Small Businesses Slammed with Red Tape

Small businesses and sole traders have been slammed again with more red tape...

The worst kept secret in Canberra is the insatiable appetite of politicians and bureaucrats for regulating and controlling every aspect of lives due to a pathological belief that all problems can be solved through legislation. The boundlessness of their bull-in-china shop approach to solving issues was exposed recently with a suite of harebrained ideas that will create further regulatory burdens on small business.

Financial Services Minster, Kelly O'Dwyer has proposed reforms to the ABN system which will make the arduous process of setting up a business even more difficult. Ironically, this at a time when the government is trying to promote its innovation and entrepreneurship platform. For starters an ABN is an identification number needed to register a business. These reforms will restrict the eligibility of who can obtain an ABN, imposing "new conditions", forcing businesses into a new renewal system and predictably, new fees with hikes to the existing ones. The modus operandi behind these reckless proposals are to crack down on the vaguely-defined "black economy."

Compliance burdens make it harder for businesses to focus on employing people, growing and contributing to the economy. They also impact smaller businesses more than their larger, better-resourced rivals. The Institute of Public Affairs estimates the existing cost of red tape to our economy at $176 billion. The ABN changes will come on top of the numerous BAS statements, payroll tax and other hoops small business must jump through. With recent spikes in electricity prices and hikes to the minimum wage for some occupations, they couldn't come at a worse time for business. Aspiring start-ups already struggle with comprehending the patchwork of regulation and a tight credit supply at the time of launch. This is not what we should expect from a "Liberal" government.

The more vexatious components of these reforms are those designed to limit access to an ABN, with such prescriptive approaches reflecting a complete lack of understanding around their use. The idea that ASIC or bureaucrats should decide what constitutes a legitimate business purpose under rigid "conditions" is nothing short of Orwellian. The implication is that anyone starting a business is guilty until proven innocent.

As a personal example, I applied for an ABN for a role as a contractual tutor. Since it was my responsibility to arrange terms with clients which were never guaranteed, a traditional part-time contract was inappropriate. On the face of it, those with superficial understanding have criticised such practices as a cynical "wage exploitation" tactic since an ABN contractor isn't entitled to the same conditions. Yet this inane, narrowcast thinking ignores that the very nature of the role wasn't suited to a part-time contract as I and students like myself need flexible work arrangements which can fit around rapidly-changing study commitments. Similarly, tuition agencies would find themselves in financial instability if forced to apply fixed wage payments despite a seasonal and inconsistent client base. This is why seemingly banal reforms can be so existentially threatening. Stripping away a business's choice to use an ABN and forcing them into ill-suited contractual arrangements under the un-Fair Work Act will be highly disruptive. We cannot trust Canberran bureaucrats to prescribe "appropriate uses" and understand the nuances of businesses if, as history shows, they can't be trusted to manage budgets.

The bulk of 'Black Economy' activity occurs through undisclosed cash payments in industries such as construction and opaque activities over the internet. None of these proposals provide tools to deal with these practices and seem instead like solutions looking for a problem. The idea that perpetrators can be weeded out by creating hoops to jump through to start a business is an absurd way of targeting a few individuals who fail to declare all their income at the end of the financial year.

There are only two winners from these ill-conceived proposals. The first are unions who might be excited about independent competitors in the construction industry that use ABNs facing an even more uneven playing field with greater costs and restrictions. The second are multinationals and big business who have the resources at their disposal to discover loopholes and skirt the red tape while their smaller counterparts struggle to compete and become less of a threat to their market share.

The government ought to focus on the real 'black economy' – not corner stores and tradies bold enough to seek cash payments for goods and services for solvency purposes.

 

Rohan Indra is a Research Associate at the Australian Taxpayers' Alliance

 

[This article first appeared in Online Opinion]

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