Australia has, in relative terms, enjoyed an unprecedented period of growth. Our Gross National Income (GNI) has risen steadily over the past decade at rates seldom seen since Federation. According to the Productivity Commission and the Bureau of Statistics, Australia’s long-term growth rate in labour productivity from 1973/74 to 2011/12 stands at an impressive 2.2 per cent. Our overall growth in income – our prosperity as a nation – has been buffered by a heavy reliance on our terms of trade, boosted by a bullish demand for our minerals.
However, the forecast paints a much gloomier picture. The Australian Treasury forecasts that the composition of our growth in income per capita will change dramatically in the next decade. We will have a much lower reliance on our terms of trade to boost our prosperity.
The economic stopgap to this gamechanging turn of events will be productivity.
In the next decade, we will become signifi cantly more reliant on our local Australian businesses producing goods and services faster, smarter and cheaper than their rivals.
The reliance on productivity to maintain our national income levels requires a seismic shift in policy. Small business must continue to rise in prominence as source of fundamental economic reform – that is, reform that drives up productivity of small business, which, in turn, ensures Australia’s ongoing growth in prosperity.
So, how do you unleash the potential of small businesses to produce goods or provide services that are faster, smarter and cheaper?
Faster
We don’t just need to look at the cost of regulation, which is, of course, important; we also need to recognise that one of the greatest fi nite resources a small business
owner has is time. We should be prioritising the unnecessary regulations that cost businesses time and removing them. This time can be reinvested into the business to
enable it to grow and enhance productivity by boosting output.
Smarter
Immediate concessions should be granted to small businesses to enhance their research and development capabilities, with a specific focus on deployment of technology to
improve production processes, streamline operations and leverage data. Consideration should also be given to direct assistance to ensure small businesses are positioned to
capitalise on social media commerce.
Cheaper
Consideration should be given to provision of tax concessions to small businesses that undertake innovative practices, deliver a productivity dividend or develop strategies to employ and upskill new or existing employees. This will lower the input costs and provide a greater productivity yield.
The government should be setting a lofty goal of turning Australia into the best place in the world to start and operate a small business. This means a preferential taxation system, long-term investment in technology, simpler industrial relations and, importantly, a focus not just on barriers to entry, but also on barriers to exit.
Further, the competition parameters should be set to enable a greater level playing field between large and small entities. Where possible, preferential procurement and swift dispute resolution mechanisms should also be made available to small business. The relative success of the competition reforms, which created the National Access Regime for access to important infrastructure, could be considered as a mechanism to support small business sustainability as a means to prevent early small business exits.
By international comparison, Australia has no option but to act swiftly to boost productivity through the small business sector. While global multi-factor productivity (MFP) contracted by 0.3 per cent in 2013, Australia’s contraction was alarmingly one of the highest at -1.3 per cent. This would not normally cause massive concern if it were an isolated event; however, this is not the case. According to the Australian Bureau of Statistics, Australia’s MFP has contracted consistently since 2007 (-1.2 per cent from 2007 to 2011 and -1.3 per cent in 2012). This downward trend is statistical proof that it has been getting tougher for small businesses, due to rising input costs driven by the cost of the small business supply chain. While it may be difficult in the short term to address many of the input costs (with the exception of tax reform), reductions in regulatory time, increased incentives to use technology and enhanced competition protections would greatly assist in boosting output and, in turn, our nation’s productivity.
