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The Big Questions: Brendan O'Connor

Part II of our chat with the Federeal Minister for Small Business, Brendan O'Connor, where we ask him your tough questions.

So we’re going to get into the questions from our readers now. The first one’s about the retail sector and they’re feeling the pinch fairly heavily at the moment. They’re losing out to cheaper overseas suppliers and local buyers have a price sensitivity. Now some people are saying that’s because consumers have fears about the economy and I’m wondering, is it so much that retail suffering because they can’t compete on price or what is it and how can they improve it?
I think consumer confidence has been down. [But] we’ve created over 800,000 jobs, we’re returning the budget to surplus, we have the lowest official cash rate for many a year, lower than at any time in the Howard government. All those good economic indicators should point to strong consumer and business confidence, and yet there is a low consumer confidence, which is affecting the retail sector. The retail sector has also been confronted with the high Australian dollar, which is of course impacting on that sector and now I’m glad to say the dollar has fallen below parity and I hope it stays there, for manufacturing and for tourism and other sects in our economy, but it’s still high compared to the historic levels the dollar’s been at. That’s caused concern. There’s no doubt people look towards Europe and even the United States and worry about what’s happening there, and I think that’s led to people holding onto discretionary money. And also, I think people are correcting the debt that they’ve personally held, they want to pay some of that off. Again, that’s meant there’s been less sales. But if you look at the recent figures this week, I don’t think it’s fair to say the retail’s doing all bad. In fact the consumption has increased so there are signs that people are starting to spend. Of course, through the Budget announcements, we’re providing payments to pensioners, to students, tax cuts to workers and school bonuses to parents, this I hope will enhance confidence, in turn enhance our business confidence and help the retail sector and other sectors in the economy.

So do you have ideas how some of these retail might be able to improve their situation? They’re dealing with the mindset out there that consumers are less willing to go out and buy things for the joy of it, things that aren’t absolutely necessary, and a lot of retail, that’s what they’re selling. They’re selling lifestyle products.
They are, and I think you have to anticipate consumer spending. The fact is, people are spending on different things now. Some things are getting much cheaper because of technological advancement, other things are getting more expensive like health services.
So you have to look at where households are more likely to spend their money.

Businesses have to keep innovating, no matter what sector they’re in. If they want to succeed and grow, they have to anticipate the trends in the marketplace. Governments can only play a certain role, but it’s not there to be a business and what we’ve done is apply fiscal strategy to return the budget to surplus, which creates confidence by giving us a buffer, but also creating the circumstances in which the Reserve Bank, if it chooses to do so, apply monetary policy and we’ve seen that within the space of two decisions in just over a month with a reduction of the official cash rate by 75 basis points. That will also contribute to the improvement in consumer confidence and i believe consumer spending.

But there are other issues. You’re watching the value of people’s houses decline. Expensive houses. But there’s been a correction. What we’ve seen is really the economy running off the housing boom and that’s coming off now and I think people have to adjust that as well. There’s opportunities though that houses have reduced. There are people who have been kept out of the housing market now for too long. Many people have more than one house and many people, even on good incomes can’t get into one and I think it’d be great to see younger people, not the baby boomers, being able to purchase houses and become homeowners if that’s what they choose to do. And so there are opportunities as well as challenges and I think people shouldn't always look at the glass and say it’s half empty, they should say it’s half full.

My final question around retail sales and this came from one of our readers, she was asking do we get another stimulus?
When we’ve found ourselves in a position not to get the proposed tax cut to business through the Parliament, once the Liberals and the Greens Party had joined up to propose the tax cut, we chose to provide money to families in a different way, which we believe will enhance confidence. So in that sense, there is I think more money in the economy and I think that will lead to a greater spending on goods and services, which should assist the retail sector.

We’ll talk about skills shortages now, particularly in manufacturing and building. There have been a few crises in the building area recently, but we’re also seeing a shortage of local skilled workers. So it’s been either offshored or the work’s been done by people who aren’t permanent residents, or who are here on a visa or brought in. In some industries, they’re flying them in to work here. There are two parts to this. Why do you think this has happened, why isn’t the younger generation going and skilling up to work in those industries and what are you doing to help them?
We’ve invested in skills more than any other Federal Government. In fact, the Minister for Skills, Chris Evans, has announced some huge investments in skills, including more apprenticeship places, more pre-apprentice places, so people who’ve actually fallen out of the education system have gotten back into it and we’ve done that because we know with the mining boom and the growth in our economy we have to anticipate that and supply skilled labour. I think therefore...so you’re seeing an increase in apprenticeship places, there’s 450,000 currently. That’s nearly 2.5% increase on last year and that will supply a good skilled labour to many sectors of our economy.

But we’ll always have to supplement some sectors with overseas labour from time to time. We’ve got a history of bringing in skilled labour. From the Snowy River Scheme onwards, we have done this from time to time, and I think you need that combination. And the other issue too is traditionally and historically is people in Australia have not moved as much as other countries, so we have to look at what we can do to encourage mobility, that is for people to go where the jobs are. We have a patchwork economy, we have certain states or regions doing better than others and as a result, people have to consider moving.

But in doing that, we have to remove impediments for people travelling and we have to encourage them to do so. My preference is to see young people where they can and they’re not encumbered by family to take those great opportunities, because it will change and transform their lives. But in the end, people make those decisions. But I think we can defend our arrangements to say greater investment in training, more apprenticeships than ever, a combination of overseas workers when we can’t fill it entirely from domestic workforces.

So what’s the response been when you’ve gone out and met with small and medium businesses in Australia. You’ve talked about these schemes to encourage workforce participation? What are they saying to you?
I think small business have a number of challenges, and they raise them with me. They have issues around regulation, what people like to call red tape, about what we can do to remove compliance, unnecessary accounting or more reporting to governments.
They still remember the Howard introducing the GST, making them all unpaid tax collectors. I don’t think they fully got over that, but that’s something that’s so embedded in the tax system, it’s likely to change fundamentally, but I have a small business advisory committee, made up of small business people who are giving me advice on areas of regulation as to what we should remove, streamline, and remove duplication.

But specifically talking about the manufacturing industry and within the trades, with encouraging participation. What kind of feedback have you had from business owners who want to employ apprentices, they’ve seen you’ve announced some schemes, more jobs created that they’ll be able to hire those people. How have they responded so far?
Well, it varies. In some areas if they work in certain sectors of the economy, I think they’re more confident and employing more staff and more apprentices. In other areas like tourism, there are more challenges. I think manufacturing has been under the pump for some time, because of the high Australian dollar, and therefore we’ve sought to assist manufacturing directly through industry assistance. We’ve done that in certain parts of the manufacturing sector. I also did it in my previous portfolio by introducing stronger anti-dumping provisions to prevent goods being dumped in here that was causing undue harm to production of goods in this country. So I think there’s...

So bulk drops that then bring prices down because there’s oversupply?
Well when it’s goods that are coming in here that are against the WTO provisions, that are...It’s not the goods that are not produced in the country that’s the concern. It’s OK to bring the TVs in, everyone loves the whitegoods being purchased from China. But it’s when companies break the WTO rules overseas and dump goods in here affecting work and manufacturing and other sectors. We’ve strengthened the anti-dumping provisions. That’s been well received by small and large businesses in the manufacturing sector. So I think there’s a combination of things governments have to dom, but investment in apprenticeships have been important, but we’ll keep talking to small business in that sector to see what we can do. And that’s why I say we’re in constant dialogue with them.

Let’s talk to very small businesses, down to sole traders. We have quite a number of those who read the magazine, so they’ve recently left a career working for a corporate and now they’re working show. It’s just them. When the budget came out,there was one shock buried in there for sole traders. That’s they weren’t going to get the carry back loss scheme.
I don’t think there was a shock, I think there was a surprise that we actually announced it. People weren’t aware we were going to announce the loss carry back scheme for incorporated business.

I think it was a shock when they heard what it entailed, that sounded interesting, they were sold on it, then they realised they weren’t going to get it. Their mates with 5 employees were going to get it, they’re not going to get it.
And the business advisory group on taxation advised that we start with incorporated businesses. The way in which unincorporated small businesses can actually deal with their losses is more flexible and beneficial than it is for incorporated businesses. It’s a different arrangement, so even if we were to apply that scheme to unincorporated businesses, we’d have to take into account their already flexible arrangements they have, vis a vis, incorporated small businesses.

Having said that, and I understand that it’s something people want us to explore can we apply it across the board. It’s something we can look at, but of course, we’ve got the instant asset tax write-off which applies to unincorporated and incorporated small businesses. That’s a huge benefit for businesses. It removes the need to have depreciation schedules. It allows them to purchase assets up to $6,500 and get immediate depreciation after one year and that includes also an extra...also the instant asset write-off the $5,000 of the company vehicle, the first $5,000. So that’s been well received by unincorporated, by sole traders, by independent contractors. And the tax-free threshold, which doesn’t apply to incorporated businesses, but does t unincorporated businesses because they’re individual taxpayers, they receive the benefit of the increase of the tax-free threshold from $6,000 to $18,200. That’s something they get, that corporate businesses don’t get.

So I think they’ve got their fair share, but we can do more. That in total though, those initiatives cost $1.7 billion. And where did we get that money from? Well, we got that mineral resources rent tax because we believe as a government that you must spread the benefits of the mining boom to other sectors of our economy. I think small businesses in tourism and manufacturing deserve to get tax relief, and I think it’s incumbent on the mining sector to share some of those benefits and we make no apology to introducing that arrangement that gave us the revenue to give to small business.

We’re going to talk about red tape now, I know it’s one of your favourite topics. Recently the business advisory forum was set up, and that’s working with state premiers. What we’re looking for is some real world example of what’s been achieved.
OK, we’ve done a number of things already. We’ve actually introduced fundamental reforms to registration...the name registrations of businesses before the 28th of May, small businesses that work beyond the boundaries of one state, had to register in every state they had a business in and it could cost them up to $1,000. We’ve actually introduced them the capacity to register just once, apply nationally costs $30. This is a massive reduction in cost and the last two weeks since we announced it, 14,500 businesses have registered. That is a huge increase in the applications for registration.

We’ve done some other things too. There’s been an obligation on employers to provide a choice in super schemes that was introduced by the Howard Government, which did lead to complication. There was a concern from some super schemes, the industry super schemes had an advantage, but that lead to complication you can imagine, for employers with 15 employees who might have 3 or 4 super schemes. a lot of extra admin and lots of hours working out the payments to each scheme over the given fortnight or month. We’ve now allowed the free of charge for a small businesses with fewer than 20 employees to through one transaction, send it to a government agency, who will then send it out to all the respective super schemes. So one press of the button, and they can literally get it out, That’s actually saved on average I’m advised about 8 hours a month for the average sized business that has who’ve got about 15 staff. So that was a very good change to reduced tape.

The instant asset tax-off I mentioned earlier, it’s mainly about bringing cashflow, providing 100% depreciation on the assets you purchase from the 1st of July this year, but it also reduces significantly all of the filling out of the depreciation schedules, so instead it for every year under the current arrangements, it’s done once, because you get all the rebate back, the money back straight away. So that’s been well received in terms of not just benefit financially, but a benefit to introducing tax.

I think it’s more sensible, in a lot of the products these people are writing off, the lifecycle is the number of years you’re allowed to depreciate it on. So in our industry, it’s technology. If you’re not upgrading your technology within the two year life cycle, you are so far behind. It’s like the difference between human years and dog years.

And so it makes sense in that regard, but it certainly provides a benefit, even for a durable asset it’s a benefit. We’ve actually changed a number of things, which I think have made it easier for businesses. But I do have the Business Advisory Committee, that advise me on what else we should do. I’m sure they’ll provide me with a list of things we could do. And again, as I said earlier, I think it’s also incumbent on state and local governments to look at themselves as to how they can also assist. I think it’s important that all governments at every level find ways to remove barriers for businesses to grow.

What kinds of businesses are represented?
Firstly, we have small business representative bodies like COSBOA, who represent all small businesses, small and large within that definition. So micro-businesses, sole traders. The chair of that happens to be a bookshop owner, but his experience because of his engagement with small businesses is quite extensive.

ACCI is also there, who represent many small businesses and of course because they represent local chambers of commerce, local chambers of commerce are, of course, are the backbone of the small business community in suburban and regional areas across the country. So it really is a good representative body, in that people have diverse experience, both personal and in the bodies that they work for.

So if a business owner wants to contact this group, how do they go about that?
They certainly can contact my office or contact the department. I think it’s also possible for them to contact COSBOA, who is the representative body for small business and I think they can write directly to me. Any small business in this country that writes to me, I will be responding. And if they want to provide ideas about how we can improve their lot, then I’ll be looking at all ideas. We’re not just going to peak bodies. I’ve met hundreds of small businesses already, and I’ll just keep travelling, because that’s where I find the best ideas come from - directly out of small business...

That’s been our experience too with our publication. I think sometimes representative bodies can get caught up in their own particular...
When people say red tape, I say, exemplify that. Don't’ just say red tape, tell me the specific forms or the specific accounting requirements that you’re asked to do that you don’t believe is necessary or shouldn’t have to be done in this way and I’ll look at it. 

Here's one.  Now the survey that we published recently was done by MYOB. Of course, they have vested interest in talking about accountancy issues, but these are common challenges for small business owners. So just under half of business owners weren’t aware that the flood levy had been dropped. About a fifth didn’t have a clue about the tax-free threshold changes. Just over 60% were in the dark about changes to annual reporting of contractor payments. And I think about 13% didn’t know about the carbon - surprisingly, given the amount of media coverage - didn’t know the carbon tax was being introduced. They were thinking it was still up for debate or something. How are these business owners being brought up to speed on compliance? I know MYOB wants them to rely on accountants, but that can’t be the only channel.

MYOB do a good job, because their reach is so large, about 800,00 businesses they get out to. I know they’ve sent out information in a matter-of-fact, neutral way, but they get it out. I think it’s always been a challenge to broadcast information advice to small business. They don’t always have the time or the inclination to stop and look for what might be affecting them, and we do need to find new channels of communication and I’m constantly looking at what other ways we can create to get the information out to them.

Insofar as the carbon price is concerned, I don’t think it’s too concerning 13%...I’m surprised, but they don’t have to do anything in relation to the carbon price. Unlike GST there is no accounting requirements, there is no direct tax they have to pay, they don’t have to pass anything on. There will be an impact. With treasury’s model, 2% of energy costs...2% is the amount of, is the proportion of the total cost of a small business spent on energy. I think there’s a 10% cost on that 2%, so there’s a 2% cost on average, and that’s quite negligible and we certainly haven’t imposed any taxes upon them or any obligations as a result of introducing carbon. So to that extent, I think when the 1st of July comes around, the sky won’t fall, things won’t be changing fundamentally out to the economy. There will be a modest increase in CPI, much less than the introduction of GST and I think people sigh and say, ‘well what was all that scare campaign about? ‘That’s the government's view and people have lived the experience I think they’ll find many of the wild assertions about the coal industry collapsing and Whyalla being wiped off the face of the earth have been completely irresponsible assertions made by the leader of the Opposition.

There are some industries that are very reliant on consuming large amounts of energy. In the cooling industry for example, keeping perishable goods safe and saleable. Anyone who’s in manufacturing that actually involves fairly serious machines is using a lot of energy, and some of them have been quite scared and they’re being sold all kinds of stories by the mainstream media.
That’s true and most of the...that’s why we’ve dedicated much of the revenue that we’ve collect to protect industries, those that are trade exposed, or as you say, expend energy, there are some trade exposed industries that are being provided 94% protection for that exposure. It is an important fundamental reform and we do understand people’s concerns and we respect people not supporting if they don’t support it.

So you’re confident in a couple of months’ time, people will breathe a sigh of relief?
I think some people understand already what the reforms will mean. I think others have been scared out of their wits about some of the assertions made and some parts of the media have sensationalised those allegations. It is interesting that many, many liberal MPs have put a lot of money in coal, they’ve bought a lot of shares. Now, why have they don’t that? Because they know the scare campaign's not true. Don’t worry about people say, just watch where they put their money.

The coal industry has a great future in this country, we have $5b in investment in the pipeline generally. I don’t think the wild assertions that have been made by the Opposition leader will come to pass, and I think he knows that too. He once was talking about a wrecking ball, now he’s talking about being strangled by a python. These are just as excuses, because he knows the impact’s not going to be there.

There seems to be a lot of debate that has been around a scare campaign, rather than dealing with the topic itself. Speaking of debates, on my team I have a babyboomer. I’m Gen X ,I was born in the early 70s and I have a web editor who’s Gen Y.
So I’ve got a couple of questions around the generational divide. It’s coming up a lot more now because there are a lot of Gen Ys entering the workforce and they’re driven, so I’m looking for advice on younger business owners about how they deal with the older ones. Because there are a lot more older people in the workforce, rather than the younger ones. Particularly the babyboomers are outnumbering Gen X, and they’re outnumbering Gen Y. How does a younger business owner deal with this older workforce?
I guess like in any workforce or in any marketplace when you come in and enter a field, I think you’re there to learn from others. We recently established a mentoring program for people with qualified apprentices, if they want to go off and set up their own business, that’s a recent initiative from the Gillard Government, because we understand young people need to be fully equipped. I think young people tend to talk to mentors, whether it’s their parents, whether it’s other people or older siblings about the way they should proceed. But I say to people it doesn't matter what age, if you’re going to consider entering or creating a business, make sure you prepare for it before you take the leap. I think it’s fantastic that people are willing to take risk to create businesses, and I think there’s something romantic about starting your own show or starting your own business. It’s calling your own shots.

I think it’s romantic in that you want to actually run your own business, you don’t want to be told what to do directly by another, and you want to take certain risks. That’s fine, but the risks should be ones based on good advice and also good information and too often, we do see businesses fall over, even though the people involved actually have some very good skills, they just don’t know how to run a business. They might be good tradespeople, they might be good professionals, they might be good IT people, but they actually don't know how to run business, so they should get good advice, they should access that advice from business enterprise centres, or small business advisory services or TAFE colleges or wherever, before they take that step.

So maybe the baby boomers can still be useful for us then.
Baby boomers have most of the wealth of knowledge and just the wealth, it seems. I guess they’ve put in for a longer period of time, it’s only natural that a generation that’s been around longer is going to acquire more assets. I watch these young people coming into the workforce and they seem pretty confident and they see Australia. I think they see opportunities and I encourage people to take risks, but take risks based on good advice.

We had a late question that came in for this session today and it’s from a guy who’s set up a security firm. And he’s struggling with keeping customers, and he had a question, well two parts to his question. He’s saying that he’s losing customers because everyone’s insuring now rather than protecting, and the other part of is it is he was trying to apply for grants so he can market his business better, and he was complaining that it’s very difficult to access the grants, and in some cases, you have to pay someone money so you can access money. How’s he going to survive?
Firstly, you don’t have to pay anyone to access the information about grants that are provided by the Commonwealth. You just have to go onto the government business website. There are other websites that are private websites that don’t have that address that might charge fees for providing advice and I’d ask people to be mindful of that, because if they go onto the government website, then there’s a section where they can just click on to look at what possible grants that might be there for them to be eligible for, and I think small businesses should be looking..I know they’re very busy and it’s very hard to find time to do these things, but I think if they can sometimes, just take a moment, see what’s available to them, contact their local business enterprise centre about information, ring the small business hotline on 1800 777 275 if they want to talk about any issues, and get advice from government agencies before they go into other areas to get good advice.

So his solution could be from these advisors would be on ways of marketing that are cost-effective. He may not need a grant at all.
My advice to him, not knowing all of the facts, would be that he either rings the Small Business Advisory Hotline, or indeed speak to a Business Enterprise Centre and if there’s one close - there are over 100 across Australia - go in and talk to them. I’ve met plenty of businesses that have managed to market their business by contacting BECs. They’re very good organisations. We fund some of them, State Governments fund some of them and they are usually - they have people in them who have great understanding of small business and they’re there to give a hand to them, so that would be my advice to him. Before he worries about grants, he can get good advice from people already in existing centres around Australia.
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