The future of small business. A vision for WA

Transcription

1 The future of small business A vision for WA 1

2 CCI driving the vision for WA s Small Business future The Chamber of Commerce and Industry of Western Australia (CCI) was founded on the belief the existence of a diverse and thriving business community is an essential ingredient to building a vibrant and prosperous society. For more than 120 years, CCI has represented the Western Australian business community and in doing so we have proudly built a strong membership base that represents businesses of all sizes and in all parts of the economy. CCI remains dedicated to the pursuit of a competitive and responsible free enterprise economy for the benefit of all individuals in society. CCI s Vision series is an ambitious project to set a long-term vision for Western Australia. We have crafted this vision because we are passionate about our state and believe that opportunity abounds for us if we are willing to take actions that will set us up for a better future. This paper outlines CCI s vision for the small business sector in Western Australia. Small business accounts for almost 97 per cent of all actively trading business in Western Australia and employees 44 per cent of the population. About 95 per cent of CCI s members are classified as small or medium-sized businesses, and employ fewer than 100 people. Creating an environment where small businesses have the confidence to invest and innovate will be critical for Western Australia to be a world-leading place to live and do business. Whether through start-up ventures, or growth and expansion of existing businesses, the sector s ability to respond to changing conditions quickly and efficiently will be essential for the WA economy. To enhance the role that small businesses can play in areas such as innovation, jobs creation and competition-based productivity, existing barriers constraining the sector need to be addressed. This includes excessive and over-lapping regulation, duplicative and unnecessarily complicated taxation systems, inability to access affordable finance, increasingly complex workplace dynamics and rising operational costs in proportion to revenue. This paper sets out the policy settings needed to maximise the opportunities for our small business sector. November 2015 To get involved: cciwa.com/wavision follow #WAvision A vision for WA group 2 3

3 contents Executive Summary Recommendations Introduction Small Business in Western Australia A Vision for Small Business in Western Australia What is a small business? Entrepreneurship and Innovation Removing Regulatory Barriers Other regulatory issues A Better Small Business Tax System Access to Capital Workplace Relations Notes

4 EXECUTIVE SUMMARY SMALL BUSINESS IN WESTERN AUSTRALIA IS SMALL IN NAME ONLY. Accounting for approximately 97 per cent of all WA businesses, the small business sector also provides approximately 44 per cent of the state s total work force, a higher proportion of total employment than either medium or large-sized businesses. In this context, small business can properly be understood as big business. As part of CCI s Vision series, this paper is a sectoral analysis of small business throughout the state and proposes a series of recommendations which would, if implemented, further CCI s vision for WA to be a world-leading place to live and do business. Of course, the very term small business can suggest an artificial unity to the sector. As such, it is worth remembering the sheer diversity of industries that small businesses operate in. For example, these include retail and hospitality, not-for-profit, construction, health care and social assistance, agriculture, mining and manufacturing, and professional, medical and technical services. Given this diversity, while it is true that small business across these industries may face similar challenges, it is also clear that many of the specific issues relevant to this sector represent a microcosm of business in general. Accordingly, this report contains recommendations that are pertinent to small business specifically, as well as those which are pertinent to small business by being good for business universally. As the state s economy continues its transition from resources-sector investment as a main driver of growth, the small business sector is well placed to play an important role in the further diversification of the WA economy. A thriving small business environment is obviously crucial to maximising economic flexibility, and developing new ideas through innovation. Whether through start-up ventures, or growth and expansion of existing businesses, the sector s ability to respond to changing conditions quickly and efficiently will be essential for the WA economy s positioning for challenges that lay ahead. To enhance the role that small businesses can play in, for example, innovation, jobs creation and competition-based productivity, existing barriers constraining the sector should be addressed. This includes the prevalence of excessive and over-lapping regulation, duplicative and unnecessarily complicated taxation systems, inability to access affordable finance, increasingly complex workplace dynamics and rising operational costs in proportion to revenue. CCI encourages governments, at local, state and commonwealth levels, to ensure that policy settings minimise interference and constraints, and support the growth and success that results from a market-based economy. 6 7

5 Recommendations: Immediate priorities 1. Commonwealth and State Governments should amend their respective industrial relations statutes so that, in future, industrial relations commissions will review awards, in particular concerning Sunday and public holiday penalty rates, against revised objectives that take into account the changing nature of work and community expectations. Such a reform will allow small businesses to successfully open on these days, meet consumer expectation and appropriately remunerate staff. 2. The Commonwealth Government should simplify tax legislation, streamline tax administration and minimise excessive compliance burdens on taxpayers. 3. The State Government should continue to investigate, and implement, leading practice local government coordination and consolidation as identified by the Productivity Commission. This should aim to reduce inconsistencies across local government boundaries in regards to the enforcement and content of regulation. These programs include, but are not limited to: a. informal meetings and discussions between local governments; b. the amalgamation of local governments; c. cooperative ventures such as mutual recognition and resource sharing; d. partnership agreements between local governments; and e. the establishment of councils, alliances, panels and committees between local governments to carry out activities of mutual interest. 4. The Australia Taxation Office (ATO) threshold to qualify as a small business entity (turnover test) should be increased and indexed by the Consumer Price Index (CPI) in order to keep the threshold commercially realistic 1. The Henry Tax Review recommended the threshold be increased from $2 million to $5 million, and also adjustments to the $6 million net asset value test should be considered The State Government should monitor on an ongoing basis the implementation of the Planning and Development (Local Planning Schemes) Regulations 2015 (WA) to ensure it is being applied in the intended way and local councils apply the regulations correctly both in the short and long term, ensuring a streamlined, more simplified process across the state. Medium term priorities 6. The State Government should index the payroll tax threshold to CPI to maintain the threshold and prevent further bracket creep. The State Government should also incrementally increase the threshold to $1.5 million and, subject to adequate replacement revenue, progressively pare back and abolish payroll tax to reduce business costs and reduce the disincentives associated with this tax on employment. 7. The development of an industrial relations system that promotes flexible and productive workplaces by providing a range of collective and individual agreement options that allow for terms and conditions of employment to be tailored to suit the workplace and the employees, underpinned by a no disadvantage test. 8. The Commonwealth Government should introduce amendments to the Fair Work Act 2009 (Cth) to reform the National Employment Standards so that payment for leave or additional penalty rates is only required on the day of significance, or the substituted day, not both. Businesses should not have to continue to pay for one public holiday twice. 9. State and Commonwealth Governments should coordinate on telecommunications policy and focus on the development of reliable, fast and adaptive telecommunications infrastructure to provide business and consumers with access to digital technologies in the most cost-effective manner possible. Other priorities for Government consideration Throughout research and analysis conducted during the course of preparing this report, a variety of longer-term issues have also been considered. In addition to the priority areas of reform proposed in this executive summary, further recommendations are contained throughout this paper which seek to create a legislative and regulatory environment that would be conducive to fostering thriving small businesses in Western Australia. 8 9

6 We see a future where: Our economy continues to grow and create jobs Western Australians are protected by regulations that do not stifle their entrepreneurial spirit Businesses are competitive on a global scale and our industries lead the world We have access to world-class infrastructure that supports our economy and community Businesses and universities work together to innovate and build the industries of the future People of all ages, backgrounds and abilities will be more engaged in the workforce Taxpayer dollars are spent wisely and government services are delivered efficiently Our cities and regions are exciting places to live and all Western Australians can access the essential services and infrastructure they need If we achieve our Vision, over the next 20 years: The WA economy will more than double, to be worth $570bn An additional 740,000 people will be employed, bringing the total workforce to 2.3 million The state will be home to more than 1 million additional residents, with the population reaching 3.5 million There will be a six-fold increase in research and development spending by businesses, totalling $24 billion More than half a million additional people will have a tertiary qualification 10 11

7 INTRODUCTION SMALL BUSINESS IN WESTERN AUSTRALIA S 12 Small business is a crucial, but often overlooked sector, of WA s economy. As well as the direct contribution that small businesses make to economic output and employment, these businesses are also critical to innovation and the diversity and flexibility of the Western Australian economy. have been created for new and established small businesses to meet growing demand. However, the sector has also faced challenges from the high-cost operating environment, and the persistent low levels of business and consumer confidence following the global financial crisis. Over the past decade, the small business sector has benefitted from the strong performance of this state s economy. With the rapid expansion in economic activity and population growth as a result of resources investment, opportunities In light of this changing economic environment, it is necessary to look to the future of our state. As reliance on the same drivers of growth is unlikely, we need to look at new opportunities on the horizon and ensure we are well-placed 13

8 Small business accounts for almost 97 per cent of all actively trading businesses. to leverage these. The small business sector represents an important opportunity to diversify and strengthen our economy in the longer term. To maximise the capability of this sector playing a greater economic role, it is vital to ensure that barriers to small business success are addressed. CCI has set out a reform agenda which focuses on reducing the cost of business and removing barriers and impediments that will allow the sector to innovate and respond to new opportunities. It is the case that WA s recent exceptional economic growth has been driven by large businesses, particularly in the resources industries. Even so, WA s small business sector remains a significant component of the state s economy. For example, small business accounts for almost 97 per cent of all actively trading businesses and is a major employer in the state 3. Strikingly, CCI estimates the sector represented 44 per cent (595,000 employees) of the state s total workforce in This compares to 32 per cent (427,000 employees) and 24 per cent (328,000 employees) for large and medium-sized businesses, respectively 4. In , there were close to 76,000 WA small businesses employing between one and 19 people (approximately 10 per cent of employing small businesses across Australia). There were also more than 135,000 small (or micro ) businesses considered non-employing, representing 11 per cent of the nation s non-employing businesses 5. By industry breakdown, CCI estimates the largest share of the small business workforce is employed in construction (100,000 employees), followed by professional, scientific and technical services (67,000 employees), retail trade (47,000 employees) and health care and social assistance (50,000 employees). There are also significant proportions of the small business workforce operating in the manufacturing, agriculture and hospitality sectors 6. Reflective of the changing profile of the WA economy, since the number of employing small businesses in the mining and manufacturing sectors has continued to decline, while the number operating in construction, health care, social assistance and hospitality are some of the fastest growing in Western Australia 7. There is a general acceptance that it is comparatively easy to start new small businesses in Australia compared to other international jurisdictions, and this is ostensibly attested to by the fact that, between June 2013 and June 2014, 282,000 new small businesses (including non-employing businesses) commenced operations nationwide. Of course, not all small businesses continue operating. Over the same sample period some 261,000 small businesses, largely consisting of non-employing businesses, ceased operations 8. There is a common perception in the community that a large proportion of small businesses fail in the first few years of operation. While at face value the number of small business failures could be considered quite high, the figures that determine small business exits do not adequately take into account changes in the legal standing of the business, ownership or industry, or businesses that are sold for profit or voluntarily closed. Of course, this does not diminish the risks small business face. However, it does draw out the fact that a small business exit does not necessarily constitute a failure. From the WA perspective, business survival rates are comparative to Australia as a whole. Ultimately, small business is vital to WA innovation and economic growth. In developing and embracing breakthrough ideas and practicable solutions, innovative new and expanding small businesses can drive future employment and investment opportunities

9 A Vision for small business in Western Australia TTWhat is a small business? There are a number of definitions for a small business across various regulatory agencies in Australia. Within Australia, the most widely-used definition of small business is based on the number of employees. However, it is not uncommon for some agencies to use turnover as a measure of size. The Australian Bureau of Statistics (ABS) considers those businesses with fewer than 20 employees to be small, with further refinements for microbusinesses of zero to five employees 9. In contrast, other agencies define business size by annual turnover. For example, the ATO defines a small business as having an annual turnover of less than $2 million. Similarly, for the purposes of payroll tax, the WA Office of State Revenue defines small businesses as those with annual turnover of less than $800, The differences in measuring small businesses can be seen when comparing the two bases for definition. When considering the number of employees, small business accounts for almost 97 per cent of all actively trading businesses 11. While considering small business in terms of annual turnover of less than $2 million, this figure reduces to 91 per cent of businesses 12. This definitional disagreement extends into the international sphere. The European Union uses a combined definition of fewer than 50 employees and less than 10 million in turnover; or less than 10 million balance sheet total 13. The United Kingdom uses the same definition 14. In Canada, a business is deemed to be small if it employs fewer than 100 people 15. Closer to home, New Zealand does not have a set small business definition, however the most commonly utilised definition of a small business is a business with fewer than 20 employees 16. Of course, there may be agencies that will require a continuing degree of discretion in terms of a set definition. However, for the most part, a consistent definition should be the most beneficial for small business. In this context, it is notable that the Commonwealth Parliamentary Joint Committee on Corporations and Financial Services report, Access for Small and Medium Business to Finance (April, 2011) determined that small businesses would benefit from uniform definitions of micro, small and medium size businesses

10 Innovation and entrepreneurship is critical to the success, and future growth of small business in Western Australia. Small businesses are, almost by definition, intrinsically entrepreneurial and innovative. When individuals decide to take a risk and start a small business, this is the very essence of entrepreneurialism, and they are creating new economic activity and prosperity at a properly basic level. This state s economic history is itself steeped in entrepreneurialism. WA s relative isolation from the rest of Australia throughout much of the 20th century has nurtured a positive cultural disposition towards measured risk taking and self-reliance. With regards to innovation, there must be caution in ensuring that discussion does not deteriorate to nothing more than the buzz word of the day. While subject to a sometimes bewildering variety of definitions, ultimately, innovation can be simply defined as the activity of creating and obtaining value from something new 18. Increasingly, innovation can represent a firm s competitive advantage, particularly if an innovation is not easily replicable or so intangible as to be firm specific. It is not limited to start-up businesses. Nor is it limited to the creation of new inventions. It can also represent the adoption of technologies and processes developed by others, and keeping up with scientific progress. In many respects, innovation relates to the ability of businesses to get on with business. Notably, empirical and survey-based evidence suggests businesses that report they are active innovators are more profitable, have higher sales growth and record higher ratios of productivity and profitability per unit of input in their business 19. As innovation ultimately stems from the basic human propensity for individuals to go about things differently, and look for more efficient ways of achieving outcomes, CCI believes the scope for government involvement in this sphere is limited. However, there are a number of reform options that should be considered by government that would help reduce specific barriers to innovation at the enterprise level, or that would focus resources into more innovation-focussed activities throughout the economy as a whole. Reforms that reduce regulation, ease taxes and remove barriers to business start-ups would significantly contribute to empowering the culture of innovation that is natural to the business community. As new ideas are developed, commercialised and sold, governments at a state and commonwealth level should ensure that regulatory responses are measured and do not act as excessive barriers to the benefits of innovation. Various case studies from around the world, particularly relating to digital innovation and the sharing economy, suggest a default response of government can be to unintentionally hinder or stifle innovation. State and Commonwealth Governments should exercise caution in guarding against unwarranted reactionary responses in future

11 Feature Box 1: Patent Boxes One promising policy idea yet to be explored fully in the Australian context is the Patent Box. This has been utilised extensively in Europe. Under a Patent Box system, governments forgo some tax revenue on the profits earned on patented intellectual property if companies agree to commercialise a particular product or service in their country. The United Kingdom was the first country to introduce the regime, and it is now in operation across Europe and China. While there is some concern this practice may lead to profit shifting activities, it demonstrates that international capital is mobile and that countries offering favourable tax regimes are better placed to attract and retain business. It also represents an effective way to encourage small businesses to embark on more innovative activity through the tax system. Source: UK Government Corporate Taxation: the Patent Box. Accessed online at Australia has remained ranked at 17th in the Global Innovation Index for the past two years, after a period of improvement in the preceding years 20. There is no doubt that, in order to remain competitive in increasingly challenging global conditions, Australia needs to work hard to continue to improve on innovation. The country needs to pursue strategies that aim to prevent us falling behind countries that are following closely behind or that we do not fall further behind the countries that currently sit ahead of us. Intellectual property The most fundamental element of Australia s intellectual property (IP) laws is the granting of patents, trademarks and copyrights on IP. Currently, the Commonwealth Government maintains a register of IP held by Australian firms or businesses operating in Australia, through IP Australia 21. Through this system, businesses that create new IP apply for protection through IP Australia (protection is not automatically granted). Businesses pay a nominal fee for IP Australia to assess an application and determine whether protection can be granted. In the meantime, businesses can apply for temporary protection through pending patents. There are two types of patent applications available in Australia: standard and innovation patents. For an innovation patent to be granted it must involve an innovative step and can only be granted if it complies with the relevant requirements stipulated in the Patents Act 1990 (Cth). Significantly, an innovation patent is only granted for eight years, while a standard patent is granted for up to 20 years. Australian resident applications for Australian patents only make up 10 per cent of total applications. Notably, Australian residents file roughly three times more patents overseas than they file in this country. In 2014, WA filed 202 patent applications, the fourth highest number of applications in the country. In 2013, patents relating to construction associated with mining or drilling were the most filed patents in Western Australia. In 2014, the most filed patent application transitioned to applications relating to human necessities, and performing operations and transporting, in line with the most filed patents for the rest of Australia. While an adequate level of patent creation is difficult to define, IP Australia reports the number of patent applications made in Australia fell 13 per cent in Although this may have been due to an increase in the threshold for consideration of an inventive patent which took effect in 2014, there was also a sharp increase and record number of patent applications in 2013 (made in order to be considered before the consideration threshold increase). Telecommunications The provision of reliable and fast telecommunications services and infrastructure is a key enabler for business. It is critical in catalysing innovation and empowering businesses to adopt innovations generated elsewhere. The Regional Australia Institute (RIA) produces a competitiveness index which provides profiles for 60 regions across Australia. For competiveness in relation to technological readiness, specifically broadband coverage, the RIA rates six out of the 10 regions in Western Australia in the worst performing 10 regions in the country. The Perth metropolitan region rates the highest for the State at 15th. The broadband capabilities of the state also rank as some of the worst in the country. Poor broadband accessibility impacts on business of all sizes to be able to provide services

12 Australia has recently been ranked 81st out of 143 countries for the efficiency it turns its innovation inputs into outputs. Commonwealth telecommunications policy has been controversial in recent times, with the former Labor Government embarking on the construction of a National Broadband Network (NBN) consisting of fibre-to-the-home connections for every residential address in the country regardless of location. The current Coalition Government has sought to continue the construction of the NBN, utilising a mix of technologies that will deliver faster and more reliable connections than current copper technologies, but in a more tailored and cost-effective manner. The Commonwealth Government should continue with its NBN roll-out to ensure business and households (that increasingly rely on telecommunications to consume goods and services) have access to reliable services. At a state level, there has been recognition that existing telecommunications coverage in regional Western Australia is not adequate. Given the vast geography of the state, and the unique challenges it poses, WA s regions are specifically in need of contemporary and more reliable telecommunications. As fixed line technology is not a cost-effective solution to improving telecommunications access, the State Government has rightly focussed on improving mobile and wireless coverage through the Regional Mobile Telecommunications Project (RMTP). To date, the RMTP has improved coverage across the State by up to 22 per cent 23. The project has recently been renewed promising an additional 153 mobile base stations to be delivered by Links with research institutions In international experience, there is a growing realisation across government, education institutions and business communities that universities can play a central role in providing high-level skills, world-class research bases, and promote a culture of inquiry and innovation. The Commonwealth Government has estimated that fewer than five per cent of Australian businesses currently turn to the higher education sector for expertise and ideas. While Australia boasts a world-class university sector, relatively little of the state s considerable research output translates into patents or commercial success. It is unfortunately unsurprising that Australia has recently been ranked 81st out of 143 countries for the efficiency with which it turns its innovation inputs into outputs 25. Studies have suggested Australia has a poor record of collaboration between research and industry and a weak early-stage venture capital market, with just 652 Australian companies receiving venture capital financing totalling $7.9 billion (less than 0.2 per cent of gross domestic product (GDP)) in across the whole economy 26. This compares unfavourably with most Organization for Economic Co-operation and Development (OECD) countries, with venture capital financing as a percentage of GDP higher in every OECD country outside of some European states 27. While access to finance is a barrier that will be considered further in this report, consideration should also be given to breaking down perceived barriers between public investment undertaken at universities and private sector commercialisation. This is a particularly important consideration for small businesses, which lack the connections and scale to leverage innovation generated by the university sector. One example of a way forward is the development of public-private research and commercialisation centres housed within universities, such as the creation of a data-driven information and communications technology research collaboration between universities and corporate businesses. While still in their early stages, these models of research allow for private sector input into decision making, and help build bridges between research and commercialisation outcomes. Entrepreneurship and Innovation Recommendations EI1 State and Commonwealth Governments should coordinate on telecommunications policy and focus on the development of reliable, fast and adaptive telecommunications infrastructure, to provide business and consumers with access to digital technologies in the most cost-effective manner possible. Facilitating reliable and effective broadband should be a core priority of telecommunications policy. EI2 Public sector research institutions should focus on the development of public-private research and commercialisation hubs, to break down barriers between public research and private sector outcomes

13 REGULATORY BARRIERS Small business is required to comply with an abundance of regulations, across numerous regulatory agencies and within the various jurisdictions of different levels of government. Small businesses often lack time and knowledge to innovate in managing regulatory obligations and most commonly have few specialist compliance staff. This understandably can create compliance issues for the sector. Small businesses are adversely affected by the economies of scale for compliance costs. They are also disproportionately affected by compliance costs when compared to larger businesses in terms of associated time and monetary costs. Small businesses have fewer resources be it time, information, money or staff at their disposal to cope with their regulatory obligations and it is no surprise they often cannot afford to have designated specialists in charge of each regulatory department. Often, a single manager coordinates human resources, occupational health and safety, tax and any other regulatory obligation. While some level of regulation is necessary to ensure a well-functioning economy and society, often over time regulation can become unnecessary, prescriptive and duplicative. It can add unnecessarily to the cost of doing business and reduce the competitiveness of industry. Both the State and Commonwealth Governments have an important role to reduce the regulatory burden faced by WA businesses. Reforms are needed to reduce duplicative and ineffective regulations and to ensure that new regulations are appropriately assessed. The Productivity Commission Report Regulatory Engagement with Small Business (2013) states that small businesses in Australia are subject to approximately 480 Commonwealth, state and territory regulators, as well as approximately 560 Local Government regulators 28. Regulation for business as a whole and particularly for small business, should not unduly constrain competition and the ability to operate as a successful business and generate economic outcomes. The Productivity Commission identified that small businesses generally incur proportionately higher compliance costs when compared to larger businesses. And almost universally, small businesses face greater challenges in understanding and fulfilling their compliance obligations. Recognising these factors, regulators sometimes handle small businesses differently when administering regulation 29. Small business, like business generally, also spends a disproportionate amount on red tape compliance. The Australian Chamber of Commerce and Industry s (ACCI) 2015 National Red Tape Survey found that: 65.1 per cent stated that they spend over $5,000 per year in compliance costs; 54.9 per cent claimed they are not able to pass on any of the costs incurred by compliance to customers; 30 and 49.3 per cent reported they spend over five hours per week on complying with regulatory obligations. Obviously, this is time that could more effectively be spent in, or developing, the business itself

14 Small businesses are adversely affected by the economies of scale for compliance costs. The ACCI Red Tape Survey also found a large portion of businesses (44.7 per cent) surveyed reported that complying with government regulatory requirements only had a moderate negative impact on their business. However, more serious is the finding that over one quarter (28.9 per cent) stated compliance had a significant negative impact on their business. Only 2.7 per cent of respondents noted a significant positive impact. In addition, 47.2 per cent of small business reported that regulatory requirements impacted on expansion, while over 68.4 per cent believed their industry is over-regulated 32. Overall, the ACCI Red Tape Survey indicates that negative perceptions of regulatory burden, cost, compliance and impact have increased. This appears to have been a consistent trend over the past few years 33. State and Commonwealth Governments should be commended for introducing regulatory impact assessment processes that are designed to minimise new regulatory burdens resulting from primary and subsidiary legislation. However, measures should be adopted to prevent these systems becoming merely another level of intra-governmental bureaucratic approval that bears little correlation to actual impacts on business. A more structured approach to formulating and implementing new regulation and evaluating existing regulation is necessary to help ensure that regulations are well targeted, proportionate and minimise the cost for business and the community. In particular, regulatory impact assessment processes should specifically consider the impact of any new regulations on small business, weighing up the costs and benefits when creating the appropriate approach to regulatory delivery for small business. The Productivity Commission made a number of recommendations in its report Regulatory Engagement with Small Business (2013). This report outlines a wide range of recommendations to assist government to better create and facilitate regulator engagement with small business. Some of the key recommendations that would assist small business are as follows: The culture of the regulator. The culture of the regulator is a critical part of the engagement process. Governments should promote a culture that is educative towards business that aims to address regulatory outcomes without constraining business activity. There should be an approach to continuous improvement within regulatory agencies 34. Getting the regulation right, providing sufficient resourcing and guidance. An agreed regulatory impact assessment process should be enacted that takes into consideration the implementation of regulation as well as the intended impacts on business, particularly small business 35. Proportionate compliance obligations and enforcement responses. Regulators should be required to take a risk-based approach to compliance and enforcement. The risk-based approach should be known to business and government should 26 27

15 ensure that regulatory agencies have the necessary range of enforcement tools to enable them to respond flexibly and in a fair way 36. A tailored and flexible approach to small business. Small businesses should be given the opportunity to manage their compliance, because they have higher compliance cost structures. This would be aided by regulators removing unnecessary complexity in regulatory requirements and guidance material. Regulators should offer detailed guidance and provide outcomes and compliance pathways where appropriate 37. Effective communication practices. Information and advice provided to small business should be simple, reliable, easy to use and cater for its diverse nature. Multiple channels of communication should be adopted. Data requests should be the minimum required to regulate effectively, tailored around already available business data and not collected by other agencies 38. Processes that are timely, transparent and accountable. Regulation remains a key area of concern for WA small businesses. Regulatory activities should be undertaken in a timely manner and be transparent and accountable. Complaint processes should be clear 39. The recommendations of the Productivity Commission form a solid foundation for regulatory reform at both a state and commonwealth level. The report addresses common regulatory issues for small business and provides recommendations that would ease their regulatory burden. These strategies should be implemented wherever appropriate as a priority to reduce the compliance costs, confusion and reporting requirements on small business. Reducing the cumulative burden of regulation is also an important area of reform to assist small business. Small businesses are often required to: report the same or similar data to a number of regulators, with the frequency and format sometimes varying; undergo multiple inspections by different regulators for a similar or related purpose; read, interpret and understand numerous sets of compliance information or guidelines on related or overlapping areas; and comply with conflicting sets of regulations from different regulators 40. In the ACCI Red Tape Survey, 57.7 per cent of respondents agreed that an information sharing arrangement between government departments would ease regulatory burdens. Government departments that require similar or the same information, whether they are state or Commonwealth agencies, should offer businesses the ability to opt into information sharing arrangements if this would provide a reduction in the regulatory burden faced by business as a whole. In this context, the Productivity Commission has considered the merits of a lead agency model for data sharing. The lead agency would take primary responsibility for ensuring coordination and sharing of data to reduce duplicative reporting requirements for business. Lead agencies for the purposes of data sharing would improve regulatory outcomes across all affected agencies, due to consistency and improved timeliness 41. Data sharing would of course be subject to consent by the business before the data sharing could occur. A key reform to reduce the burden of compliance for small business is the further use and expansion of government initiatives such as the Standard Business Reporting Program (SBR) 42. This program was an initiative of the Council of Australian Governments to reduce the reporting burden on business and forms part of the Seamless National Economy agenda. The primary focus of the SBR is to lessen reporting from business to government. The program uses specific software that allows businesses to prepare and lodge required government reports and forms from a single log in. Another significant regulatory burden for small businesses that should be addressed as a priority is in relation to taxation. The Henry Tax Review (2010) recommended a number of changes to streamline and simplify tax arrangements for small business in areas such as removing record keeping, simplifying compliance requirements and improving methods for collecting information from small businesses. The review also recommended that an increased use of technology would provide greater coordination of information, as well as a focus on transforming the user experience. The key regulatory burdens on small businesses that are not activity-specific primarily relate to issues around taxation and statutory obligations with respect to employees. The key taxation obligations include income tax, goods and services tax (GST), Pay As You Go (PAYG), fringe benefits tax (FBT) and payroll tax. Businesses also have a number of employment related obligations, including industrial relations, superannuation and workplace health and safety (WHS). Naturally, regulation remains a key area of concern for WA small businesses. The June 2015 Survey of Business Expectations found that small businesses priority area of policy reform for the year ahead was tax reform (80 per cent), while deregulation and reduction in red tape ranked second (71 per cent), with industrial relations reform (58 per cent of respondents) coming in at third place

16 OTHER REGULATORY ALocal Government business and one which A key source of unnecessary regulatory burden on small produces significant compliance costs stems from Local Government regulation. The two main sources of regulatory burden in this sphere are: inconsistent interpretations of state laws by different local governments; and lack of transparency and accountability associated with local government regulation. Local Government authorities are created and governed under state legislation and, as such, are extensions of State Governments. Originally intended as providers of simple property related services such as roads, rates and rubbish, local governments have increasingly moved beyond this traditional role and are now vested with responsibilities that are more akin to that of a regulator and policy maker but without proportionate transparency and accountability. It continues to be a concern that WA local governments have the most regulatory responsibility of all Australian jurisdictions. Consequently, businesses in this state are subject to the highest amount of local government regulatory burden in the country. The Productivity Commission s The Role of Local Government as a Regulator research report noted that WA local governments have regulatory responsibilities under no less than 110 state laws, almost twice the number of any other Australian jurisdiction. The next highest regulatory responsibility for State laws is held by South Australia, where local government has regulatory responsibility for 59 State laws. Further, Western Australia also has the highest number of local government laws (4,643) of all Australian jurisdictions, with Queensland having the second highest number of local government laws (4,336) 44. The Productivity Commission noted that Western Australia has one of the most advanced public registers to search Local Government laws. However, it was also noted that no jurisdiction has the same tools available to find: all local government quasi-regulations (such as policies, fact sheets and guidelines) that give guidance on complying with legal requirements; guidance on how local governments assess business applications; or a full and easily accessible list of statutes that local government has regulatory responsibility for. The State Government should make this information available on a public register. CCI believes this will give small businesses a greater understanding of their compliance obligations, reduce costs associated with identifying the responsibilities of local government and better inform businesses about how to comply with local government regulation or how local governments assess business applications. As stated by the Productivity Commission, Full and accessible information creates a level playing field, at least initially, so that anyone who is sufficiently motivated can navigate the system, know their responsibilities and defend their rights 45. Importantly, having such information publicly available may also provide the State Government with a greater understanding of the regulatory burden that local government laws and policies place on business

17 government boundaries is in reference to planning and land use regulation. The Productivity Commission s Research Report indicated, through a survey of small and medium businesses, that regulation of planning and land use has the largest impact on business when compared to other forms of regulation. Feature Box 2 discusses this specific form of local government regulatory burden further. Feature Box 2: The Regulatory Burden of Local Government Planning and Land Use Regulation The provision of an adequate supply of appropriately zoned and serviced land is rightly the responsibility of the State Government in Western Australia. The WA Planning Commission is tasked with the development of planning schemes that are then handed to local government authorities to administer through the creation of structure plans. local government is also the first point of contact for businesses, developers, and residents wishing to propose amendments to planning documents. However, there is currently no requirement for local 32 governments to act in a consistent manner on land use issues. This leads to the unfortunate situation where businesses operating across multiple local government boundaries are required to provide information in multiple ways and in different forms to achieve the same outcome. An example of this is a CCI Member seeking to develop two new retails sites in multiple local councils at the same time and having to go through two completely different development application processes. A further key component of local government regulatory burden for business is the inconsistent enforcement and content of regulation across local government boundaries. The inconsistent enforcement and content of regulation creates burdensome transaction costs, uncertainty and an added layer of complexity for businesses operating across numerous local government boundaries. It also acts as a competitive barrier to businesses in local government areas with overly burdensome or prescriptive regulation when competing with businesses in less prescriptive local governments. The Productivity Commission highlighted these findings in its local government research report. One of the major areas of inconsistent regulatory interpretation across local To reduce inconsistencies across local government boundaries in terms of the enforcement and content of regulation, the Productivity Commission considered a number of leading practice coordination and consolidation programs. Examples of such programs include: local government coordination and consolidations programs discussed by the Productivity Commission in their Research Report. Adopting appropriate local government coordination and consolidation measures will reduce transactions costs, simplify complexity, and ease uncertainty for businesses operating across a number of local government boundaries. Cooperative ventures will also assist in meeting local government resource constraints, which have become prominent in recent times as the regulatory responsibilities of local governments have increased. The State Government has recently announced the new Planning and Development (Local Planning Schemes) Regulations 2015 (WA) which amends and replaces the Town Planning Regulations 1967 (WA). The new planning scheme streamlines the process for building and planning applications that are deemed to be planning compliant. The process streamlines the planning process for all local councils across the state. The streamlining of planning is a great first step in easing the duplication and complexities of local planning applications; however the implementation of the process by individual local governments will be vital to the success of the new regulations. i nformal meetings and discussions between local governments; t he amalgamation of local governments; c ooperative ventures such as mutual recognition and resource sharing; p artnership agreements between local governments; and t he establishment of councils, alliances, panels and committees between local governments to carry out activities of mutual interest. The State Government should continue to investigate and consider the leading practice 33

18 A BETTER SMALL BUSINESS TAX SYSTEM The right tax structure is one of the most important reforms that government can implement to promote growth and competition in the small business sector. A tax reform agenda is needed that will help reduce the size of the tax burden, remove inefficient taxes, promote workforce participation, boost productivity, and improve international competitiveness. This section outlines improvements the Commonwealth and State Governments should pursue to reduce the impact of the tax system on the small business community, as well as eliminating inefficient taxes over the longer term. A priority area for reform is to reduce the level of imbalance between the funding and the spending responsibilities of the Commonwealth and the states. The ability for states to reform inefficient taxes is currently limited by the imbalance between the revenue raising and expenditure responsibilities of the states and territories, known as vertical fiscal imbalance (VFI). The revenue raising capacity is disproportionately vested in the Commonwealth, while the states have primary responsibility for delivering core community services, such as health and education. While VFI is a consequence of federated governance models, it is the scale of imbalance in Australia that is the problem. For example, as the recent Commonwealth discussion papers for the Reform of the Federation White Paper have noted, the Commonwealth Government currently collects 82 per cent of all taxation revenue in the country, with the states collecting 15 per cent (and Local Government collecting the remaining three per cent). In contrast, in Canada (a similar federation to Australia), the central government only collects 45 per cent of total taxation revenue. As a consequence, the states are heavily reliant on grants from the Commonwealth, in particular GST grants, to ensure they have sufficient revenue to fund services and infrastructure. Removing this disincentive by ensuring the states have access to sufficient and sustainable revenue will be critical to their ability to deliver overarching reform to the tax system and allow the least efficient taxes to be abolished. There are a number of ways that a more appropriate fiscal balance can be achieved. However, this will require a collaborative approach between the states and the Commonwealth, take all present taxation into consideration and not be constrained by the need for revenue neutrality. Compliance costs remain a major concern for small businesses, with taxation complexity and compliance representing a major drain on the time and finances of small business. The case for reducing the complexity of the Australian taxation system is compelling, especially when Australia is identified as having the third most complex taxation system of the 20 largest economies of the world according to the Joint Standing Committee of Public Accounts and Audit. Small businesses carry a significant tax burden in comparison to larger businesses. For example, in its Taxation statistics publication, the ATO reported that small businesses with turnover of less than $2 million accounted for around 11 per cent of company income tax collected in , while 34 35