Published in the Canberra Times.

Of the businesses in Australia, 97 per cent of them are small businesses.Small businesses generate nearly $600 billion of economic activity accounting for 32 per cent of our nation's GDP and provide jobs for 5.17 million people - 39 per cent of the private workforce.

Not that we should value small businesses just for their crucial economic contribution.

We know small businesses also bring vitality and a selfless volunteer and leadership contribution to so many communities. 
In decades past, the economic and employment contribution of small business was much larger, and I'm optimistic that it can be again. With government focused on boosting productivity, small business numbers talk and these numbers are significant, and the sector holds the key to improved productivity and economic ambitions.

Regulation often disproportionately burdens small and family businesses, as it tends to be designed with the big corporates in mind and then applied as one-size-fits-all. Added to that is the growing burden of "white tape", that is, regulatory, compliance, reporting and operational requirements imposed on smaller firms by other parties, beyond the formal and enforceable obligations required for a small business to operate.

These "white tape" requirements are often presented as "you want to do business with us, here's what you need to do" demands of larger business customers.

There is also the growth of "green tape", with some small businesses already feeling the impact where they are in a value chain with a large entity that is required to report on their sustainability practices and climate-related financial disclosures. While estimates of greenhouse gas emissions are being accepted for now, it is a clear signal that even though a regulatory reporting requirement isn't mandated for the small business, a request for information can quickly cascade to the business, becoming an additional compliance burden.

The Productivity Commission (PC) has highlighted how poor-quality, excessive and complex regulation negatively affect productivity, leading to reduced business dynamism and hindering investment. The PC's work suggests improving regulatory design, reducing burdensome compliance, streamlining processes, and creating a more dynamic regulatory environment to foster investment, technological adoption (like AI), and ultimately, boost productivity growth. 

While the small uptick by 0.6 per cent in conditions as shown in the August ASBFEO Small Business Pulse was welcome news, rising input costs continue to challenge margins, profitability and viability. Regulatory "tape" of all colours is adding to the "business of running the business" and it's getting more demanding.

Small and family business owners continue to battle with the growing burden of new and more complex compliance obligations, cashflow concerns, digital impacts, cyber threats, poor payment times and an ever-changing business landscape.

The government's commitment to a reform direction to pursue "better regulation", which for small business means "right-sizing" regulation, will spark additional hope and optimism. Clearly, many of our regulations serve as useful guardrails for businesses to operate, grow, achieve success and delight customers. It is regulation that serves no good purpose, claims to mitigate risks that are not relevant or meaningful for small business and the broader community, or imposes a disproportionate or innovation-defeating deadweight burden, that is so crushing for small business.

The lack of "right-sizing" and implementation support saps precious time, resources and attention away from already stretched and often struggling small businesses. The crushing weight of cumulative compliance burdens and fear of the consequences of doing something wrong take a toll.

The Australian Chamber of Commerce and Industry Small Business Conditions Survey 2024 found that compliance places significant pressure on businesses. Government regulation - red tape - was noted by more than 49 per cent of respondents as something that is significantly affecting their business. 

11 per cent of small businesses indicated that they spend up to $5000 each year on compliance. While this may not seem to be a significant figure, for some small businesses it may be the difference between turning a small profit or breaking even, or incurring a loss or debt. For the 21 per cent of businesses that spend between $5001 and $20,000 on compliance each year, this may be equivalent to the cost of a part-time or casual worker.

That is why I say, at every chance I get, that small business needs right-sized regulation and should not be treated like a shrink-wrapped large corporate.

In our 14 steps to energise enterprise there is a call to focus on right-sized regulation, including in how governments formulate and regulators administer laws - to help, support and enable small business owners, who do not have the resources of big corporates, to meet their obligations. We also advocated for this in our submissions to the Economic Reform Roundtable and the PC's five pillars of productivity inquiries. 

Last week, the Treasurer announced the Board of Taxation will consult with businesses and the broader community to identify areas of business tax law and administration where there are opportunities for red tape reduction. This is an important and welcome announcement which should also consider how we can best support the army of tax agents, bookkeepers and accountants that keep the tax system working.

Our tax regime is often characterised as a "self-assessment system", when I would argue that it is more accurately described as an "agent-enabled" tax system given the central and crucial role of professional intermediaries. The Board of Taxation would do well to recognise that regulatory and compliance reductions that assist tax agents, bookkeepers and accountants to better and more efficiently support their small business clients is an important measure of success.
 

Regulation burdens and tax obligations can land quite differently on a small business depending on where it is in its life cycle. Establishment and early stage impositions can really hurt as ‘starting right’, launch costs and cashflow demands, really bite. Reforms that make setting up and starting out more streamlined, getting approvals more easily and helping set up systems to get compliance right, can sit alongside incentives to support business formation.

We continue to advocate for a tax discount/offset scheme for new small business owners to allow them to keep more of their income to re-invest in their business during the critical first three years. We also said this in our submission to the Five pillars of productivity inquiries and it’s a key part of our 14 steps to energise enterprise. 

In fact, it is our very first step and a no-brainer for making the risk–reward balance more attractive for enterprising people. It would surely feed Australia’s exciting, entrepreneurial minds to keep innovating and to make it more likely that an idea becomes as investment, for an opportunity to become a new enterprise, and for enterprising people to take that leap into starting their own business. 

Part of our role is ensuring policies affecting small and family businesses are informed by practical, real-world insights. And this is what we hear, loud and often from small businesses. 

Small business is the engine room of our economy and a vital driver of innovation, wealth and opportunity creation, and key to lifting our nation’s productivity. We need to create a more supportive ecosystem to give enterprising people the best chance to be successful.

Right-sized regulation for small business won’t just boost productivity, it will supercharge it.