Tax Office. These are practical and constructive measures and I invite you to share with me examples from your experience – whether our compliance burdens seem to offer no good upside for the economy or for the people in our community. Even in the area of the Small Business Ministerial Advisory Council – keep working on these opportunities so a day is not lost in finding ways to make your life easier. We can’t guarantee success but we can get these unnecessary impediments out of your way.

Where there are needless headwinds blocking your enterprise we want to remove them and create a more supportive entrepreneurial ecosystem, if you may, so that more people are inclined to have a go, secure that opportunity and make the best of it. The reduction in company tax we hope will boost employment and help strengthen our economy. We also want to make sure there’s a fair go for businesses in their dealings with big business, extending those unfair contract provisions that are available to individual consumers so they also cover small business transactions – is something we’re committed to doing and we’re getting on with that. Even though we’ve run into some headwind from a few at the big end of town, we’re going to push on with that important reform.

Important infrastructure – you’ve heard the Prime Minister talk about the East West Link, WestConnex, Gateway Motorway upgrade here in Queensland, Adelaide’s South Road project and the Bruce Highway which are all designed to make sure we’ve got the infrastructure that supports enterprise in our country.

And making sure those key regulatory bodies that have an enormous impact on your life, actually have small business representation at the table so their work is informed by practical experience and insight from small business.

But Mark touched on one of the great challenges of our time that we are tackling, the other side of politics refused to tackle, and that’s our Competition Laws. It was 22 years ago Professor Hilmer shaped the laws that we largely operate under today. In the area of supermarkets – Coles and Woolworths had about a 40 percent market share. Today, it’s in excess of 80 percent. You want to know what modern day serfdom looks like – be a supplier. Those big organisations will give you an insight into what they expect of you and what you should be doing and your profitability, using that dominant position to take away from a small supplier, choices about their own economic future.

That’s not a way to grow this economy. You want efficient businesses big and small to flourish, to prosper to be confident about the decisions they make and that means the competition framework needs to be supportive of that enterprise, not just able to enforce the strength of the already dominant players. Our ‘root and branch’ review is a significant commitment to make sure those laws are fit for purpose for today’s economy and the emerging economy. Because fair and effective competition is good for everybody and it’s as good for small business as it is for big business. We want the competition to be based on merit not muscle and that the environment is there for all businesses to grow and prosper.

We are getting an independent panel together to do that work. They will examine whether the laws are sound and supportive for the enterprise, are there blockages in the economy to stop other parties getting involved and contributing to the success and prosperity of our nation? Are there things that we could learn from overseas where the kind of dominance that you contend with is being tackled in a range of different ways?

We’ve already demonstrated our seriousness and commitment to this. You’ve seen changes in the area of shopper dockets, where those interrelated businesses were able to pass customers between their various entities by offering conditional discounts. You’ve seen action taken on that. There are inquiries proceeding on unconscionable conduct which potentially may have arisen in the supply chain – this is showing a genuine commitment to bring about change in this place so that our competition framework, the laws that support it, are there to support efficient business big and small to grow, to prosper, to see the benefits of their enterprise. This is the kind of change that’s needed. This is the kind of change you wouldn’t have got had the government not changed just four months ago.

So that work is underway and I urge you to be a part of that because you are part of the pointy end of the pressures in our economy and we need to make sure our laws support your enterprise as they do others that are prepared to have a go.