Australia’s first minister for small business is a tough, pragmatic farmer/businessman turned politician.
He sees himself as championing the cause of small business both within his own party and in dealing with various bureaucracies. Recent events will require Ian Macfarlane to develop a range of new political survival skills. He talks with editor John Arbouw about the business of small business.
Ian Macfarlane hopes he has the chance to greet Santa Claus in his position as the Federal Government's Minister for Small Business. But the gremlins that could spoil his Christmas are the opinion polls regarding the expected election in November and the incompetence of the Queensland Liberal party apparatchiks in his own electorate of Groom. If it was going to be tough to convince an alienated small business sector to come back into the government fold because of the GST compliance and administrative burden they had to shoulder – then it became a whole lot tougher following the news that his own party colleagues had tried to rort the GST. As the champion of small business within the Government and the man responsible for putting out any GST electoral fires, Macfarlane is now busy trying to douse the blaze that threatens his political future and that of his Government. It is always the little things that come back to haunt you. Late last year, the Liberals were struggling financially and Treasurer Peter Costello was brought in to speak at several Queensland functions as a fund-raising exercise.
It sounds simple and should have gone smoothly. Unfortunately, those classic Shakespearean frailties of greed and hubris came into play when someone in the Queensland Liberal party tried to claim the GST for the fund-raising events when they shouldn't have. Two Liberal Party stalwarts resigned over the affair in outrage even before it became public. Sure the money was eventually paid back, but the affair has put a stain on Macfarlane's political career and it has damaged Costello, the man many believe will eventually be the next Liberal Prime Minister of Australia. Prime Minister John Howard had to head off further damaging revelations from the ALP of Queensland Liberal GST rorts by asking the Tax Office to conduct a GST audit of the Queensland Liberal Party. Whether the affair permanently damages Macfarlane's reputation with the small business sector that he has worked hard in the past nine months to achieve remains to be seen. This is a pity because the peanut farmer from Joh's own country in Kingaroy has brought a breath of fresh air and much-needed pragmatism to the cause of small business.
All politicians extol the virtues of the small business sector, but until nine months ago no government had ever designated a specific portfolio to this sector. In the Australian political family, small to medium-sized businesses are like noisy, small brothers; you pat them on the head; tell them how important they are to the economy; feed them some leftovers from the budget process, and promptly ignore them. After all, the big picture, big business and the big economy is infinitely more important and no politician wants to be directly associated with anything that signifies "small".
All that changed on July 1, 2000. The tax reform that was loudly cheered by most observers came into force but, unfortunately, government bureaucracies with their own agendas and interpretations finessed policy intentions. Tax reform came at the cost of a huge and complicated compliance burden for the small business sector in terms of the Business Activity Statement. No one had road-tested the scheme and the information required by bureaucrats was far in excess of any GST requirement imposed by any other government in the world. Australia needed to move from a system of direct to indirect taxation, but asking small business owners to become tax collectors and take responsibility for submitting a BAS statement that even tax professionals had trouble understanding was asking too much. Instead of easing the tax and compliance burden, small business became the victims of an isolated bureaucracy and a huge political backlash was in the offing. Coupled with the GST implementation was the issue of the taxing of entities (aimed directly at small and family businesses) and the need to fix bureaucratic bungling on what constitutes an independent contractor.
By the end of last year, the Government knew it was trouble. This was dramatically confirmed subsequently with the elections in Queensland, Western Australia and recently the Northern Territory. No one was more surprised than Macfarlane when he received the call to head a new portfolio and join the outer ministry. As a former president of the Queensland Graingrowers Association and director of various not-for-profit companies Macfarlane understood agri-politics but as newcomer to Parliament (elected in 1998), he hardly expected to be called to the political front line for active duty. Macfarlane is a reluctant convert to political life. His ambition as a young man was to be a farmer but his parents had other ideas when he won a scholarship to go to the University of Queensland. "It was a very worthwhile experience but I didn't come away with a degree," he says. "However, I did come away with a wife – but that's another story. After a year and a half at university, I began to get involved in agri-politics in the 80s and ended becoming president of the Queensland Graingrowers Association.
"This was a company with a turnover of about $3 million and we ran an insurance subsidiary with around 26 people. I was effectively the chairman of the board and it was at this time that I did the AICD's Company Directors Course. "When I completed the qualifications I was already the endorsed candidate for Groom and in the process of doing the course I had picked up some invaluable information about being a director particularly in terms of corporate governance. "I was also the director of a not-for-profit company called Giddy Goanna. This company had a turnover of around $100,000 and I learned a lot about running a business in terms of tight margins and making sure that you trade in such a way as to stay in business. "It was extremely important to us as directors that the reporting process was strictly adhered to. I had visions of trying to get on to some boards. It was a that point that I got the call." Under Howard Government rules, Macfarlane resigned his positions, including his membership of the AICD, to become a full-time politician and Australia's first dedicated Minister for Small Business.
The first thing Macfarlane did was to surround himself with people who had experience in the small business sector. For instance both his media and senior policy adviser come from small business backgrounds. He has revamped the Government's Small Business Consultative Committee set up in 1998 to advise the Government. He has also tramped around the country in an effort to walk the Government's talk about taking the concerns of the small business sector seriously. He is a strong advocate of the AICD's Company Directors Course believing that small business owners need to keep abreast of the issues that affect company directors. When Company Director interviewed Macfarlane in his office in Canberra on August 20, courier drivers were marching on Parliament House to protest against what they believed were changes in their status as independent contractors. He blamed that on misinformation the Labor Party had been spreading on who would and who would not be affected by the Government's proposal to crack down on people who change their status from employee to contractor in an attempt to rort the tax system.
Macfarlane says that it was fate that a Liberal government introduced tax reform rather than a Labor government. He said former treasurer and prime minister Paul Keating had considered introducing a GST but he "chickened out". "Look, there's no doubt that the last 12 months have been difficult," he says. "But in bedding down the biggest tax change in Australia's history it was inevitable that there were things that were going to be fine-tuned. "For instance, we just moved to make things easier for caravan park owners by introducing a methodology that will make calculation of GST inputs a bit easier. We also realised that entity taxation in the form proposed was never going to benefit small business, so we knocked it off. "It's better to change something when you see it isn't going to work than just letting it roll along and ignoring it. Sure we would have liked to get it right first time. We should have had the second BAS form the first time around. "Maybe, if we would have had a small business minister at that time the process would have gone more smoothly. Hindsight is wonderful. We had the best tax brains in the land advising us and mostly we got it right."
Macfarlane however, doesn't want to discuss the past and what went wrong or right. He is currently preparing a range of small business initiatives that he and his Government hope will win the small business vote. Earlier last month, leaked government documents from the Department of Employment, Workplace Relations and Small Business showed that small business was indeed upset with a number of issues. "This ministry is on the side of small business," Macfarlane says. "Yes there was an issue for those businesses that didn't take advantage of the deferral option and found themselves paying last year's and this year's tax. Yes, there was an issue for those businesses that never kept books and having to go to a system where they had to provide a snapshot of their business every quarter. "The AICD would be the first to accept that one of the big positives to come out of this process is that small business has learned a lot more about running their own business. It is unfair even if you took the last 14 months and judged this Government on the GST implementation when the full benefits won't come for two to three years."
Macfarlane is determined not to repeat the mistakes from the past by foisting new legislation or new compliance forms on the small business sector without first road-testing them. He says there was extensive consultation before the introduction of the second BAS form. "We have taken risks and asked small business owners to have a look at proposed changes confidentially and give us opinions," he says. "We now have the contacts within the small business community to do that." But fixing compliance forms are one thing. The reality of the new tax system is that small businesses used to see their accountants once a year – now it is a regular occurrence and this costs money. In an article in the Australian Financial Review on August 22, Institute of Chartered Accountants CEO Stephen Harrison says accountants are finding it difficult to cope. "The load on businesses and advisers in the coming 12 months will lead to dissatisfaction with necessary tax reform and unacceptable compliance consequences for both taxpayers and their professional advisers," Harrison wrote.
"What we are seeing now is total confusion, more errors, and less time to advise our clients. If the Government does not reduce the compliance burden the number of existing professional tax agents with the necessary expertise will decline, while recruitment and training of new practitioners will dry up. This will result in a logjam in the system. Surely, that isn't in the national interest." Macfarlane admits that there has been a transitional cost and accepts that the $200 voucher for moving to a new system was offensive. "We accept that for some businesses to move into the new system it is going to cost thousands of dollars and that, during the transition period, that they had to take time away from running their business or their private lives to get used to the new system," he says. "We also accept that they are seeing their accountants more often than in the past and for some of them this was a new experience. But let's look forward and accept the past 12 months as transitional. "What you are going to find is that more and more people are doing their own BAS and that's certainly the feedback we are getting. A lot of them are using bookkeepers who do the job for $200 to $300 and at the end of the year their figures are basically done for them and their accountants just have to sit down and review the quarterly reporting.
"It's too early to decide what this means. It has been difficult and small business has to look at a range of changes and for some this meant new software. One small business person told me he had spent $50,000 on new software but it turns out he bought a whole range of software to make his business run smoother rather than simply complying with the tax system. "Small business has taken advantage of the recent changes to the tax system to upgrade a number of their [accounting] systems and this will give them a competitive advantage for decades to come. I accept that there has been a compliance cost but this is an investment in your business." While Macfarlane says the tax reform process has been less than smooth he is also quick to cast the blame on to Labor for not offering bipartisan support. "A guy with a MacDonalds franchise said to me that if you guys were trying to market hamburgers you would go broke. I said, 'Listen mate, this is like you trying to market hamburgers and the bloke across the road keeps putting in the paper every day that you are trying to sell cat meat'.
"This is what it is all about. We were trying to sell the biggest tax change in Australia's history while the ALP are talking down the economy and the value of the tax change. It has been a very hostile environment." This environment is about to get lot more hostile. Until now, the Tax Office has been lenient in dealing with the small business sector and their tax returns. Industry source say that from October, the ATO will be less accommodating. Macfarlane says his relationship with the ATO is getting better. At least that's what he said three days before the GST scam hit the headlines. "We have worked very hard with the ATO to convince them that this is all part of a team game and that small businesses are the ATO's clients," he says. "On that basis if they want them to make more tax payments then the best way is to have successful businesses. The more successful they are, the income they earn, the more tax they pay. "We are building a relationship with the ATO to have them understand better the problems of small business. The ATO is a big enterprise in its own right and it is like turning around the Queen Mary.
"I am not saying that the anger against the ATO isn't out there. I set out to be the advocate for small business and this applies both within the Government and my own party as it does to the ATO." Macfarlane is also determined to end the paper war between government and small business in terms of red tape and he says that he will be introducing new measures within the next few weeks. He is also prescient ... "Business is not that dissimilar to politics. I set a goal and work toward it. I set a strategy and work within it. We were trying to sell the biggest tax change in Australia's history while the ALP are talking down the economy and the value of the tax change. It is very difficult to operate within politics because someone will pick up the goalposts and move them or a land mine goes off and something that is chugging along quite nicely needs to be regrouped." That land mine came three days after this interview in the form of the Queensland Liberal Party GST scam. Macfarlane has been in the job since last December and there is no doubt that he has championed the cause of small business.
Whether he gets his wish to greet Santa Claus this December as a minister is another matter.
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