Why we need a federal small business agency now

In 2022, the IPA-Deakin SME Research Centre published The Case for a National Australian Small Business Agency white paper to help improve government cooperation and service delivery for the sector.

That report recognised the role of the national Australian Small Business and Family Enterprise Ombudsman. The ASBFEO, however, is limited to small and family business advocacy, and dispute resolution assistance. The report cited fragmentation of its roles and impact as a further limitation to its work.

Tanewski, lead author of that report, started September’s discussion by speaking of the shortcomings of private sector innovation and research. It has, he told the audience, been under-performing on almost every measure for the past decade.

“Australia’s R&D expenditure as a percentage of GDP is low in comparison to our competitors and other countries,” Tanewski said.

“Innovation and R&D are key drivers of productivity and business investment. Both productivity and investment are key drivers of economic growth, social prosperity and living standards. It is vital that Australia achieves productivity growth as it is only through these efficiencies that we can improve our per capita income and living standards, especially over the longer term.”

The IPA-Deakin SME Research Centre examined the effect of innovation and exports on productivity and efficiency, estimating the efficiency of private companies using the Australian Bureau of Statistics’ Business Longitudinal Analysis Data Environment. BLADE collates tax, trade and intellectual property information alongside ABS survey data to enable examination of economic and business performance over time.

Using BLADE, Tanewski told the audience, the centre created a metric to compare the efficiency of each private company within its respective industry for each financial year between 2006–07 and 2020–21.

“We estimated an efficient frontier for all private companies across 19 industries over the 15-year period by assessing the amount and mix of resources used by the company to generate output, measured by total income, within the company’s industry,” Tanewski said.

“The inputs for each company are measured by the capital expenditure, labour, R&D expenditure, and several human capital/skill indicators.”

The most efficient industries during the period studied were public administration and safety, education and training, manufacturing and mining. The least efficient were agriculture; forestry and fishing; finance and insurance services; rental, hiring and real estate services; retail trade; and administrative and support services.

The productivity of SMEs that innovate and export is significantly higher compared to non-innovators. Large and medium companies are significantly more productive than small and micro companies.

The importance of representation

Tanewski said that 99.5% of the 882,000 employing businesses in Australia employ fewer than 200 people – they are SMEs. And yet, economically, we know more about big businesses and multinationals than we do about SMEs in Australia.

“There is also no Commonwealth cabinet minister that has a specific designation and is wholly devoted to small business – and this is on both sides of the political spectrum. This is surprising, given the number of employing SME businesses in Australia,” Tanewski said.

“Australia is an outlier in the OECD with its fragmented array of support programs spanning multiple governments, and various departments and agencies within those governments. This lack of coordination and integration of support for small business represents a significant lost opportunity for Australia and a potential drag on national economic prosperity.”

The centre’s study of centralised small business agencies around the world found they have increased coordination between government agencies and departments, reduced duplication of services, and minimised search costs. This includes the United States with its 50 states and the European Union with 27 sovereign countries.

The centralised small business agency

Tanewski cited advantages of a centralised agency:

• Centralised support: A ‘one-stop shop’ agency would offer multiple support services to small businesses from a single central source, taking over and consolidating many roles currently performed by an array of federal and state-run small business agencies. It would simplify the process of accessing resources and support, making it easier for business owners to navigate government programs.
• Access to capital: Acting as an intermediary for financial capital assistance to SMEs, a centralised agency would facilitate access to public and private assistance for small businesses.
• Technical assistance: Providing assistance, training and counselling, a centralised agency would assist with business life-cycle issues including business planning, marketing and financial management.
• Contracting opportunities: Assist small businesses to compete for government contracts.
• Advocacy and representation: Advocate on behalf of small businesses, influencing policy decisions and regulations.
• Disaster assistance: Help businesses recover from natural disasters and economic downturns.

He also cited limitations:

• Resource constraints resulting in insufficient support, long loan processing times and limited outreach programs
• Bureaucracy slowing down the delivery of services and support
• Eligibility criteria limiting access to assistance
• Funding gaps preventing it meeting the needs of all small businesses, especially during economic crises
• Geographical limitations, with some regions having more access to resources and support than others
• Changing political priorities making it subject to potential fluctuations in support
• Competing interests in balancing the interests of small businesses with other economic and regulatory priorities

“The effectiveness of such an agency will depend on its funding, leadership and alignment with the evolving needs of small businesses,” Tanewski said.

“The agency should have defined objectives and mandates to assist SMEs using a ‘pro-market activist’ approach, which holds that interventions must be supported by a robust cost-benefit analysis. Due to information constraints that currently prevent small businesses from fully utilising existing public funding avenues, we conclude that an important part of the agency’s mandate should be to facilitate matching of SMEs with sources of government support.”

Find out more about the IPA-Deakin SME Research Centre:

• Read about a recent project to train accountants and business advisers as mental health first aiders.
• Download previous whitepapers from the centre’s research team.