Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Nadia Mitsopoulos.
ABC Radio WA
Subject: 14 Steps to energise enterprise, small business conditions, family business succession, lowering merchant fees on transactions, the high cost of insurance, tax discounts for small business
Nadia Mitsopoulos
There are 2.5 million small businesses in Australia. That actually makes up 98% of businesses in this country but they're not contributing as much to the economy as they used to, and that's worrying Bruce Billson. Now he's the Australian Small Business and Family Enterprise Ombudsman, and he says we are sleepwalking into a big corporate economy. And he's with me now. Good morning. Mr. Billson.
Bruce Billson
Oh, Mr. Billson, that sounds like my dad. How are you, Nadia?
Nadia Mitsopoulos
I'll call you Bruce, then. Now, Bruce, first of all, what contribution do small businesses make to the economy?
Bruce Billson
Well, it's really significant. And all of us, I think even yourself and many of your listeners, celebrated International Micro, Small and Medium Enterprise Day just a few weeks ago, and we were highlighting that a third of Gross Domestic Product, all the things that we produce in Australia, are made possible by small businesses. And two in five of the jobs in the private sector workforce are made possible by small business. So that's 5.36 million people counting on their livelihoods through small and family business effort. That's great. But what I was calling out was just a few years back in 2006 that third of Gross Domestic Product was actually 40%. That two in five jobs was actually more than two in four.
So there's this gradual decline, and that trajectory, I think, is quite worrying when we think about how are we going to generate productivity, new livelihood opportunities, innovation, and create the wealth and good fortune that the nation looks to and that small and family businesses are such a part of making possible.
Nadia Mitsopoulos
Why are we seeing that decline? What's the problem?
Bruce Billson
Well, we've got a few ideas around why that might be. Obviously, the pandemic has had quite an impact. The economists will point to, after a dislocation in the economy of that size the larger firms tend to do better. They've got deeper pockets, they've got avenues to raise funding, they've got capacities that are a small and family business that's flat out trying to deal with the headwinds doesn't have available to it. So that's part of it. The other thing too is we think there's a real need to focus on just how complicated governments at all levels are making owning and running a business. It's a big responsibility. We know that, and I know you know that, Nadia, and so do your listeners. But we don't need to make it harder than it needs to be and then really put in the road barriers and obstacles to enterprising men and women going their own way and creating their own business opportunities for themselves and others.
Nadia Mitsopoulos
So, you've got rising costs, and you've got rising red tape.
Bruce Billson
Yeah, it is. And at a time when cost-of-living pressures, which are rightly very much front of mind, they are cost of doing business pressures in small and family businesses. So, they're getting cost pressures coming through. The payroll's going up. Super contributions are up. Rents are up. Energy costs are making their eyes water, and, frankly, insurance costs, they're ballistic at the moment. And all of those things and other inputs combined to make cost pressures very real in too many businesses at a time when they just can't pass them on to customers, because those households are really being careful about where their dollar is being applied. And that's really creating a margin squeeze.
And in the last full year of tax data, 46% of small businesses weren't making a profit. So, this is a really challenging time, and that's why I'm urging people in a position to do things about it, to actually do something. And why we've mapped out 14 steps that could be actioned pretty quickly.
Nadia Mitsopoulos
And I want to go to some of those steps in a moment. But can you just explain your comments that we are sleepwalking into a big corporate economy. What do you mean by that?
Bruce Billson
Well, that's that trajectory. When you look at the contribution made to our economy by small businesses that's contracting, and for larger business, it's growing. We look at that contribution to employment, the same thing is happening. There are fewer employing small businesses, employing a smaller proportion of the private sector workforce. Even when you look at longer term trends over profitability, if you're lucky enough to be a small business that's profitable, those profit growth year-on-year are at about 3%, so that's below inflation, whereas for larger corporates, it's 13%. So, you're seeing that dominant market position that larger businesses have being able to attract new ways of generating, for them, profitable activity at a time when small businesses are often receiving into that and with few choices.
The other thing we need to watch too is, you know, I'm all for celebrating people over 50. I'm one of those, Nadia, I confess. But the average age of a business owner right now is 50. Now that aging of the small and family business ownership population, that's something we should be turning our minds to as well. There's only 8% of current small business owners under the age of 30, yet in the '70s, it was 17%. So something's there, something's going on. And I think we just need to make that entrepreneurial pathway for people's lives more attractive.
Nadia Mitsopoulos
Or is it succession issues that the kids don't want to take over the family business?
Bruce Billson
Look, there's a bit of that. I mean, I travel around the country a lot. I was joyful in being in Perth just a few weeks ago. And you meet business owners, and particularly family businesses, where, you would think, in their gene pool that they'd be ready and ripe to take over the business. But I occasionally hear some saying, 'I've looked at how hard mum and dad are working. I don't know what I want to do with my life when I grow up, but I know that's not it.' There's a bit of that there too.
But the flip side is, particularly for people born overseas, a disproportionate share of business are owned and led by people born overseas. Perhaps that spirit that sees people migrate to a new country is part of the drive that sees many of that community become our business owners and leaders.
Nadia Mitsopoulos
Bruce Billson is my guest this morning. He's the Australian Small Business and Family Enterprise Ombudsman. A lot of you want to talk about this. I'm going to get to your calls in just a couple of minutes. So just some of the points and the kind of assistance that you suggest small businesses could have. First of all, can fees on card transactions, debit cards, credit card transactions, be reduced?
Bruce Billson
Yes, they can. And boy, shouldn't they do that right now. I mean, we think there's around $800 million to $1 billion of unnecessary fees being charged just so customers can pay for their goods and services at the checkout. Now that happens when you walk up to an EFTPOS machine, a payment terminal. You are time-poor, the staff behind the counter might have a long line of people to serve, you wave the card and you're out the door. Now what automatically happens in too many cases, is that payment is routed down a more expensive channel than it needs to be. That's usually one of those international cards where their fees are much higher than, say, a local EFTPOS option where the fees should be less.
Now the technology is there to actually have the device when you're paying, pick the most cost-effective channel, so that the fees are as low as they can be. But that device functionality isn't activated in about half of the small business merchants that our banks claim to be wanting to look after. So, we're saying, get on your bike and activate that functionality. That's good for the business, but it's also good for the customers, many of whom are a bit tired of seeing those little surcharge signs popping up everywhere.
Nadia Mitsopoulos
We sure are tired of it. What about tax discounts? What could be done there?
Bruce Billson
In other countries, such as Singapore, they recognise those early years of a small business can be, you know, the valley of death in cash flow. You got a lot of money going out the door to set up and scale up that business. And not always is the revenue coming in at the pace that you need it. So, in countries like Singapore, they actually say we'll discount the tax that you're expected to pay so that you can reinvest that money back into the business. Now it does a couple of things, Nadia. It helps those businesses with a flame of success within reach during a period of time where the journey is challenging to get through that time.
But it also makes a big statement that these people matter. They're important to our economic and societal well-being. Here's a clear, bold statement that we value that and we're going to incentivise that behaviour by the discount.
Nadia Mitsopoulos
You want discounts on insurance as well. You made the point earlier that insurance is really crippling for a lot of small business.
Bruce Billson
Look, it's terrible, and it's an unavoidable cost. Because unlike consumers who might make you know the decision for whatever reason to under insure, perhaps not insure, if they're brave or some other arrangement. Most businesses don't have that option. If you want to engage in trade and commerce, there are essential insurances you have to have. Yet we see the price of those skyrocketing. Now I respect and I admire the insurance industry for explaining why they're going up. That's fine. There's been a lot of explaining going on. What I'm calling for is a decisive action on what solutions look like. Start mapping out a better scenario so that small and family businesses just don't sit there paying through the nose in the hope that something will get better sometime soon.
Nadia Mitsopoulos
Gosh, there are so many people that want to talk about this. I'm going to get to calls. Bruce Billson before I let you go, finally, the other one that I found interesting is you want small businesses to have a greater chance of competing for government contracts, because you say that a lot of those government contracts favour the 'in-crowd' of familiar, established, larger suppliers.
Bruce Billson
Yeah, we did a lot of work on this Nadia. In fact, successive governments asked me to do some work on how to make the Commonwealth procurement processes more small business friendly. We asked a lot of small businesses, and they said, Look, you need to be really part of that 'in-crowd', knowing who to talk to, when things might appear on an obscure website, knowing how to make a bid, so that you can be part of that contest to win that work. Because who wouldn't like the government to be a key customer? That can be really game changing for a small business, but the rules are so darn hard. It's so complicated. Often those rules aren't even well understood by procurement officials, and we said, let's decode them so that commercially minded people can engage in that opportunity. That's good value for the taxpayer. You've got good, healthy competition. You're getting better outcomes for the nation.
Nadia Mitsopoulos
Well, you've sparked quite a conversation, Bruce Billson. I'm going to get to calls. Good to talk to you.
Bruce Billson
Fab to be with you, and best wishes to your listeners. Nadia.
Nadia Mitsopoulos
Bruce Billson, there. He is the Australian Small Business and Family Enterprise Ombudsman. And boy, you want to talk about this on ABC Radio Perth and WA.
