This is the third instalment of a four-part series in which Neil Slonim, an independent SME finance advocate from theBankDoctor.org, takes a closer look at which of the major parties are better for small business. Click here to read parts one and two.
Small business owners have had a mixed time over COVID-19. Some have done very well while others have survived by ‘pivoting’, but a large number are barely hanging on. They have been anxiously awaiting the post-COVID recovery but now are facing new challenges which this time may prove insurmountable. More than ever they need a government that actually ‘gets small business’.
So what can small business owners expect from the next government and does this align with what they really need?
Under a returned Coalition government, small business owners can expect more of the same. An interesting twist could involve the Treasurer Josh Frydenburg. Even if the Morrison government is returned there is a possibility Frydenburg will lose his seat. A recent small sample poll conducted by UComms on behalf of the Climate 200-backed independent Monique Ryan showed she is currently ahead on a two-party preferred basis 59 to 41. If the current Minister for Small Business Stuart Robert retains his seat (he has an 11.2% margin) he could become the new treasurer, which could prove to be a positive for small business owners.
For better or worse, the Morrison government is a known quantity. On the other hand, small business owners are not sure what to expect under an Albanese government. They might think that the incumbent has done so poorly the alternative could not be any worse. Alternatively, given its labour roots and questions about economic management, they might think that life could indeed be worse under Labor.
As discussed in previous articles in this series, Labor has never really displayed a strong commitment to small business. Anthony Albanese uttered the words ‘small business’ only once during his budget reply speech, and only then in a throwaway line about Labor backing the “aspirations of all Australians”.
More recently, Labor has released a small business manifesto Better Deal For Small Business.
The first point about “considering the specific needs of small business” is something of a motherhood statement, while other policies include pledges on reducing payment times, red tape and transaction costs including least cost routing and better scam protection.
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Ensuring small businesses get paid within 30 days is an attractive promise but it is difficult to see how this could be strictly and universally enforced.
Small business owners can expect Labor will be tougher on the banks, although that would not be hard. Fairfax journalist Ross Gittins recently wrote about how the Morrison government has yet to implement 44 of the 76 recommendations from the Banking Royal Commission notwithstanding three days after the release of the final report it committed to act on all 76 recommendations.
But will going harder on the banks make life any easier for small business? The banks seem to have a way of managing the agenda with government especially via the well-resourced Australian Banking Association. As an aside, if elected it will be interesting to see how Labour engages with the ABA’s CEO and former Labor Queensland premier Anna Bligh.
Labor’s focus on training and childcare should see more people available to meet the demand for labour.
What small businesses really need
Many of the election promises, from both sides, are very positive for small businesses but to be clear: what they really need is for the next government to deal with the two major concerns — the availability of labour and inflation.
The government is crowing about the below 4% unemployment rate, which is great if you are someone looking for a job, but it’s not so good if you are a small business owner who cannot capitalise on the post-COVID recovery because of lack of staff.
Anthony Albanese acknowledged this in his budget reply speech when he said that “too many businesses can’t find skilled staff”. At the same time he said that real wages have been flat for years and that Labor would reverse that trend. RBA expects wages growth of around 3% this year. Small business owners are facing a double whammy, they cannot find staff and to retain existing and attract new staff they have to pay more.
Small business owners are also concerned about the escalating costs of employing casual workers bearing in mind that one in four workers are now casuals.
The core problem of skilled and unskilled labour shortages has been exacerbated by the closure of our borders in March 2020 which saw more than 500,000 temporary migrants, mostly skilled, leave the country. Historically, net migration has run at about 200,000 per annum but for the past two years net migration has been negative. In addition and as a direct result of the pandemic, we have seen a net decline of more than 200,000 in international students.
The relaxation of ‘stay at home COVID rules’ will be of some short-term help but small businesses still need access to more skilled and unskilled labour, and given the low unemployment rate we need an immediate and significant uplift in the number of and terms for migrants, temporary and permanent visa holders, overseas students and backpackers.
At the same time, which ever party wins power needs to prioritise the reversal of the chronic under investment in skills, especially in the trades. And there needs to be an acceptance that some increases in wages are necessary to solve chronic industry problems, for instance in aged care.
Closure of borders, labour shortages, COVID-19 disruptions, fuel cost increases and the war in Ukraine are all building pressure on supply chains and costs. Inflation has picked up in recent quarters and is currently galloping away at the headline rate of 5%. The underlying rate of 3.75% is well outside the RBA’s underlying target band of 2-3%.
Spending big to promote growth, as has been done in the past, is no longer an option for the incoming government as this will only fuel the inflation fire.
Along with this, the price of money is also increasing. 11 years of falling cash rates has just come to an end and the cash rate is expected to rise further to around 3% in the near-term. Not only will credit become more expensive, it will be harder to access as the big banks become more cautious in who they lend to given rising concerns about debt serviceability. More work needs to be done to safely fast track the alternative small business lending sector.
Other concerns of small business owners include the industrial relations outlook, particularly if Labor wins government, red tape and the tax system.
Despite recommendations that go back as far as Ken Henry’s 2010 landmark tax review and the more recent reviews conducted by the OECD and the IMF that clearly state our tax system is in urgent need of reform, successive governments have baulked at major tax reform. We need to reduce our reliance on direct taxes and rely more on indirect taxes — particularly GST — but no government has been prepared to go down this path, preferring to remain hooked on the drug of bracket creep.
Both parties seem more focused on doing what needs to be done to retain power rather than creating the framework that maximises the prospects of small businesses surviving and thriving over the long term. At election time, all sorts of promises are made but the voters are becoming increasingly sceptical and disenchanted with the brazen vote buying and pork-barrelling by both sides.
Trust is a big issue in this election. A recent IPSOS poll conducted for the AFR showed Scott Morrison is the least trustworthy Liberal leader in the last 25 years, while Anthony Albanese is the second least trustworthy Labor leader in this period, only marginally less untrustworthy than Bill Shorten.
So who can small business owners trust? Or are the minor parties or the independents a better proposition?
These questions will be answered in tomorrow’s final article.
Neil Slonim is an independent SME finance advocate from theBankDoctor.org, which is a not-for-profit small business advocate and commentator. This article was first published in his free newsletter, which you can sign up to receive here.