Reforms must help small business
In focusing on declining productivity and financial pressures on households from persistent inflation and elevated interest rates, the minutes of the Reserve Bank board’s September meeting on monetary policy will give the Albanese government and the opposition plenty to think about in this new sitting session of parliament. Despite market expectations, the board did not expect to lower the cash rate in the near term. Nor did it rule out another rise: “Future financial conditions might need to be either tighter or looser than at present to achieve the board’s objectives,” it said.
The other vital financial document that should prompt serious policy work on both sides of politics is the Council of Small Business Organisations Australia/ Commonwealth Bank report. It warns that soaring energy costs, rent, insurance, loan repayments and union-centred industrial relations are driving up the costs of doing business. Shortages of skilled and unskilled staff are also restricting business growth. While the Albanese government boasts of expanding the “care economy”, driven mainly by public funding, it is a bad sign of the productive economy, driven by private investment and enterprise, that 57 per cent of business owners report high or very high stress due to financial strains. Almost a third are unable to pay themselves, and 25 per cent are using personal savings to keep businesses afloat.
The solution is not more government intervention but less, with policy settings to make the economy more conducive to business success, growth and productivity. After 22,538 business insolvencies under the Albanese government between June 1, 2022 and September 30 this year, according to the opposition, inertia is no longer an option. ASIC data shows the number of business insolvencies hit a record high of 11,053 in 2023-24, Geoff Chambers reports, with the worst quarterly figures of 3305 in the three months to June. And the trend has continued, with 3003 insolvencies in the September quarter. The issue is likely to be problematic for Labor in outer-suburban and regional areas at the next election.
In parliament, government priorities for the session, if they pass, will not solve the issues identified by the central bank and the small business report. Anthony Albanese is expected to attempt to pressure the Greens and Senate crossbench to pass his Help to Buy shared equity scheme to allow eligible homebuyers to purchase a property sooner, with a smaller deposit. Intervening in the housing market, however, will not address the economy’s main problems. To the contrary, an increase in public sector spending would sustain aggregate demand above the economy’s supply potential, and delay the return of inflation to target. A boost in building through Help to Buy would also exacerbate labour shortages. Experience shows government-sponsored housing schemes that distort markets tend to be costly and inefficient.
The attention of politicians on both sides needs to be on the real economy, including labour productivity. The predicament of small business, summed up in the COSBOA/Commonwealth Bank Small Business Perspective Report, launched in parliament on Wednesday, is not sustainable. Over time, it will undermine the nation’s economic base, and the living standards of small business operators, their families and workers. Operating conditions were “ arguably the most challenging in living memory”, it found, with living and business costs “impacting the wellbeing of 2.5 million small business owners”. The underlying problems causing the malaise need to be addressed.