The Rudd Government and SME’s

We gathered a panel of industry leaders and business experts to give us their view on how the new Rudd Government is going to effect SMEs. As you’d expect, there were plenty of contentious ideas being thrown around.

The panel: 

Richard Evans, CEO Australian Retailers Association

Sheryle Moon, CEO, AIIA

Peter Gahan, Associate Professor, and director, Work and Employment Rights Research Centre, Department of Management, Monash University

Matthew Hourn, partner Clinch Neville Long Letherbarrow

Kevin Macdonald, CEO NSW Business Chamber

Phil Ruthven, CEO IBISWorld

John Edwards, chief economist HSBC

Will businesses be worse off under the new Government?

Richard Evans: From a retail perspective, it seems consumer sentiment will not be immediately affected by the change. Retailing is the barometer of the economy so when consumers stop spending, giving notice of a recession, then retailing will be the first indicator. Influences that will affect spending include interest rate rises and petrol pricing. It is too early to determine how the Government will affect the economy with major reform of the workplace to take effect late next year. Other issues, like business tax reform and other industry specific reforms, are not on the agenda. So, unless consumers lose confidence in poor decisions made by the Government there is no reason to suspect an immediate impact.

Sheryle Moon: The new Labor Government recognises the importance of the ICT industry as both an industry in its own right, contributing around six percent of GDP. The commitment by the Innovation Minister Senator Kim Carr to review the R&D Tax Concession scheme is a positive step to attracting greater R&D opportunities from multinational ICT companies as well as local organisations. The acknowledgement of a ‘digital economy’ in the portfolio of Senator Stephen Conroy is also important in raising the awareness of all Australians of the changing nature of global economies and the importance of the ICT sector in economic prosperity. It is early days yet and we need to understand the role of national government policies and state government policies in the global economy, where trade and investment flows have an equal impact in the success of the ICT industry.

Peter Gahan: The Rudd Government will be business-friendly. It will be extremely conscious of proving its credentials as a Labor government capable of producing outcomes supportive of business. In some ways it may turn out to be friendlier to business than the latter years of the Howard Government, which became increasingly susceptible to pork barrel politics and chequebook regulation. While this approach was good for some sectors of the economy, it proved to be an uneven hand. Under Rudd, there is likely to be a new focus on regulatory efficiency, ensuring that it doesn’t undermine business success across the board. Moreover, to the extent that the Rudd Government is planning to respond to under-investment in infrastructure, skill shortages and the like, it will be dealing with growing problems for business that failed to gain traction under Howard.

Matthew Hourn: The two big issues here are industrial relations and consumer confidence. In the IR area, the Government has to be careful that their measures are not too stringent for the small business sector, which is more susceptible than big business to cost factors arising from workplace reform. Secondly, if the Reserve Bank continues to tighten interest rates as a brake on spending, the decrease in cash could put a dent in business profits. Australians have put great reliance on credit to support lifestyle, but the party may be over as far that’s concerned.

Kevin MacDonald: I’m an optimist. I hope the Government seizes the historic opportunity it has been given in the same way the Hawke Government did when it was elected in 1983. There is before Australia an historic alignment of the political planets with the same party holding office in Canberra and every state and territory, and also the fact that 2008 marks only the third year since federation that no elections will be held. So we are entering a “politics free” zone for a while and I hope that opportunity is seized. We believe the greatest challenge facing Australia is that of improving federal/state relations.

Phil Ruthven: Traditionally Labor have not been good economic managers. Even more so, investment in business under Labor government is usually growing at half the pace as it does under the coalition. That said, I think Rudd and Swan, as Treasurer, are both well aware of their horrible historical record for economic management, and I think they are trying to prove, among many things, that they will be good economical managers. And that’s a good sign.

John Edwards: The Rudd governmentt is very pro business. It was pro business in opposition and I haven’t seen anything it’s done in the last couple of months of office that even begins to suggest it’s unsympathetic to business.

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The Government has indicated that a key part of its focus will be on workplace relations, climate change and education. What other areas do you identify as being problems?

Evans: The biggest problem for retailers is the issue of staff and the availability of skilled staff. There is no policy articulated that will alleviate that problem and it seems no government has seriously addressed the issue for some time. Skilled staff is a little more than technical training, it is more to do with career choice and workplace advantages, and although industry associations advise governments about the needs of the workplace it seems these requests are ignored. Issues such as broadband access for small business, compliance management, education for new business operators, are issues that small business operators worry about. And yet, governments tend not to be concerned. So when the Government legislates its climate change reforms, it should consider the burden of small business who will be required to manage most of the change.

Gahan: No doubt these three issues are going to be the signature issues of the Rudd Government’s first term. I would also nominate infrastructure investment, public health and, possibly, an attempt to re-establish a workable framework for state-federal government relations, which should facilitate more harmonious regulatory arrangements.

Hourn: I’d target the economy, health care, and national security. Interest rate rises, rising inflation, and the effects of the US sub-prime market are major concerns. Middle Australia is now super sensitive to higher mortgage payments. The Government needs to win business confidence, but business is suspicious of Labor’s workplace reforms. The Government is already addressing state funding for health, amid concerns about whether enough money is being pumped in. As for national security, the Government needs to strike a balance between legitimate threats and scare mongering. Cases such as David Hicks and Dr Mohamed Haneef have left many Australians concerned about erosion of freedoms.

What needs to happen with Labor’s workplace relations policy to ensure business is no worse off?

Gahan: There are six (not 10!) commandments to ensure the new workplace relations policy works for business. First, it needs to ensure a painless transition from the current to the new system. It also requires some consideration of
how best to deal with many thousands of agreements that are likely to remain stuck in the fairness test limbo after the transition arrangements take effect. This could hit small business particularly hard. Second, the policy must address the issue of award modernisation. Awards—and how they relate to minimum pay scales—remain too complex and difficult for the average punter to work out. Third, the Government needs to think very carefully about unfair dismissal provisions. The Government’s IR policy is unlikely to be a well received if it chooses to return to the pre-existing arrangements, which proved costly and open to abuse. Fourth, the highly complex and legalistic Work Choices legislation needs to be simplified and written in plain English. Fifth, while the Work Choices policy allowed too much room for rogue employer behaviour, the new framework must also ensure that responsibility for IR remains at the workplace level. Finally, it must deal with the Fairness Test mess. This can be achieved if the new arrangements make protected minimum entitlements unnegotiable, but then allow for greater flexibility and scope above these entitlements without the need to make reference to a complex web of award regulation.

MacDonald: We want to work with the Government on its new workplace relations agenda. I recognise that the Government was in part elected because of community concerns over WorkChoices and the Federal Opposition (who control the Senate) have said WorkChoices is dead. What we have to do is ensure that the changes ensure our workplaces can continue to be productive and efficient. To the credit of the Government, they are moving slowly and are consulting widely. Equally important is for state governments to actively co-operate with their federal colleagues in creating a single set of national industrial relations rules rather than the current confusing dual federal and state systems.

Edwards: They need to insist upon—as far as possible—retaining a national system that was created by the Howard govt. And I think they’re committed to that. They need to insist that arbitration remains confined to national minimum rates. And as far as I know they will insist upon that. Although they will certainly eliminate individual statutory contracts they will come good on their undertaking to provide substitute arrangements, for example flexibility clauses in awards. I think this is what they will do within the timeframe under which those individual contracts will be eliminated.

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How important will the policy on improving education be to the global ‘brain drain’?

Gahan: It’s hard to say. The policy may prevent future brain drain, but it’s not likely to lure those who have already exited. It also needs to be remembered that we too benefit from a brain drain of highly educated workers from developing countries to Australia.

Hourn: We need to exploit intellectual capital, not compete on the basis of cheap labour. High-end services, technology and IP (particularly brand development) are examples. We have to invest funds in education and training, and provide tax breaks for R&D. The brain drain results from not pursuing these objectives on a scale comparable to other developed nations.

MacDonald: We welcomed the fact that the Workplace Relations and Education portfolios now come under the one Minister in Julia Gillard. Governments for too long have ignored the link between education and the productive needs and capacity of the economy. With some 182,000 job vacancies in Australia and worsening shortages ahead, Australia does need to understand it now operates in a global race for talent.

Ruthven: It needs to start with the ones who are falling through the cracks, so it needs to start at high school. Secondly comes their policy on tertiary education. I’d like to question the access to tertiary education and its cost. The big question is how do we get virtual education on the move, like it is in the US. And it’s here that government and parents really need an attitudinal change. The ability to do online degrees all comes down to access and cost. I reckon if you really want to learn you should join a really smart company in the area you want to practise; you’ll learn more there in a year there than you will in three years at university.

Will proposed policies go far enough to address the problems? What more needs to be done?

Evans: We are no longer in the industrial age, and yet many of our institutions and community structures still believe we are. The first step is recognition that past structures are too structured and don’t provide the flexibility needed for the modern economy.

Gahan: The evidence everywhere tells us that innovation policy has been one area where too little has been done, and too little traction has been achieved in government by those who advocate greater investment in innovative capacity. Innovation is not simply about science and technology, it’s also about business organisation, workplaces, and even our cities. The benefits should not only be economic, but social and ecological as well.

MacDonald: Governing is not just problem solving, it’s also about seizing opportunities. That’s why we have been advocating a very strong federalism reform agenda. Our friends at the BCA estimate that inefficiencies in federal/state relations are costing Australia about $9 billion a year. Vocational education and training, green tape and climate change issues and health and ageing issues are all prime areas where progress has to be made.

Edwards: They produced a pretty credible anti-inflation package, so far as what is under the control of the federal government as distinct from the reserve bank. And they’re obviously working on the big issue of climate change; we’ll see more about that mid-year. So it’s early days but there does seem to be a fair amount of work being undertaken and there is certainly, at this point, no initiatives which are prejudicial to business.

What role does business—particularly small business and retail—play in addressing climate change?

Evans: Small business and retailing will bear the brunt of superficial climate change needs. Issues like plastic bags and other so-called pollutants will be the focus of the media and the community. But the major pollutants are large industry and carbon guzzling personal items that individuals will refuse to give up. Small business will be required to meet over-enthusiastic compliance meant for major pollutants but, as usual, as with other compliance small business will be hit harder.

Gahan: It has to be significant. The big problem for policy in this area is that getting small business to move in a concerted way is like herding cats! This is going to be true here as well, partly because small business will be one of the first to really feel the pinch of any cost effects associated with climate change policy. So I suspect small business is likely to need extra incentive (ie money) to join this party.

Ruthven: It’s really a case of being prepared to follow the guidelines once they’ve been introduced. It’s like OHS; when it was introduced small business was perhaps a little bit tardy in adopting it, but they realised their moral obligation. And I guess that’s the best advice I can give them: pick up the moral obligations as the guidel
ines start to come out.

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How important is the Government’s promise to improve broadband in Australia?

Evans: If they are truly serious then this is vital and should be linked to providing broadband access for all small businesses. Government will then be able to reduce the compliance burden for small business and by then have an all of government approach to compliance via internet portals specifically targeted to small business. If they don’t, then why bother?

Moon: This is very important. Right now in Australia 30 percent of SMEs who trade internationally, and only nine percent of SMEs who trade domestically are open for business online. They have great websites and brochureware but Australian companies are potentially missing out on a slice of what is estimated to be a $4 trillion micro economy. The internet and sites such as YouTube are repositories of creative talent and there are numerous examples of bands and singers being picked up by global record companies from their ‘video hits’ online. We are also seeing an increasing use of the internet for activist campaigning and democratic comment. It is essential that all Australians have access to these new media forms to ensure they can participate as citizens. Providing infrastructure is the first step. It is also important to help SME entrepreneurs recognise how the internet can help them be successful in their businesses.

MacDonald: The real challenge has been and will be the size of our continent. With our global competitors regularly improving the capacity of their broadband systems to handle complex tasks we must set our performance bar high. Fibre to the home rather than just to the node is the new benchmark. Improving broadband is about the right of all Australians to participate in the modern economy. Clearly where the market does not deliver there is a role for government and we welcome that.

Ruthven: To have anything less than 100 megabits per second in Australia is a joke (it’s currently around 28 megabits per second on ADLS2+). My company is totally online, as an online database company working around the world, and a big question for us is can we stay in Australia with the primitive broadband we’ve got? We may have to look at shipping headquarters offshore unless broadband comes up out of this third world category where it is now. It’s just dreadful. Currently we can’t send video information to customers because they have to wait for about an hour to get it. For the previous authorities to say that Australians don’t want high-speed broadband is ludicrous. I hope that we businesses keep the government to their promise and to give us broadband suitable for the 21st century, because we ain’t got it! And I would rate this as being even more important than education, because you can move education across the network to people’s homes and work.

Edwards: Large parts of the third world have quite good broadband; better than we do. We’re well behind and it seems to me the government has to be inflexibly committed to getting us a better system and it has to do so with or without Telstra—it can’t wait for Telstra’s decisions in that area.

And how will our economy fare under the new Labor Government?

Gahan: Assuming it lives up to the policy hype, and it can keep inflation under control, I expect the economy will continue at a cracking pace with little change from the rate of growth that has been a hallmark of the Howard years.

Hourn: This is the $64,000 question. Certainly the Government is faced with major challenges on the economic front. They have already adopted the age-old tactic of blaming their predecessors, but political tactics and economic solutions are two very different things. A smaller economy like Australia will inevitably be subject to effects from economic conditions in larger economies such as China and the US. At home the challenge is to put the brakes on inflation, without allowing higher interest rates to reduce spending and consumer and business confidence to levels where we risk a slide towards recession.

MacDonald: There is a tough set of circumstances before policy makers at the moment—interest rate pressures and global instability will make the period ahead a challenging time. The Australian economy is finely calibrated and it will require all of the new Government’s skill to ensure we see a continuation of the 17 years of economic growth we have had to date.

Ruthven: I think because both Rudd and Swan know they have a horrible record in the economy, hopefully this is the spur to prove that in the first time since Chifley they can run a good labor government. (Chifley was the last one that did, and he went out in 1949.) So I remain far more optimistic than pessimistic on this one.

Edwards: We’ve got some challenges—higher inflation is a challenge, the downturn of the US is a challenge, the fact that we’re running at the limits of our capacity is a challenge—but I’m confident the government is aware of all of these problems and attentive to them.

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Finally, what does the Government have to do to ensure they are not one-term appointments?

Moon: The Labor Government will be judged as successful through the delivery of its election promises and providing the business environment that allows local businesses (home grown and multinational) to prosper.

Gahan: Listen carefully, forget pork-barrel politics, and spend frugally and make careful use of the budget surplus to pursue once-in-a-generation outcomes. In my view the first two budgets will be critical to setting up the prospect of a longer-term ability to govern the economy. The first will set constraints for the future in that the Government needs to strip out a lot of unproductive expenditure, and ensure inflationary pressures are kept in check. The second budget will need to ensure that the big ticket items of expenditure allow for the big policy items to be addressed. This inevitably involves winners and losers, and the latter need to be compensated.

Hourn: After 10 years of Liberal government Australia voted for change. This Government has to deliver it. I think the workforce in general wants bottom-line protection against those few employers who might unfairly exploit them, and that most people are prepared to make some sacrifices (in tax cuts for example) to allow the Government to address issues such as climate change, health, and education. However, self-interest is a strong motivator. If the Government can’t manage the economy in a way that limits damage to people’s pockets, they could face a serious challenge from a resurgent Liberal party at the next election.

MacDonald: Our concern is about how Australia is governed rather than who governs it. Clearly a government that produces strong economic outcomes is in a better position than one that squanders opportunities. Time will tell.

Ruthven: The jury’s out, but it’s looking hopeful so far because of their attitude to economic affairs this time around. They need to be aware that there is the danger of a recession, and possibly a bad one, during this three-year term. The Rudd–Swan government have to realise they will probably need to step in with a lot of government money for at least one year to get capital expendi
ture going and avoid us having a recession. And they’ll have to be prepared to spend as much as $15 to $20 billion in at least one year before the next election to stave off a recession. Labor don’t have a good record of encouraging private sector to invest compared with the coalition, so they have to think of how they can best encourage it if it’s needed, sometime in around 2009.

Edwards: They produced a pretty credible anti-inflation package, so far as what is under the control of the Federal Government as distinct from the reserve bank. And they’re obviously working on the big issue of climate change; we’ll see more about that mid-year. So it’s early days but there does seem to be a fair amount of work being undertaken and there are certainly, at this point, no initiatives which are prejudicial to business.

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