The latest on the IPA’s advocacy work

The IPA strongly believes that immediate incentives must be offered to entrepreneurs and innovators to encourage their entry into, and long-term engagement with, the Australian small business sector. The federal government must implement policies that will drive business activity and entrepreneurialism across all industry sectors.

A strong and vibrant small business sector can play an active role in contributing to the economic growth of the Australian economy and help in addressing some of the challenges ahead.

In August 2015, the IPA Deakin SME Research Centre launched the first Australian Small Business White Paper, which contained many recommendations to boost small business productivity, essential to maintaining Australia’s overall standard of living.

In September 2018, the second Australian Small Business White Paper was launched, continuing to examine the declining state of productivity in Australia and recommending how to address this through increasing small business innovation, competition and participation.

Second White Paper coverage

In addition to building on the initial recommendations from the first White Paper, the second White Paper included research, analysis and recommendations on:

• Small business productivity – examining the technical efficiency in this sector;
• Job creation and job destruction;
• Taxation of SMEs – including their overall contribution to tax collection and how to optimise the tax system;  
• Competition policy – following on from the Harper Competition Policy Review, including access to justice;  
• Access to finance – including financing principles and alternative sources of finance. Both White Papers recommended introducing a loan/credit guarantee scheme. In this respect, the IPA notes the government’s announcement in November 2018 to establish the Australian Business Securitisation Fund (ABSF) and the Business Growth Fund, based on overseas models. As noted in the White Papers, Australia was only one of 47 developed countries without such a fund to assist small businesses to access affordable finance. The IPA made a submission on the ABSF; and notes that legislation is expected to be introduced in early 2019. Therefore, the IPA has not repeated its recommendations on access to finance for small business in this current pre‑budget submission;  
• Internationalisation and free trade – benefits for the small business sector in a changing and challenging environment;
• Innovation policy – incremental innovation can be achieved across the economy without ‘scaring off’ consumers;
• Family firms – their contribution to the economy;
• Regulatory overload – how to deal with it; and
• Workplace relations – making the system more accessible and understandable for SMEs.

NOTE: Ongoing research is being undertaken by the IPA Deakin SME Research Centre into the fields of mental health and cyber security.

Tax and Innovation

The IPA emphasises that major reform cannot always be achieved quickly and urges the government to take a long-term view based on a clear, determined and well communicated path for the Australian economy and Australian society.

In particular, the IPA is very keen to ensure that bold tax reform becomes a priority for the government and will continue to express its disappointment with the stalled tax reform process. A piecemeal approach is sub-optimal and may even prove harmful to long-term reform.

Also, the IPA urges the government to continue working on innovation policy, despite setbacks with communicating the benefits. The second White Paper contains recommendations on innovation policy that can increase productivity with flow-on benefits for the whole economy.

The IPA believes it is time for all Australians to stand up and put the public interest ahead of political and self-interest. The public interest will be central to the policy development and advocacy effort of the IPA well into the future.

Productivity

The focus of the second Australian Small Business White Paper – researched, written and published by the IPA Deakin SME Research Centre – is on Australia’s small business sector and how it can contribute to lifting our national productivity.

Australia faces a significant challenge in maintaining the nation’s living standards if productivity remains stagnant. The small business sector – as a huge component of the economy – can positively influence productivity growth, but Australian small businesses operate in an increasingly complex global environment of interconnectedness, interdependence, uncertainty and change.

Therefore, the sector requires support to become more innovative and efficient, to employ more people and to export more. The IPA believes government has an important role to play in positively influencing productivity growth, especially through supporting the small business sector with measures such as:

•  Enabling and promoting access to affordable finance to improve the longevity of small businesses;
•  Implementing the Harper competition reforms to enhance the competitiveness of small business;
•  Facilitating education and skills development for small business owner-managers;
•  Updating regulatory settings over time, so as not to impede private sector investment;
•  Resisting protectionism and facilitating increased access for small businesses to international markets;
•  Fine-tuning innovation policy to reward collaborative research, support innovation diffusion and expedite the commercialisation of innovative ideas, especially in the technology space;
•  Reforming the taxation system to increase incentives and decrease disincentives to the establishment and growth of innovative small businesses; and  
• Undertaking workplace relations reform to ensure the framework delivers consistency and stability to small business owner‑managers.

Taxation recommendations  

- The federal government should:

• Renew its commitment to a comprehensive tax reform process – a new process to draw on all the work already done (including the Henry tax review and Tax Forum) in formulating a blueprint to prepare the economy for the challenges ahead. The government should realign our tax system to reduce its heavy reliance on individual and corporate income tax;
• Explore changes to the GST;
• Explore the use of a parliamentary forum (such as a committee) to seek further stakeholder views on tax reform. Such an inquiry should also use the Parliamentary Budget Office to model various scenarios;
• Investigate the potential implications of adopting tax incentives for new businesses, such as those operating in countries such as Singapore;
• Explore options with the states and territories to either remove payroll taxes or, at least, to ensure the laws and the way they apply are consistent across the country;
• Ensure the smooth implementation of the single touch payroll regime; and
• Establish clear policy objectives for small business tax concessions, which would assist in ensuring that tax concessions are appropriately targeted to achieve the desired outcomes.

- The in-house facilitation process for resolving taxation disputes should be constantly promoted and recommended by professional advisers as a potentially effective and cost-efficient means to resolving tax disputes;

- Small business tax concessions need to be consistent, with the policy objectives as defined. A holistic review of all the current concessions needs to be undertaken to ensure the suite of tax concessions work collectively to support small businesses through all stages of a business life cycle. Small business tax concessions must be benchmarked against the policy objectives to ensure they are well-targeted and remain so. The IPA supports the independent self-initiated review of small business tax concessions conducted by the Board of Taxation;

- A whole-of-government approach is required for small business assistance programs. Accountants are well placed to deliver such programs, as they already act as advisers to small businesses;

- The tax system should provide targeted assistance towards stress points in a business life cycle, such as the start-up phase or during a temporary setback; and  

- To avoid incentives towards complex business structures, consideration should be given to the creation of a simplified small business entity.

NOTE: In addition to the White Paper recommendations, the IPA has added another relating to Division 7A.

The IPA recommends that further consultation be undertaken to revisit ways to minimise the operation of Division 7A to businesses that use corporate profits to fund business activities. The BOT report includes recommendations designed to ease the compliance burden associated with the rules that govern distributions from private companies and to lower the cost of working capital for private businesses.

The IPA welcomes further consultation on the reform of Division 7A, but understandably given the current political environment believes that the proposed start date of 1 July 2019 is unrealistic given significant differences in the policy direction being proposed.

Innovation recommendations

The federal government should:

• Provide tax breaks for companies acquiring new technologies not developed in-house;
  
• Provide a tax allowance for companies investing in intellectual property protection (through patents, copyright, trademarks, design rights etc) in-house;
  
• Provide tax allowances for companies that generate licensing income for in-house new technologies;
  
• Rigorously continue with its patent box initiatives, as outlined in its current reform agenda;
  
• Further develop government procurement initiatives to ensure small business procurement targets are met and exceeded by 2022. These programs should be based on those running in the US; and 
• Allocate a pool of funds for further research into youth entrepreneurship in Australia, so policy decisions made in this area are based on research evidence.

All Australian governments should provide more support:

• For research and development by small and medium-sized firms; and
  
• For firms to adapt existing technologies and innovation.

Also:

• Better linkages should develop between cutting-edge research universities and industry. Typically, only large firms have the resources to fund university-level research and development;
  
• Measures should be developed and implemented to help the spread of existing innovations to a broader range of frms;
  
• Encouragement should be given to frms to adopt ‘continuous improvement’ methods to embed incremental innovation, as this will generate large productivity improvements quickly;
• and A ‘matching’ service should be developed to promote the building of collaborative relationships between multinational corporations and Australian businesses, both domestically and abroad.