Helping small business can get the economy moving again

Gradually more and more economists, including some at the Reserve Bank, are waking up to the fact that from here down, lower interest rates do more harm than good.

The lower rates, plus much easier credit, are fanning a property and housing boom. But the side effects of lower rates holds back employment and business activity in a wide range of other economic areas.

The traditional Treasury and Reserve Bank style economists struggle to find an answer. Some say tax cuts are the answer. Others go for buying bonds, the called quantitative easing. Those moves might help, but once you understand what has gone wrong then the answers are relatively straightforward. America has pioneered some of the techniques and found they create enormous number of jobs. Indeed, the US as a labour shortage, even if the US-China trade war stalled the movement to wages.

And that current US problem spills into Australia. Currently too many of our small and medium businesses are scared of Brexit and the trade war. Both situations are outside Australian control, but once resolutions are reached, then we need to make sure we understand and resolve the forces that are holding the local economy back.

Read more | RBA may opt for quantitative easing as interest rates near limit

In the US they understood that the agendas of the Internal Revenue Service (equivalent of our Australian Taxation Office) outside the collection taxation revenue was a huge hindrance to employment. They fixed the problem.

In Australia prior to the election, Assistant Treasurer Stuart Robert and Small Business minister Michaelia Cash isolated the same problem and introduced by regulation the small business tax tribunal.

The new assistant treasurer Michael Sukkar took the opposite path and plans massive increases in regulation and ATO GST collection powers.

So step one to boost Australian employment and growth is to revert to the pre-election policies and end Sukkarism. The small business tax tribunal needs to happen under legislation, rather than regulation.

Assistant Treasurer Michael Sukkar. Picture Gary Ramage

Simplifying business

And once we take that step, then Assistant Minister Ben Morton can get in with his job of simplifying the process of undertaking small and medium business. The Morton undertaking is akin to the American actions, which created such an enormous benefit to the US. Done properly it will also boost Australian prosperity.

But we can go further, indeed much further, by speeding up the movement of cash in the economy. Aided by the tax and regulatory measures, this will be a far bigger stimulant for the economy than tax cuts or quantitative easing.

It’s all about getting large enterprises to pay in 30 days. The Business Council tried and failed miserably with one giant enterprise (CIMIC) declaring it would lengthen the payment terms in one of its arms. The BCA needs an internal revolution to be relevant again after that failure.

Scott Morrison announced prior to the election that he would act on 30 day payments but so far has been concentrating more on international affairs. In simple terms, no government contract should be awarded to any group that does not pay in 30 days — 20 days is cumbersome — of receiving an invoice. The time frame cannot be based on when the invoice is approved, because that is a smokescreen for long delays.

I think Morrison can bring the states on board. There is work to be done on how this can be achieved effectively, but it needs to be undertaken quickly and ruthlessly.

Linked to faster payments is fair contracts. Large enterprises have taken on the Australian parliament and refused to abide by the fair contract rules by exploiting loopholes in the legislation. The ACCC has proposed moves to strengthen the legislation and these recommendations will be backed by the ALP and should be passed, again as a matter of urgency.

Cashflow lending

If these measures had been introduced a year or two ago they would have helped but in 2020 they are much more powerful.

The software systems of Xero and MYOB enable much greater cash flow monitoring and lending. Currently the impact of the technology is hindered by the non-revenue raising antics of the ATO, excessive regulation, slow payments by big companies and unfair contracts.

Many groups are anxious to lend on a cash flow basis and given the right environment there will be a rush of activity. We are looking at a very exciting and innovative Australia where people can have a go.

And if Australia takes the above actions then the lower interest rates will actually stimulate the economy outside of housing.

None of the above measures is hard to do and indeed the pre-election government was on the right track.

But neither the Treasury nor the Reserve Bank fully understand how these levers can boost the economy because they are too remote from the real world.

But prior to the election Scott Morrison showed he did understand. Certainly Michaelia Cash, Ben Morton and Stuart Robert understand and with Morrison they have take the rest of the ministers with them.