Last week the Reserve Bank released its November Board minutes as is its usual practice every month. It referred to the economy reaching a ‘gentle turning point’ after its soft patch in the second half of last year.
The RBA sees economic growth picking up as a combination of factors take hold.
Increased infrastructure spending, tax and interest rate cuts, a rise in housing prices and more investment in the resources sector are all contributing to an improvement in the economic outlook.
But there are definite challenges in the domestic and global economy, with the devastating drought at home and the trade tensions abroad.
However, with nine out of every 10 jobs being in the private sector, it is critical that the Government and business work effectively together to continue Australia’s record 28 years of consecutive economic growth.
A key area of focus for the Government is backing small and medium-sized businesses who together employ more than seven million Australians.
These businesses are central to every sector of the economy, from retail to real estate, hospitality to health, transport to technology and manufacturing to mining.
For example, small and medium-sized businesses are responsible for more than three-quarters of the output in agriculture and more than half the output in construction.
While there are many important issues affecting small business, including regulation, tax, skills and infrastructure, one that is always front of mind for small business owners is access to the necessary capital to enable them to innovate and grow.
It is a point acknowledged by the Reserve Bank who has said of small business that “it’s not the absence of entrepreneurial spirit, it’s the absence of entrepreneurial finance that’s been the main factor holding that part of the economy back”.
SMEs have echoed this point, with 35 per cent of respondents in November’s Census Survey saying it is relatively difficult to access finance.
This is why the Coalition is establishing Australia’s first Business Growth Fund.
Modelled on similar initiatives in the United Kingdom and Canada the Fund will have $540 million at its disposal to invest in small- and medium-sized businesses and fill a gap in the market. With a $100 million commitment from the Morrison government and $440 million from the big four banks, HSBC and Macquarie, the Fund will invest between $5 million and $15 million in SMEs that have a turnover between $2 million and $100 million.
The decision to invest will be made by an independent board and represent patient and passive capital that gives SME’s an alternative to simply increasing their borrowings in order to grow.
The growth fund will be able to take a minority stake of up to 40 per cent in the companies in which it invests thereby enabling the existing owners to maintain control of their business.
This proposition will be attractive to businesses in all kinds of sectors, like the family-owned engineering business I visited which is participating in the hi-tech defence industry supply chain but is reluctant to take on more debt to fund their expansion.
Alongside access to capital, the growth fund also offers non-financial support including strategic advice and mentoring for the businesses in which it invests.
This will enable each business to capitalise on it’s potential and secure their future. The establishment of the growth fund builds on a number of other initiatives the Coalition has underway to back SMEs.
Earlier this year the Government passed legislation establishing a $2 billion fund to boost lending to small business.
Run by the Australian Office of Financial Management that sits within the Treasury portfolio, the fund makes money available to smaller lenders who then write loans for SMEs. In doing so it brings down the cost of loans for these lenders and increases competition in the market.
The Government has also cut taxes to 25 per cent for SMEs with a turnover under $50 million which will be fully rolled out by 2021-22, five years earlier than first announced.
In this year’s Budget we also increased the instant asset write off to $30,000, and expanded it to businesses with a turnover of up to $50 million.
This tax incentive, which can be claimed multiple times for goods up to $30,000 in value, has been used by more than 700,000 businesses enabling a tradie to buy new tools, a florist a new van, a cafe owner a new coffee machine and to write off their purchases all in year one. Red tape for SMEs is also being targeted with streamlined GST reporting for nearly 2.5 million small businesses.
In a new wave of deregulation we are also making it easier for food exporters by replacing an existing paper-based system of documentation with online certification; providing a new online checklist to make it easier for micro businesses and sole traders to employ their first person, as well as simplifying government run business registers by consolidating 32 separate systems into one.
Businesses will be now be able to upload and update their information in a single location making interaction with Government that much easier.
The Government also recognises the cost and time involved for small businesses to resolve disputes with the Australian Taxation Office.
To provide access to a speedy, low cost and independent dispute resolution mechanism we have established the small business taxation division within the Administrative Appeals Tribunal (AAT) which commenced this year.
Also critical to small business is the consistency and reliability of cash flow.
The commonwealth Government now pays its invoices up to $1 million within 20 days and from 1 January next year all commonwealth Government agencies will pay e-invoices within five days.
We are also putting in place a reporting framework requiring big businesses with a turnover above $100 million to publicly account for how quickly they meet their bills to small business.
Importantly, when large businesses tender for government contracts they will have to adhere to the Commonwealth’s 20-day payment policy.
Employing millions of people, small business is the backbone of the Australian economy and should be supported at every turn.
The new $540 million Business Growth Fund is a significant step forward enabling many SMEs to get access to capital that they may otherwise have not had access to.
The new financial support will help small business grow and expand creating more jobs across the country.
Josh Frydenberg is Federal Treasurer