AICD submission on the Productivity Commission Inquiry into reducing the barriers to business dynamism

The AICD welcomed the Commission’s focus on reducing barriers to business dynamism in Australia but reiterated long standing concerns that there are entrenched regulatory barriers that make Australia an increasingly difficult place to start and expand a business, including attracting capital, expanding into new markets, and efficiently winding up unviable businesses. 

The AICD put forward the strong view is that one of the most effective options to increase productivity is to expand the supply-side of the economy through greater ambition on better regulation. Well targeted proportionate regulation should address market failures and externalities but continue to have sufficient room for individuals and businesses to take risks to start new businesses, launch new products and expand into new markets.

The key points in our submission were:

• Australia’s layered and complex federal regulatory system is a barrier to business dynamism. The weight of regulation in Australia across all levels of government stymies business dynamism, including launching and expanding a business and innovating through new products and services.

• An economy-wide regulatory federal reform agenda could have a fundamental impact on the ease of starting, growing, restructuring and transferring businesses.

• The current, layered director liability environment is a component of the regulatory accumulation that is crowding out board focus on strategy and innovation and is also disincentivising the opening of new businesses.

• The AICD has the following specific recommendations for regulatory reform to boost economic dynamism:

  • A broad and comprehensive review of the Corporations Act 2001 (Cth).

  • The implementation of the recommendations from the Australian Law Reform Commission’s Final Report, Confronting Complexity: Reforming Corporations and Financial Services Legislation.

  • A whole-of-government statement on regulation that details how the Government will prioritise removing or improving inappropriate regulation (Recommendations 2.1 – 2.2.Pillar One).

  • Greater cabinet scrutiny of new federal regulation (Recommendation 2.3 Pillar One).

  • An empowered Office of Impact Analysis to apply a more thorough analysis of new policy proposals (Recommendation 2.4 Pillar One).

  • Examination of small business thresholds and definitions across state and federal regulation, including payroll tax, with the objective of harmonisation or alignment where practical.

• The AICD supports greater ambition in the scope of the National Competition Policy and the funding available under the National Productivity Fund to incentivise states to tackle complex and resource intensive productivity and dynamism enhancing reforms, including as set out in recommendations 4.1, 4.2 and 4.4 of the Commission’s  Pillar Two - Building a skilled and adaptable workforce.

• The AICD strongly supports a comprehensive review of Australia’s insolvency regime.  The AICD appreciates that the Commission is not currently undertaking such a review, however our view is that the Commission should assess whether such a review is a necessary next step. 

• The insolvency regime in Australia is costly and complex. There is an opportunity for the Commission to consider the key insolvency elements of the Corporations Act 2001 (Cth) (Corporations Act) and put forward recommendations to simplify the regime, reduce complexity and increase harmonisation. In particular the Commission should:

  • Examine the appropriateness of the director liability insolvent trading threshold being lifted to ‘wrongful trading’ in line with other jurisdictions.

  • Encourage swift implementation of the outstanding recommendations of the Safe Harbour Review, noting the limited implementation to date. 

  • Examine the possible harmonisation of the Safe Harbour and the Business Judgement Rule under the Corporations Act. 

• The Commission should consider whether the patchwork of insolvency laws that is relevant to governance of the NFP sector requires simplification and consolidation.

• The Commission should assess possible amendments to the small business restructuring regime to improve its effectiveness and accessibility for directors of SMEs.

• The Commission should examine the Australian Taxation Office’s (ATO) role in the insolvency regime, including the use of its powers, such as Director Penalty Notices, and the alignment between this role and other aspects of the regime, including the Insolvency Safe Harbour.