At a glance
- Despite numerous government announcements and initiatives aimed at reducing red tape, small businesses continue to face a significant regulatory burden.
- Regulatory compliance is a top concern for small and medium businesses, with 45% of small businesses having considered closing in the past year due to these requirements.
- Experts suggest a “risk-based” approach to regulation, similar to the EU’s Think Small First model, to ease the burden on low-risk businesses.
- Upcoming AML reforms could significantly increase the regulatory burden.
With all the sudden government talk of reducing small business red tape, the casual observer could be forgiven for wondering whether the government’s storerooms might soon be out of the stuff.
In June, Federal Treasurer Jim Chalmers asked Treasury and Finance regulators to find rules that could be axed to cut compliance costs. Also in June, assistant minister for productivity Andrew Leigh spoke out against the “thickets of regulation” he said were holding Australia back; he is now pushing to harmonise overlapping government rules.
Meanwhile, almost every state and territory is publicly tackling regulatory burdens and complications.
Victoria has pledged a $500 million reduction in the regulatory burden by 2030. NSW’s Business Bureau aims to be a one-stop shop for small business. Tasmania has a dedicated Red Tape Reduction Coordinator. Queensland’s Red Tape Reduction Taskforce has recently handed in its recommendations. And in mid-July the NT Government formally accepted 60 of the 70 recommendations handed down by its own taskforce.
“There is a mindset of needing to regulate for the minority who are misbehaving, rather than the 95% or more who are doing the right thing.”
Michael Davison, General Manager Advocacy and Emerging Policy, IPA
Little relief on the frontline
Despite these efforts, the regulatory burden remains a top concern for both accountants and the businesses they serve.
Research by the Australian Chamber of Commerce and Industry (ACCI) found red tape was a major source of stress for small businesses, trailing only increasing costs and skills shortages.
And the problem appears to be getting worse. The survey also found 45% of small businesses had considered closing their doors in the past 12 months because of regulatory requirements. The previous year, the figure was just 31%.
One in two respondents to that ACCI survey reported that they were spending more time and money on compliance than 12 months before. The Australian Taxation Office (ATO) was far and away the biggest source of these compliance headaches. And forthcoming requirements such as payday super have many convinced that the burden will only increase.
Rethinking risk
Earlier this month, the ATO delivered the final component of its $21.8 million Driving Collaboration with Small Business to Reduce the Time Spent Complying with Tax Obligations package.
But the IPA has already said while the changes are welcome, they do not deliver any meaningful reduction in compliance workloads.
“The relief is almost invisible,” said general manager of technical policy Tony Greco when the changes were announced. “It doesn’t deliver very tangible benefits to small businesses.”
IPA General Manager Advocacy and Emerging Policy Michael Davison warns a different approach is needed.
“Despite numerous reviews, taskforces and so on, there is only minor improvement, if any, in the overall regulatory burden placed on small business and all business in general,” he says.
“There is a reflex within governments of all stripes where every time something goes wrong or there’s misbehaviour, the focus is on introducing new regulations for everyone, instead of fixing the root problem.
“There is a mindset of needing to regulate for the minority who are misbehaving, rather than the 95% or more who are doing the right thing.”
The IPA has been advocating for the federal government to apply a “risk-based” approach to regulation, so individuals and entities that are at a “low risk” of non-compliance are not subjected to inappropriate and unnecessary regulatory scrutiny.
One model worth learning from, Davison says, is the European Union’s “Think Small First” approach. Since 2008, EU lawmakers have been required to consider the impacts of any legislation on small businesses before any proposal is drafted, rather than bolt on changes later.
The EU’s SME test, part of every impact assessments, requires policymakers to:
- identify where SMEs are affected by any new regulation;
- consult directly with SMEs and their representatives;
- run a cost-benefit analysis by firm size, not just on averages; and
- redesign, exempt or phase‑in rules if the burden on SMEs is disproportionate.
The next big compliance test
Davison says the introduction of the Tranche 2 AML reforms shows the importance of this approach.
From July 2026, many accounting firms will need to comply with the Tranche 2 AML reforms, which the IPA has lobbied aggressively on.
While the details of the new compliance requirements are still being understood, some early estimates have predicted compliance with the new laws could add as much as 20% to accounting practices’ compliance task.
“Australia’s AML regime has been operating for a few years already, and of course it started off focused on the big institutions, so all the guidance and processes have been designed with organisations of that scale in mind,” Davison says.
“The guidance document for these regulations is more than 400 pages. The effort now is to distill those practices down to a small business or accounting practice, so you end up with disproportionate requirements for things like governance committees and documented processes for customer onboarding, due diligence, suspicious matter reporting etc.
“If we are going to make real progress on reducing red tape, we need to turn the top-down approach on its head and start with thinking about how the regulations can be made to work for everyone.”
Read more about the IPA’s advocacy on reducing regulatory burden.
