The federal and state governments are considering an eight-point package of productivity-enhancing reforms from National Australia Bank to help small and medium-sized businesses recover from the economic shock caused by the coronavirus pandemic.
NAB chief executive Ross McEwan said many business owners were likely to have been traumatised by the imposition of a second lockdown in Victoria last week.
“I think there’s as much psychological damage as there is financial because they’ve got themselves through the first 12 to 14 weeks of COVID-19, they’re back in business, they’ve restocked, and they’ve brought some colleagues back on board,” Mr McEwan said in an interview with The Australian.
“But all of a sudden they’re down to zero (revenue) again.
“I think the government is genuinely looking for change coming out of COVID-19 to get the economy moving.
“We’ve sent our report to the treasurers and the government departments involved in small business, and we understand they’re very positive about the information in it.”
Mr McEwan said recent check-ins showed that more than 15 per cent of business owners who had deferred their loans — and well over 20 per cent of mortgage customers who had taken similar action — were ready to resume repayments.
While the position was likely to have deteriorated with the second lockdown in Victoria, the true impact would only become known in a few weeks.
Mr McEwan also expressed confidence that the Morrison government would take measures to ensure there was no financial cliff after the end of September, when assistance programs such as JobKeeper will expire.
“I suspect that they’ll be looking to smooth it out to the end of 2020 and into 2021 for the industries that need it,” he said. “Not all industries need it, so I would expect it’ll be very targeted. And that’s what it should be.”
The research-driven, eight-point blueprint developed by NAB, the nation’s biggest business bank, recognises the importance of a vibrant SME sector to the economy.
The sector accounts for 99 per cent of all companies, two in three of the nation’s jobs, 76 per cent of new positions and $2 trillion in income, or 56 per cent of total production.
While SMEs had received “much-needed” support during the pandemic, Mr McEwan said they needed long-term reform if they were to thrive and power the nation’s economic recovery.
There was a “big prize”, he said, if the nation got its SME settings right.
Like with NAB itself, the focus of many of the eight reforms is simplicity, making it easier to do business.
The measures include making it easier to hire new workers; slashing regulation and red tape; making sure small businesses get paid faster; harnessing the power of digital tools; expanding procurement opportunities; lifting small business management capability; opening up access to capital, and improving state business conditions.
Mr McEwan said he believed the biggest inhibitor to SME growth was the complexity of hiring new workers.
The report found small businesses spent up to 18.4 hours on compliance before hiring their first employee — about five times as much as large businesses with more than 200 employees.
The extra time was spent on understanding awards and pay rates, and complying with taxation, award, occupational health and safety and record-keeping obligations.
“If we would get all those small businesses just employing one more person as we came out of COVID-19, this economy would fire up pretty quickly,” Mr McEwan said.
“So it’s just the ease of hiring, which is the one that I would have put up the top of the list.”
Excessive red tape, according to the report, costs SMEs about $9.3bn a year, with tax compliance priced at $90 for every $1000 in revenue — 225 times the 40c price for large businesses.
Unfair payment terms
Small businesses were also penalised by unfair payment terms, with 53 per cent of payments, or $115bn, coming in late.
Each year, late payments from large businesses effectively deprived small businesses of $7bn in working capital.
Mr McEwan said SMEs would also benefit from the introduction of digital tools. Large firms, he said, adopted digital processes in key areas at four times the rate of small businesses, with 43 per cent of cybercrime targeted at SMEs.
They also struggled with procurement, winning only a quarter of government contracts despite accounting for more than half the country’s production.
The report urged governments to increase the amount of contracts by value given to SMEs from its current procurement target of 10 per cent.
Lack of access to capital was a challenge for SMEs, with one in five reporting “difficulties” and small business lending growing at two-thirds the pace of lending to large businesses.
The report said the Australian Business Growth Fund would provide SMEs with access to equity growth capital, and there was pressure on the prudential regulator to move from the one-size-fits-all model and allow regulated institutions to apply risk weightings to specific risk factors in small business loans.
Open banking would also enable small business customers to instruct their banks to share their data with accredited third parties, opening up more competition in sources of finance.
As to improving state business conditions, NAB said its index of small business conditions showed wide variability over the four quarters to March 2020, with Western Australia down 5.8 points and Victoria up 7.8.
There was an opportunity for the national cabinet to streamline the differences across states.
Mr McEwan said the federal and state governments had been working well with each other and there was an opportunity to apply that approach to benefit SMEs.
“The option, of course, is that some of the states themselves pick up these findings and make it easier for businesses,” he said.
He added that these were “practical areas that any state could work on”.