Small businesses make up 97 per cent of all businesses in Australia, generating nearly $600 billion in economic activity. They account for 32 per cent of the nation’s GDP and provide jobs for 5.17 million people – 39 per cent of the private sector workforce. Australian Small Business Ombudsman, Bruce Billson, explains why regulation needs to evolve to better meet their size and needs.

Small businesses make a crucial economic contribution to Australia. But their value isn’t just economic. We know small businesses also bring vitality and a volunteer and leadership contribution to so many communities.

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. Regulatory ‘tape’ of all colours is adding to the business of running the business, and it’s getting more demanding.

Not just ‘red’

We’re seeing a 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 who is required to report on their sustainability practices and climate-related financial disclosures. It is a clear signal that even though a regulatory reporting requirement isn’t mandated for small business, a request for information can quickly cascade to them, becoming an additional compliance burden.

Clearly, many of our regulations serve as useful guardrails for businesses to operate, grow, achieve success and delight customers.

But it is regulation that serves no good purpose, or imposes an innovation-defeating deadweight burden, that saps precious time, resources and attention away from already stretched and often struggling small businesses.

Increasingly, we’re hearing the impact of these compliance burdens and regulatory obligations, and the fear of misstep and the heavy consequences, is having an adverse impact on their optimism, their drive and their focus on running their business.

Small businesses owners speak

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 over 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 $5,000 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 who spend between $5,001 and $20,000 on compliance each year, this may be equivalent to the cost of a part-time or casual worker.

Regulation that fits

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 corporation.

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.

The Government’s commitment to a reform direction to pursue ‘better regulation’ will spark additional hope and optimism. Last month, the Treasurer announced the Board of Taxation will consult with businesses and the broader community to identify red tape-reduction opportunities.

This is an important and welcome announcement which should also consider how we can best support the tax agents, bookkeepers and accountants that support their small business clients and also keep the tax system working.

More support

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 an 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. In decades past the economic and employment contribution of small business was much larger.  I’m optimistic it can be again.

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