A small business award? Kate Carnell calls for systems overhaul as Australia emerges from COVID-19 lockdowns

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Small business ombudsman Kate Carnell. Source: AAP/Mick Tsikas.

A new industrial award, the axing of the fringe benefits tax and a permanent instant asset write-off worth $150,000 should be pillars of the small business sector’s recovery from the COVID-19 pandemic, Australia’s small business ombudsman recommends.

Released Monday, the Australian Small and Family Enterprise Ombudsman (ASBFEO)’s wide-ranging “COVID-19 recovery plan” has pitched structural changes to industrial relations, taxation law and payment terms to the Morrison government.

Ombudsman Kate Carnell says the time is now to pursue broad economic reform for small businesses, amid the devastation wreaked on companies due to the coronavirus outbreak.

“It’s essential it happens now. We’re saying to businesses that it isn’t business as usual … the world post-COVID is a different world,” Carnell tells SmartCompany.

“But if we’re going to say that, and rightly so, we’ve got to say from a government perspective, let’s have a look at the things that really do get in the way of small businesses getting on with it.”

Carnell writes in the foreword of the report that small businesses have “never done it tougher” as the coronavirus crisis compounds the January bushfires and longstanding drought conditions affecting many firms.

“Some of the proposals in this paper are straightforward and long overdue. Some are more complex. All are essential,” Carnell writes.

Other recommendations, some of which echo earlier ASBFEO policy suggestions, include:

  • Creating a federal claims tribunal;
  • Legislating 30-day payment terms;
  • Making unfair contract terms automatically void rather than voidable;
  • Funds for an extensive “buy small business Australia” program;
  • New Fair Work Ombudsman (FWO) approved regtech to help SMEs navigate workplace laws; and
  • Creating a small business procurement panel for government contracts under $10 million.

In releasing the report, Carnell has joined a growing chorus of business advocates citing the pandemic and its economic consequences as an impetus for an overhaul of existing systems.

The Morrison government is currently considering how the October budget and a forthcoming industrial relations review could be used to bolster business conditions in the wake of the pandemic, having previously opened the field to suggestions.

But proposed changes to workplace regulations will be hotly contested, particularly those which seek to re-work swathes of the existing award-based system, amid concern worker pay and entitlements could be eroded in the pursuit of newfound flexibility for firms.

A small business award?

Among the most significant of its recommendations, ASBFEO has called for a new small business-specific industrial award, including a standard minimum pay rate that would cover all workers, irrespective of duties.

The award would sit on top of the existing industrial relations system as an opt-in for firms seeking to avoid the complexity of existing awards, including a “perma-flexi” classification.

It would operate under a “better off on average” test, rather than the “better off overall” test (BOOT) currently applied by the Fair Work Commission (FWC) when approving enterprise agreements.

Business lobbyists, including the Australian Retailers Association (ARA) and the Council of Small Businesses of Australia (COSBOA) have been pushing for the BOOT test to be scrapped for some time, but other union groups have staunchly opposed changes which would ease standards.

Carnell’s better off on average test would consider the average earnings for an employee over the previous 12 months, and then how the small business award would impact those rates.

The ombudsman concedes the prospect of fundamental changes to the Fair Work Act is “low”, so the award has been designed to work largely within the existing system.

“Trade-offs need to be made. As with the introduction of superannuation, greater burdens for business owners must only be imposed alongside productivity gains for those same businesses,” Carnell writes in the report.

“Seeking small business to drive a recovery to our former way of life (which business owners are desperate to do) must be balanced by supporting them to achieve,” the ombudsman continued.

“Productivity gains are key to business development and survival.”

Carnell: Taxation reform for October budget

Carnell has also called on the Morrison government to scale back its taxation of small businesses and replace depreciation with a beefed-up and permanent instant asset write-off.

Carnell says fringe benefits tax (FBT) should be axed for small businesses, arguing the current system creates a disparity with big businesses, which avoid FBT by providing employee services like childcare in-house.

“Let’s not just talk about red tape, let’s look at things that will actually get rid of it,” Carnell says of the proposal.

“A lot of people have identified the issues, so we’ve tried to work through simple ways we could address those moving forward.”

The tax office collected $3.7 billion in FBT in the 2018-19 period, although this figure includes government departments.

The report reaffirms ASBFEO’s call for the instant asset write-off to be made permanent, although this time Carnell wants it increased to $150,000 each year so that it could serve as an effective replacement to depreciation.

The Morrison government increased the write-off to $150,000 in March as a coronavirus stimulus measure for businesses, but to date, the scheme has relied on the government extending the program year after year.

“Uncertainty around the write-off doesn’t allow small businesses to effectively plan major asset spends and draws them into complicated tax rules,” the report reads.

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