Small to medium sized enterprises (SMEs) are the most common businesses found across most of the world’s economies. Although the definition of what an SME is varies across nations, the most widely used measure is that of the European Union (EU), being an independently owned and managed business with fewer than 250 employees, and annual turnover of less than 50 million euro.
Such firms comprise around 99% of all businesses in most economies and between half and three quarters of the value added. They also make a significant contribution to employment and are of interest to governments primarily for their potential to create more jobs.
Ever since the Global Financial Crisis (GFC) of 2008-2010 many of the world’s economies have continued to show slow or weak economic growth. Of equal concern has been the continuing rate of unemployment in many nations and the growing disparity in income between the richest and poorest.
According to the Organisation for Economic Cooperation and Development (OECD), the gap between the poorest 10% and richest 10% of the population across most advanced economies is over 9.5 times. This is the largest income wealth gap for the past three decades and has been compounded by high levels of unemployment or underemployment. About 40% of the people in many countries cannot secure full-time work or stable employment. This has hit the younger generations the hardest.
Australia’s role in the G20
Australia has been spared much of the worst impacts of the GFC. However, we are not immune from global economic conditions. It is therefore in our interests to seek a return to economic growth and prosperity for the world’s population.
This year sees Australia holding the Presidency of the G20, or “Group of Twenty” leading world economies. Established in 1999 the G20 comprises 19 member states plus the European Union. Although it commenced as a meeting forum for finance ministers and central bank governors, in 2008 the G20 launched a “Leaders’ Summit” as a response to the Global Financial Crisis (GFC).
The G20 Leaders’ Summit of 2013 took place in Russia and a commitment was made to work towards economic growth, job creation and the strengthening of the global economy’s resilience to future shocks.
Commencing in December last year, the G20 program will see a number of events taking place throughout Australia and some other countries, culminating in the G20 Leaders’ Summit in Brisbane on 15-16 November 2014. While it was the former Labor Government that secured the Australian Presidency of the G20, the Liberal National Party coalition has enthusiastically embraced the process.
The G20 SME Conference
This enthusiasm for the G20 was evidenced on Friday 20 June at the “G20 Agenda for Growth: Opportunities for SMEs Conference”. The event was organised by the Australian Minister for Small Business, the Hon Bruce Billson and the Australian Chamber of Commerce and Industry (ACCI). It was held in Melbourne at the Victorian Parliament House’s Legislative Assembly Chamber.
The conference drew together around 117 delegates representing a wide cross-section of the business, government and not-for-profit community with specific interests or roles in small business and entrepreneurship. I attended in my role as President of the Small Enterprise Association of Australia and New Zealand Ltd (SEAANZ).
Much was discussed over the course of the day with attention focused on two primary themes. The first was the role of SMEs in helping to meet the G20’s target of 2% higher growth over the period to 2018. The second was how to enable growth among SMEs.
There were many interesting speakers at the conference, but I wish to highlight two in particular. The first was Dr Sergio Arzeni, Director of the OECD’s Centre for Entrepreneurship, SMEs and Local Development. The second was Bruce Billson.
Sergio Arzeni’s passionate call for a fair-go for small firms
According to Dr Arzeni the compliance cost of SMEs is 10 to 30 times greater than for large firms and that reducing “red tape” by around 25% would result in overall economic growth of about 1%. He emphasised that the G20 goal of reaching 2% more growth over the next 4 years could be achieved not through removing regulation, but by being smarter with regulation.
He also called for a fair-go for small firms, placing the SMEs on the same footing as large businesses. One example of this was the stunning revelations that on average SMEs pay around 6 times more tax than large companies.
He cited OECD figures that indicated small businesses paid an average rate of 30% in tax, while large companies paid an average tax rate of only 5%, with many firms paying about 2%.
Another issue he raised was the trend towards “jobless growth” across many OECD countries since the GFC. This had led the OECD and the EU to publish a study entitled “The missing entrepreneurs”.
The report examines the state of economic exclusion among young people, women, ethnic minorities, the disabled and the aged. It acknowledges that across the EU around 25.9 million people are unemployed or seeking full-time work.
This represents around 11% of the total labour force and is a potential source of social and political unrest. Here there is a role for entrepreneurship and small business to avoid the creation of a ‘lost generation’.
Arzeni also highlighted the need for greater access by SMEs to financing and the importance of creating a ‘best practice ecosystem’ for how to foster the establishment and growth of SMEs. He noted that the OECD was working to create ‘SME policy benchmarks’ across all levels of government to help assist the small business sector.
He acknowledged that importance of Australia’s initiatives in creating stronger Small Business Ministerial functions and placing the Small Business Minister within the inner cabinet. However, he also called for a greater voice for SMEs at the international level. As he stated in his speech:
“This is why I’m calling for Australia in its G20 Presidency to promote an upgrade of the work that the international community is doing to give more visibility and to make the voice of the small firm heard.”
He explained that the world’s governments were hearing the views of the big business sector, the finance and banking sector, but not from the small business sector. In addition he called for a greater focus on the medium sized firms and not just the small and start-up businesses.
These firms were often capable of global growth and more attention needed to be given to their support. Such mid-sized firms were the economic engine room of countries such as Germany where they form the “Mittelstand” group of highly innovative, export focused small to mid-sized companies. I have previously written about these firms in an earlier article in this column.
Arzeni said that he hoped, “Australia can be an example of best practice in SME policies within the OECD”. Otherwise, he warned, the opportunity to unlock the potential of the small business sector would be lost and the growth targets set by the G20 would not be achieved.
Bruce Billson’s digital future for SMEs
During his address to the conference Bruce Billson outlined the role of SMEs within the Australian economy and the various policy initiatives that the federal government has announced. These include the fostering of free trade, enhancing of competition and the recent budget provisions of the $484.2 million “Entrepreneurs’ Infrastructure Programme”, plus the R&D Tax Incentive and CSIRO SME Engagement Centre.
He also noted the government’s implementation of the election promise to require federal government departments and agencies to pay SME accounts within 30 days or incur general interest charges by the Australian Taxation Office (ATO). Other initiatives included the streamlining of PAYG tax and Business Activity Statement (BAS) instalment reporting for small firms.
According to Billson around 372,500 small businesses will benefit. An estimated 32,500 will not have to lodge BAS statements if they are only reporting PAYG tax instalments, while a further 340,000 will still need to lodge BAS but will not have to make PAYG instalments.
He also announced that the government was working on the introduction of “Standard Business Reporting” (SBR) to assist in reducing the compliance costs. This would be assisted by the use of “SBR-enabled software” connecting the firm’s accounting software to the ATO reporting system.
According to Billson:
“It reads the financial data from a business’s accounting system, pre-fills forms with the required information, allows the business owner to check for accuracy, and then delivers the forms to the relevant government agencies through a safe, secure online channel.”
A further part of this initiative is the introduction of “Enabling Digital by Default” and “Single Touch Payroll” systems. The first of these allows the ATO to designate digital interaction between the business and the taxation office as a default, with companies choosing to opt out if they cannot comply via online systems.
The “Single Touch Payroll” system is designed to assist the employer by automatically filling in a range of reporting requirements such as PAYG (withholding), staff payments and payment summaries. It is anticipated that over time this type of digital engagement and support system will be rolled out to other government agencies.
According to Billson it is essential that the Australian SME sector is able to engage more with digital technologies and e-business/e-commerce activities. He noted that Deloitte Access Economics had recently reported the significant gap in SMEs that embrace digital technology and those that don’t.
This report highlighted that over 35% of small businesses in Australia have no engagement with the internet, while those that do are more profitable and more likely to employ. According to Billson there is a about a third of SMEs that are digitally engaged, a third that are moving in that direction and a third that wish it would all go away. Sadly for the technology laggards, the future is digital and it will be very difficult to survive in the 21st Century without an e-business strategy.
He also noted the rise of cloud-based computing and what such technologies offered to SMEs, according to Billson:
“Getting as many small businesses connected to the internet affordably and as fast as possible is the best way to ensure the nation makes the most of the economic opportunities provided by very fast broadband.”
Where to next?
The G20 SME Conference was marked by a lot of passion and ideas sharing. Arzeni’s address was indeed passionate. His call for Australia to use the G20 Leaders’ Summit to drive action to help build best practice in small business policy is a challenge that Prime Minister Tony Abbott should not ignore. So too is his call for smarter rather than less regulation.
I will give credit where credit is due, and note that Bruce Billson engendered a positive and open minded demeanour throughout the day. He listened carefully to all the presentations and comments from the delegates. The impression he gives is of a Minister with a strong desire to see small business and entrepreneurship policy developed in a practical and effective way. It is to be hoped that his voice in Cabinet is heard on behalf of the 1.96 million SMEs that make up the bulk of Australia’s 2 million registered businesses.
Note: Tim Mazzarol is President of the Small Enterprise Association of Australia and New Zealand Ltd (SEAANZ). SEAANZ is a not-for-profit corporation founded in 1987. It is dedicated to the advancement of research, education, policy and practice in small to medium enterprises.
Tim also receives funding from the Australian Research Council (ARC).