The Abbott government has elevated the role of Minister of Small Business to Cabinet level as part of its drive to help Australia’s small businesses get back on their feet. Bruce Billson discusses his government’s possible policy reforms with Tony Featherstone.

    Directors of small to medium-sized enterprises (SMEs) could be forgiven for thinking they have heard it all before. Politicians are always quick to describe small business as the economy’s backbone and even quicker to snare a photo opportunity on the factory floor for the 6pm news. Yet real reform has been painfully slow.

    Years of regulatory neglect have made the small business sector vulnerable to a slowing domestic economy or a global economic shock. For all the talk, significant problems in competition policy, access to finance and too much regulation remain for small business.

    The residual problem is a lack of trust. It seems unthinkable that the previous Labor government had six small business ministers in three years, that the small business ministry did not have Cabinet status, or that such an important role usually went to a minister with several portfolios, or that small business could become an almost “forgotten” portfolio.

    Like all politicians, the new Minister for Small Business, Bruce Billson, misses no opportunity to show up the previous government’s policy shortcomings. He says the small business sector’s declining share of private sector employment, and its general contraction, are Labor legacies. One could easily mistake this as a government still in Opposition mode. But, in Billson’s case, emphasising the sector’s threats and opportunities creates much-needed urgency in policy reform – not just more talk about small business, but actions that help directors.

    Billson is off to a good start. He has championed the government’s “root and branch” review of competition policy, welcomed the review of fuel shopper dockets by the Australian Competition and Consumer Commission (ACCC) and has said the government might implement certain recommendations of Alan Wein’s 2013 review of the Franchising Code of Conduct.

    That followed the Coalition’s election commitments to slash red tape by $1 billion, abolish the carbon and mining taxes, cut the company tax rate by 1.5 per cent from July 2015, establish a one-stop shop for environmental approvals, restore the Australian Building and Construction Commission, protect the rights of the self-employed, review competition policy and extend unfair-contract protection. The Coalition also elevated the small business ministry to Cabinet, appointed the well-regarded Billson, a former small business owner, and let him focus on small business rather than combining the portfolio with two or three other ministries.

    Previously the Shadow Minister for Small Business since December 2009, Billson brings a precious commodity to the sector: continuity. Business lobby groups welcome his appointment and nobody doubts his willingness to consult business. Securing an appointment to interview Billson for this feature meant taking a free 30-minute slot at lunch, weeks in advance, such was his jammed meeting agenda.

    Billson is in a hurry to consolidate the government’s early success. Small business confidence is rising, a CPA Australia survey showed in November. Two in three businesses are more optimistic about growth this year, according to Dun & Bradstreet’s latest Business Expectations Survey. And the National Australia Bank’s monthly business survey showed confidence, while weak, is trending higher. In addition, the Australian Institute of Company Directors’ latest Director Sentiment Index showed sentiment at a two-year high.

    The big unknown is whether confidence will quickly retreat if the economy remains sluggish, unemployment rises and insolvencies climb in 2014. A federal Budget under increasing pressure could constrain new small business initiatives; some of them are tied to the repeal of the carbon and mining taxes, which require Senate approval. A fading mining boom is another risk.

    Also, recent appointments to government advisory panels have added to fears that it is big business, yet again, that has the government’s ear. The Council of Small Business of Australia (COSBOA) is concerned that the Prime Minister’s newly formed Business Advisory Council has insufficient small business representation on it and the appointment of former Westpac CEO David Morgan to advise Treasurer Joe Hockey’s Financial System Inquiry was reported as a “win” for the big banks.

    Other unknowns are whether the government can adequately distinguish between fast-growth start-up ventures and small business; develop policies that strengthen Australia’s entrepreneurship ecosystem; and help so-called “gazelle” enterprises maintain high growth rates for longer. Billson admits governments, past and present, have less understanding of sophisticated entrepreneurship ventures than SMEs or family businesses, a shortcoming he wants to address.

    Entrepreneurial companies are especially important for directors who want to add smaller fast-growth private or listed company boards to their portfolios. Some of Australia’s top directors include a promising small-cap company in their portfolio. More need to follow.

    The right policy settings could link experienced company directors with impressive start-ups, providing knowledge, mentorship and networks that are typically the preserve of larger companies. But this issue is not yet on the government’s radar.

    Better tax treatment of equity incentive plans, so that employees in start-up ventures are taxed when options vest rather than on issue or acquisition, could help encourage promising local tech companies, such as Atlassian, to list in Australia rather than offshore.

    Billson says employee share plans are “an area of particular interest” that must be considered in broader tax reform.

    No reform is more important than simplifying and reducing director liability laws, so that companies (and the boards behind them) are confident enough to take reasonable risks. A much-needed extension to the business judgment rule, as part of wider reform of insolvency laws, would further reform director liability and provide better protection to govern higher-risk entrepreneurial ventures.

    For now, Billson’s heavy lifting involves championing competition policy that better protects small businesses against larger ones. The federal member for Dunkley, in Victoria, has shown he will stand up to supermarket giants. Taking on the big banks to boost lending competition for SMEs would be an even bigger challenge.

    Billson has an ambitious reform agenda with little room for error in this sluggish economy. The worst-case scenario – stalled structural reform on small business policy in a weakening economy – would be the death knell for thousands of SMEs and a sure-fire way to drive unemployment sharply higher. But if Billson delivers on his reform promises in a strengthening economy, some big headwinds for small business could become tailwinds in the next few years, in what could be the most promising, exciting period for Australian small business in a decade.

    Here is an edited extract of Billson’s interview with Company Director.

    Company Director (CD): Federal governments, current and previous, always make big noises about helping small business. Yet there was a procession of small business ministers under the previous government and for too long, the small business ministry was seen as a junior portfolio. How does the government rebuild the confidence and trust of small business?

    Bruce Billson (BB): There was a revolving door of small business ministers under the previous government – at one stage, five ministers in 18 months. That does not build confidence, nor does having the small business ministry tacked onto a portfolio of other ministerial responsibilities and treated as an afterthought. The government recognised that small and family-owned enterprises were crucial to the economy and rightfully elevated the role of small business minister to the Cabinet.

    CD: A longstanding concern of small businesses, and Australian business generally, is the lack of skilled people with genuine business experience in politics and the bureaucracies. What is the government doing to get more people with business experience into the key regulatory bodies?

    BB: A key concern of the small business community when dealing with the previous government was the lack of business acumen and experience. I have owned a small business and experienced its highs and lows. I was never the world’s greatest small business owner, but I certainly understand the ambitions, hopes and challenges of the small business community and why it is so important to eliminate any excessive obstacles in the way. I have a strong working relationship with the small business community and have spent more than four years, in Opposition and now government, understanding its concerns. Organisations such as Company Directors are also crucial to my work in being well informed about the needs of business.

    CD: The government has announced plans to dismantle a number of unnecessary government advisory bodies and their boards. Will it look more broadly at the make-up and composition of government-enterprise boards and will there be more opportunities for directors in this regard, with board changes or new boards formed?

    BB: There will be more opportunities for directors with government-enterprise boards. The previous government established a plethora of advisory boards. It looked like anyone who was a friend of Labor won a prize with a directorship. Less evident was the effect and influence of those people on the direction of government. We are not interested in token engagement with boards.

    This government wants genuine collaboration and co-operation, so that government-enterprise boards can bring genuine insight to government. We made an election commitment to review boards of such regulatory bodies as the Australian Taxation Office (ATO), ACCC and the Fair Work Commission – and are working through that process.

    CD: The government has committed to slashing red tape and administrative costs for Australian business. What are your main initiatives to slash red tape and how are they progressing?

    BB: There were 21,000 new or amended regulations introduced under just two terms of Labor – an incredible additional regulatory burden and cost for Australian business. This government has committed to taking $1 billion of regulatory costs out of the economy and has tied the performance bonuses of senior public servants to achieving that target. The Prime Minister is driving this change and we recognise that if regulation is genuinely needed, it must be of proportional size to the issue at hand, administered efficiently and not designed only for big business.

    Our focus on reducing red and green tape, repealing the carbon and mining taxes and taking the administration burden of paid parental leave off business are all part of our broader strategy to drastically reduce red tape.

    CD: Queensland’s landmark director liability reforms last year were well received by Australia’s director community. Do you support those changes, would you like to see them extended nationally and what is their significance for SMEs and larger family businesses?

    BB: Australian enterprises and their directors must feel they can take risks that are necessary to grow their businesses. I have watched the Queensland initiatives on director liability reform with interest. Company Directors has reminded me about the growing tendency of legislators to seek to impose ever-more personal liability on directors. I look forward to working with it on how to better recalibrate the risk of directorships as they relate to small enterprise.

    CD: An overlooked issue is making it easier for small ventures to get advice when they most need it. Yet connecting Australia’s most experienced directors with the country’s most promising emerging ventures is problematic on so many levels, from director liability to the ability to pay director fees. Has the government considered ways to better engage company directors in the SME space?

    BB: Australia has some excellent organisations that provide experience and mentorship for start-up enterprises. But those services generally come with a significant cost for a small business. It is usually bigger organisations that have access to that support. Finding better ways to support and mentor small enterprise, be it through boards or other programs, is something I am very interested in.

    CD: The tax treatment of employee share options, which are taxed when issued to employees rather than when they vest, has been cited as a significant impediment for fast-growth ventures that rely heavily on equity incentives to attract top talent. Will you push for a change in this area?

    BB: I have a particular interest in employee share ownership arrangements. To impose an upfront tax liability on the notional value of those shares, when those gains have not been realised, is a significant challenge for entrepreneurial small ventures. It is certainly an issue that needs to be considered in broader tax reform, which this government is committed to.

    We need to remove any unnecessary obstacles so the renaissance in entrepreneurship in Australia can continue. This government is very open to additional ideas about helping entrepreneurs.

    CD: Australia has done a good job in encouraging people to start ventures. For example, the latest Global Entrepreneurship Monitor report found Australia’s entrepreneurship rate ranked second only to the US among developed countries. But we have not done nearly as well at helping enough of those ventures grow into globally significant businesses. What are the main impediments to SME growth in your view?

    BB: Australia needs to encourage enterprising people to have a go. But some big obstacles remain: access to finance, excessive regulation and far too much red and green tape, to name a few. They increase risk aversion and make it harder for fast-growing ventures to grow.

    CD: How can we better help entrepreneurs, who are very different to small business owners, and often seem to be overlooked in policy debates?

    BB: We have significant work ahead to create a stronger entrepreneurship ecosystem. The Prime Minister is encouraging me to identify and eliminate policy barriers for innovators and entrepreneurs.
    We must also consider cultural obstacles for entrepreneurs in Australia, and celebrate self-employment, business formation and success.

    Although we know a great deal about entrepreneurs from small enterprise and family business, we know less about the type of cutting-edge entrepreneurship that can transform economies. How university researchers, business and government interact around small enterprise innovations is on my radar screen.

    CD: One of your first initiatives on being sworn in to Parliament was to call for the ATO and other government agencies to provide fairer treatment of independent contractors. Why have you pushed for this change and what is the significance of it?

    BB: There was a dirty deal between the former Labor government and the unions to crack down on independent contractors, to keep more people in the traditional employer/employee role and help union membership. Self-employment is a legitimate form of business and independent contractors make an extraordinary contribution to this economy. We found example after example of independent contractors wrongly being decreed as employees, with no scope to challenge the findings. So we moved to ensure the law about who is an independent contractor was implemented as intended.

    CD: The government welcomed the release of a draft Food and Grocery Code of Conduct to balance out relationships between retailers and suppliers. What are the next steps in competition policy for small business?

    BB: There are four aspects to this issue. First, the ongoing investigation by ACCC, which is considering the use of market power between giant supermarket operators and small suppliers, and allegations of unconscionable conduct under the current law. Second, the Food and Grocery Code will support more constructive engagement and relationships between supermarkets and small suppliers on issues such as variation of contract terms, requirements to pay for shelf space, shrinkage and stock loss – and which of these costs should be at the expense of the supplier. Third, we have committed to implementing protections against unfair contract terms. And finally, there is the “root and branch” review of competition policy in the Australian economy (see p46). Obviously, much has changed since the last significant competition review more than 20 years ago and some of the existing settings are not functioning as well as they could for small enterprise.

    CD: Another longstanding concern among small business is the sector’s treatment by the big-four banks. There is evidence that the SME sector is being squeezed harder than ever. Do you share this concern and are you taking additional steps to ensure SMEs are treated fairly by the big banks?

    BB: Lending to SMEs has further consolidated around the big banks since the start of the global financial crisis. There has been a noticeable decline in the influence and lending capability of second-tier and non-bank lenders, which previously were a very important source of small-business finance.

    The cost of credit for small business increased dramatically under the former Labor government and it has become even harder for many enterprises to get credit, thanks to conservative bank-lending practices.
    This government has argued for greater competition in the banking sector and announced the Financial System Inquiry. Having more lenders in addition to the big-four banks that can compete in delivering credit to small business is vital to solve this problem.

    CD: Moving away from policy, how have you found the role so far? What have been some of your early achievements and what do you hope to achieve in your first term as small business minister?

    BB: It has been extraordinarily busy. There is just so much to do. Jobs continue to be lost in small business, the sector’s share of private sector employment has fallen noticeably over the past six years and there are fewer small businesses that employ people than there were when Labor took office.

    We need to urgently arrest this decline and help small business get back on its feet through policy reform and strengthening the economy and making it more sustainable.

    CD: How can Australia’s director community contribute to this small business turnaround?

    BB: Experienced company directors can make an enormous difference to SMEs that have big growth plans. It is a very significant decision point when a small enterprise, usually family-owned, decides it needs to expand the talent pool and bring in a fresh, external perspective by hiring non-executive directors. I believe there is increasing awareness in the small business community about the role of boards and how directors can add substantial value to more established businesses as they grow.

    CD: If we had this interview in 10 years’ time, what would Australia’s SME sector look like and what would have been some of your ministry’s key achievements?

    BB: Across this vast continent, we would see small businesses and family enterprises having more access to opportunity and expanded livelihood and opportunities for themselves and the community. I would hope we have more outstanding young men and women who see entrepreneurship as a driving ambition for their lives and are not afraid to pursue their dreams.

    I would expect Australia to have a much stronger entrepreneurship ecosystem, where government does everything it can to eliminate obstacles for small enterprises which, in turn, helps them expand domestically and internationally. We are a long way from those outcomes now, but we have the plans, the people and the support of the small business community to get there quickly.

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