Small business the missing link in IGR

We need to replenish and nurture the next generation of entrepreneurs, value self-employment and encourage smaller enterprises. The IGR unfortunately missed this critical conversation. By Luke Achterstraat.

First published in The Australian.

The response to the Intergenerational Report has varied. Many have said it is a wake-up call, some a missed opportunity, while others see a clear blueprint for reform.

One thing almost all agreed on is that the lower workforce participation, slower productivity and population growth are a triple threat to economic and social wellbeing over the next four decades.

The major missing link in the IGR is the opportunity for small business to drive the three Ps of productivity, population and participation described in the report to set up our future success.

This IGR says “we need to build the skills and capabilities of our workforce, foster a more dynamic, productive and resilient economy, and broaden economic opportunity”. And yet the term “small business” does not appear once in the almost 300-page document.

This omission of small business is disappointing at best and alarming at worst.

In Australia almost 98 per cent of businesses are small businesses – some 2.5 million firms, accounting for one-third of our nation’s GDP. Small businesses provide jobs for more than 5.1 million people and employ 42 per cent of all apprentices and trainees in training – nearly double the amount employed by big business.

The number of people employed by small businesses increased by 120,000 over the past year – not just in cafes, restaurants and accommodation, but in construction, professional and technical services.

Notably, the IGR has lowered expectations for productivity growth over the next four decades, from 1.5 per cent to 1.2 per cent. Restoring productivity in the Australian economy is only possible with a thriving and dynamic small-business sector.

Small businesses comprise almost 90 per cent of innovating businesses in Australia, while small-business owners also work longer hours, more than half working more than the median 38 hours per week.

Critically, small businesses account for most of the entrants and exits in the economy, meaning they drive the competitive process that adds to overall productivity growth.

The federal government recently announced a review of competition policy. “Greater competition is critical for lifting dynamism, productivity and wages growth,” said the Treasurer, going on to describe “evidence of increased market concentration, a rise in mark-ups and a reduction in dynamism across many parts of the economy”. The nimbleness of smaller firms is a key driver of competition in our economy and must be a key element of this review.

The IGR states that more people are in paid work than ever before, with the increase in participation largely being driven by women entering the workforce.

Indeed, female ownership of small businesses has been trending up and now accounts for 35 per cent of all our small-business owners – almost double the rate from the 1970s.

But we know there is a glass ceiling in women’s entrepreneurship, especially around accessing finance.

The IGR states Australians are expected to live longer and have fewer children, leading to an ageing population. Small-business owners too are getting older, with nearly half of owners now 50 and over, with the proportion increasing each year since 1996. Currently, only 8 per cent of small-business owners are aged under 30, a decrease from the peak of 17 per cent in 1976.

Taking on the responsibility of owning and running a small business can be inspired by a range of motivation but the current economic climate is dashing many of these aspirations.

While many businesses are proving resilient, about 43 per cent of small-business owners are failing to make a profit – that’s about one million businesses in Australia. Our small-business owners need less complexity, less red tape, and more certainty.

The Treasury has previously published research showing how a tiered regulatory approach – with a light-touch approach for small business – can create overall benefit to the economy.

We need to replenish and nurture the next generation of entrepreneurs, value self-employment and encourage smaller enterprises. The IGR unfortunately missed this critical conversation.

The IGR sought to capture a “big-picture view of the forces that will shape our economy … over the next 40 years as we work to create prosperity, expand opportunity and build a stronger, more sustainable and more inclusive nation”.

And yet small business – the largest private sector employer and driver of growth – did not garner a specific mention. While there is need for short-term measures and cost relief, they must be a part of the big economic picture of the future. Future IGRs need to capture the small-business contribution and the unique opportunity they provide to “be optimistic about our future”, as the Treasurer has stated.

As Australians, we celebrate the vital contribution our small businesses make to our wellbeing and community, but they also hold many keys to addressing the structural challenges ahead.

Luke Achterstraat is CEO of the Council of Small Business Organisations Australia.