The Hon Josh Frydenberg MP
Speech to the Australian Chamber of Commerce and Industry
27 November 2019
National Gallery of Australia, Canberra
Thank you to ACCI for the invitation to speak at tonight’s dinner.
ACCI which can trace its origins back more than 190 years to the Sydney Chamber of Commerce continues to play a vitally important role representing a wide range of businesses across all sectors of the economy and from all corners of our country.
Like ACCI, we want small and medium-sized businesses to prosper as they are run by the “strivers, planners and the ambitious ones” that Sir Robert Menzies so famously identified in his Forgotten People address more than 75 years ago.
Small business share the values that go to the heart of what the Coalition seeks to promote and achieve through its policies:
- encouraging the individual and their enterprise;
- upholding personal responsibility;
- rewarding effort and hard work.
As I said on Budget night, people running a small business put their livelihoods on the line.
They start early and finish late.
They manage the front desk and the back office.
They pay their workers first and take their own wages last.
So this evening I want to speak about a number of issues that are relevant to small and medium-sized businesses and therefore the overall health of the Australian economy.
I will touch on three issues.
First the state of the domestic economy and why we are confident about Australia’s economic future.
Second developments in the global economy and the challenge it poses.
And third, the series of initiatives we have undertaken to support SME’s around tax, deregulation, infrastructure and tonight’s announcement of a new $540 million Business Growth Fund.
State of the domestic economy
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.
While other nations like Germany, the UK and Korea have recently experienced negative quarters of growth, Australia has just entered its record 29th consecutive year of economic growth.
Both the IMF and the OECD have the Australian economy growing in 2020 at a rate faster than the United States, UK, Germany, France, Japan and Canada.
We have a AAA credit rating from the three leading credit rating agencies, one of only 10 countries to do so.
With Standard and Poor’s saying just today that our outlook is “sound” and that “Australia holds the highest possible rating on their scale.”
We have a current account surplus for the first time in more than 40 years.
We have the lowest welfare dependency in 30 years.
We have delivered the biggest tax cuts in more than 20 years.
And the budget is back in balance for the first time in 11 years.
But what makes these numbers on the page come to life is the fact that they have resulted in so many Australians finding work.
There are now 12.9 million employed Australians, including more women, more seniors and more young people than when we came to Office in 2013.
When we came to Government, the unemployment rate was 5.7 per cent, now it is 5.3 per cent.
Employment growth is 2.0 per cent, more than double the OECD average and nearly three times what it was when we took Office.
The participation rate for women is now 61.2 per cent compared to 58.7 per cent when we came to Government and 54.0 per cent 20 years ago.
The gender pay gap has narrowed by 3.2 percentage points since 2013 leaving a full-time female worker over $1,000 better off a year on average.
But despite these gains, there are definite challenges in the domestic and global economies, with in particular the devastating drought at home and the trade tensions abroad.
Over 95 per cent of New South Wales and two-thirds of Queensland is affected by drought.
If we look at the past two financial years, the output of Australia’s farm sector is now around 14 per cent lower. Lower farm output is weighing on rural exports and food manufacturing.
While the Morrison Government has responded; having committed over $1 billion of additional funding since the election to support the local farmers and communities.
The real price is the emotional hardship suffered by those living through the drought.
I heard firsthand these stories, including the tragedy of people taking their own lives when I recently visited the towns of Inverell, Stanthorpe and Warwick.
I know I speak for everybody in this room when I say to these communities we stand with you at this time of need.
In addition to the domestic challenges we face, Australia is being impacted by the headwinds hitting the global economy.
State of the global economy
In recent months, the IMF, World Bank and OECD have all downgraded their economic forecasts for global growth.
As the trade dispute between the world’s two largest economies, the US and China developed, it has dented global confidence, impacting negatively on consumption and investment the world over.
Global consumer confidence has fallen to its lowest levels in four years.
Global business confidence is around levels last seen in 2012.
With the IMF estimating that if the trade dispute is left unresolved it could reduce the level of global GDP by 0.8 per cent, or $700 billion, by 2020.
This uncertainty has combined with a low inflation, low unemployment and low interest rate environment which sees sovereign bond yields reach historic lows and in some cases are negative.
Investors are paying governments to hold their money as they expect interest rates to stay lower for longer and they look for the stability and certainty that sovereign bonds offer.
Australia is not immune from these global forces as our central bank has joined more than 50 central banks from around the world in cutting rates, so that now our cash rate is at a historic low.
In the words of Governor Lowe “we live in an interconnected world which means that we cannot completely insulate ourselves from long-lasting shifts in global interest rates.”
It is in the context of this environment that it is more important than ever that we continue to focus on policies that promote economic growth and job creation.
Backing small and medium-sized businesses
With nine out of every ten jobs being in the private sector, it is critical that the Government and business work effectively together.
A key area of focus for the Government is backing small and medium-sized businesses who employ more than 7 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 Sensis Survey saying it is relatively difficult to access finance.
This is why the Coalition is announcing tonight 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 financing 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 equity position taken by the growth fund of 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, for example a family owned engineering business I visited in Victoria which is participating in the high-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 its potential and secure their future.
The establishment of the growth fund, which will be head-quartered in Melbourne, builds on a number of other initiatives the Coalition has underway to back SMEs.
Earlier this year the Government also 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 since its introduction, enabling a tradie to buy new tools, a florist a new van, a café owner a new coffee machine and write off their purchases all in year one.
Another aspect of our economic plan is to remove regulatory barriers that make it harder for businesses to invest and create jobs.
Our initial priority areas where I’m working with Ben Morton are:
- Reducing the regulatory burden on food manufacturers, particularly exporters, by replacing an existing paper based system of documentation with online certification.
- Making it easier for sole traders and micro-businesses to employ their first person by providing a new consolidated online checklist;
- Simplifying businesses registers by consolidating 32 separate systems into one, allowing businesses to upload and update their information in a single location making interaction with Government that much easier.
We have also provided a streamlined GST reporting for nearly 2.5 million small businesses.
The Government also recognises the cost and time involved for small businesses to resolve disputes with the Australian Tax 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.
Critical to small business is the consistency and reliability of cash flow.
The Commonwealth Government now pays its invoices up to $1 million within twenty 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 twenty day payment policy.
Finally, business be it big or small benefits from productivity enhancing infrastructure reforms.
When we came to Government in 2013, we announced a $50 billion infrastructure pipeline as part of our first Budget, which Infrastructure Partnership Australia said at the time this is the “the largest-ever national infrastructure program”.
Just five years later we have doubled that program to create a record $100 billion infrastructure pipeline.
The 130 major projects funded by our government and under construction today are supporting over 85,000 jobs.
Western Sydney Airport alone will directly support 28,000 jobs. Jobs that would not eventuate had we not made the decision to get going on the project after it had sat on the drawing board for 50 years.
The 1,700 kilometre Melbourne-Brisbane Inland Rail is expected to support around 16,000 jobs at the peak of construction, including 5,000 in NSW and 7,200 in Queensland.
It will more than double the freight capacity on this route and take hundreds of thousands of truck movements off the road each year.
Small businesses are a core part of this growth story.
Under the land transport infrastructure national partnership agreement, states and territories are required to develop and implement industry participation plans for all projects that receive Commonwealth payments over $20 million.
The plans outline how the project will provide Australian industry with a fair opportunity to participate in the project, with an aim to promote, develop and maintain sustainable Australian industry capability.
This ensures that local businesses share in the benefits of our infrastructure pipeline and helps to promote, develop and maintain sustainable Australian industry capability.
Within nine months of commencing major earthworks at Western Sydney International Airport nearly $37 million of work was subcontracted to 24 local businesses, ranging from traffic control to trucking and digging equipment to demolition works.
On Inland Rail which is only just underway, 84 local businesses have already worked on $46 million of construction on the Parkes to Narromine section.
And last week, the Prime Minister announced that the Government is bringing forward $3.8 billion of investment into the next four years, including $1.8 billion to be spent both this financial year and next year.
This will see projects accelerated across all states and territories.
This will help better connect people to their jobs, homes and communities providing people the opportunity to work, learn and socialise.
It is building the longer-term productive capacity of the economy by improving access from our farm gates and factories to domestic and export markets.
Over the next four years, infrastructure spending will average more than $10 billion in each year.
In the four years before we came to Government, it averaged around $6 billion.
This level of infrastructure spending is unprecedented in Australia’s history and while we are always prepared to accelerate projects, we need to ensure the sector has the capacity to deliver projects on time and on Budget so that we maximise the return to the taxpayer.
This unprecedented investment in infrastructure, more than $300 billion of tax cuts for small businesses and income earners and record spending on essential services is only possible because of responsible fiscal management and a budget that is back under control.
We have worked hard to rebuild the nation’s finances and are once again living within our means.
We are building economic resilience and creating the capacity to respond to future economic shocks.
And we are putting the Budget on a sustainable trajectory so that future generations do not have to pick up the tab for the last.
There are many reasons to be confident about Australia’s economic future, not least because of the entrepreneurship, vision and energy of Australia’s business sector, many of whom are represented in this room.
With tonight’s announcement of the Business Growth Fund and the many other initiatives underway, we look forward to working together – Government and business – to create more jobs and build a stronger economy for all.