Red tape, crime and rising costs a ‘perfect storm’ building against Australian small business

Small businesses are being hit with greater regulatory burden while dealing with ­rising interest rates, higher costs and cyber crime, say business leaders.

90 per cent of businesses surveyed said changes would discourage them from employing new staff.

Business leaders have warned that small business in Australia is being hit with an increasing regulatory burden at a time when it is having to deal with ­rising interest rates, higher costs and cyber crime.

Council of Small Business Organisations Australia chief executive Luke Achterstraat said small businesses in Australia were facing a “perfect storm” of increasing compliance costs at a time when they could least­ ­afford it.

A combination of the stricter new industrial relations regulation and other measures such as the expansion of privacy legislation to small business as well as the challenges of dealing with cyber crime have hit the sector hard at a time when it is facing rising interest rates and costs, told The Australian.

“External shocks have driven up some costs such as energy, but the federal government is internalising the problem through more red tape and a layer cake of regulation,” he said.

Mr Achterstraat said a recent survey of COSBOA members had shown that the government’s new changes to industrial relations were seen as the number one risk facing small business in the coming months.

“To think the government’s workplace policy in a country like Australia is now perceived as a greater risk to small business than the threat of cyber attacks, natural disasters, oil and energy price shocks and even interest rates costs is truly remarkable,” he said. “It shows how dramatic the cost of compliance can be for a small business.”

Council of Small Business Organisations Australia chief executive Luke Achterstraat. Picture: David Swift

Mr Achterstraat said compliance costs from the proposed changes to industrial relations legislation could add as much as 20 per cent to a small business’s annual operating costs. He said the new industrial relations laws would be the “most significant rewriting of our industrial relations system in living memory.”

Proposed changes included “throwing out the window well-understood definitions of casual workers and independent contractors that apply to over three million Australians”.

Mr Achterstraat said 90 per cent of businesses surveyed by COSBOA said the changes would mean they were less likely to employ more staff.

Small businesses were also concerned at the extent of the changes including prison time of up to 10 years in jail for employers found to be engaged in wage theft and a threat to the right of independent contactors, including tradies, to be their own boss.

Meanwhile, the introduction of the new laws meant small businesses were having to spend time and money on getting advice that they were doing the right thing at a time “when owners of ­labour-intensive sectors like hairdressing, beauty salons and restaurants are literally run off their feet”.

“Almost 43 per cent of small businesses are not breaking even and the majority of owners are working longer hours than average and paying themselves less than the average wage to protect their business,” he said.

Mr Achterstraat said small businesses had faced a raft of higher costs since July 1, including a 5.75 per cent increase in pay rates in more than 110 industry awards, and the 0.5 per cent increase in the superannuation guarantee paid by employers on top of their base salary.

These two changes combined meant a small business with 15 staff would see a total cost increase of $84,375 per year plus an additional $4285 in payroll tax.

Mr Achterstraat said small businesses looking to employ skilled labour from overseas, such as cooks and hairdressers, were finding it more difficult because of the 30 per cent increase in the base rate required to access a skilled migrant, from $53,900 to $70,000.

“This has completely priced out many in the hair salon and beauty salon owners from sourcing workers from overseas and, for a restaurant with four cooks, their costs will increase by $1240 per week.”

Mr Achterstraat said small businesses with turnovers below $3m a year were also having to cope with the requirements of the Privacy Act, which they had previously been exempt from.

“The latest data from the ABS showed that in the June quarter over 100,000 businesses exited the economy – that is over 1000 businesses closing per day, and they are the ones we know about,” he said. “Without policies that support small business growth and reduce red tape, this figure risks increasing and stifling the next wave of entrepreneurs from starting small businesses.”

Judo Bank chief executive Joseph Healy.

Joseph Healy, chief executive of Judo Bank, which specialises in lending to small businesses, said small businesses were having to cope with an increasing amount of regulation at a time when interest rates were rising and costs were increasing as a result of inflation.

“The propensity of governments to add additional regulatory burdens at this time is very unhelpful and is not empathetic to the challenges that small businesses are facing at the moment,” he said.

While Mr Healy said some businesses were struggling more than others, the problems from increasing regulations by governments was a general problem ­facing small business. “The burden has increasingly worsened over years which is particularly tough on small businesses.”

Policy makers were looking at each piece of new regulation in isolation and not seeing the big picture of how it affected small business, Mr Healy said. The increasing pressure of regulation on small business could become more evident over the next year as the impact of higher interest rates took its toll on the economy.

He said the impact of increased regulation was discouraging new investments by small businesses as they struggled to cope. “The combination of increasing interest rates and inflationary pressures and regulatory pressures is causing a lot of small businesses to press pause on decisions to expand and invest.

NAB business and private banking group executive Andrew Irvine.

“That is not a good thing.

“We are going into a challenging period for small business as the economy slows.

“The additional regulation adds more of a burden on what is an already overburdened small business sector.”

NAB business and private banking group executive Andrew Irvine said small businesses were having to deal with increasing red tape and regulation.

“The importance of SMEs to a healthy and thriving Australian economy cannot be overstated,” he said. “They are the backbone of our economy, employ two in every three Australian workers and are the ultimate drivers of economic growth.

“I talk to thousands of small business owners each year and the themes are common: red tape and regulation, being paid promptly, finding and paying staff, and increasingly fraud and scams.”

Mr Irvine said NAB was moving to crack down on the impact of scams and fraud.

“NAB was the first major bank in Australia to stop the use of links in text messages, one of many actions we’re taking to reduce the global scam epidemic,” he said.

“But we also believe large businesses and governments can lead the way in creating a more level playing field for Australian SMEs, particularly in light of some of the major shifts happening across the economy.”

Australian Retailers Association chief executive Paul Zahra said small retailers were concerned at the compounding nature of regulatory change in Australia.

Australian Retailers Association chief Paul Zahra.

“All businesses are being impacted by an increase in red tape but small businesses are disproportionately impacted because they have to invest the same ­effort into managing their compliance obligations as a much larger business without the resources,” he said.

“It’s not just industrial relations, or sustainability measures or changes to the Privacy Act – it’s the combined and compounding impact of all these changes happening in quick succession and sometimes at the same time.”

Mr Zahra said Australia was only ranked 14th in the World Bank’s rankings for ease of doing business. “The complexity of doing business looks set to amplify if the federal government’s ‘Closing the Loopholes’ legislation passes next year,” he said.

“We need to be extremely careful with any policy changes that could potentially drive price increases or result in added complexity for businesses – many of whom already struggle to comprehend the existing regulatory framework.”

Commonwealth Bank small business executive general manager Rebecca Warren said scammers and hackers were using increasingly sophisticated attacks on small businesses.

She said the CBA had released a small business cyber security guide to help small businesses protect themselves and a new Cyber Wardens program had been launched earlier this year by COSBOA to help small businesses handle cyber scams.

Originally published as Red tape, crime and rising costs a ‘perfect storm’ building against Australian small business