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Low productivity, high taxes strangling SME growth

Low productivity, high taxes strangling SME growth

A new major research paper has identified significant headwinds for Australian SMEs and called for radical reforms to reverse slowing productivity rates and remove restrictive tax policies.

The Institute of Public Accountants (IPA), in conjunction with the IPA Deakin SME Research Centre, spent 18 months consulting and researching the policy landscape for SMEs as part of its Australian Small Business White Paper, following the release of the first version in 2015.

“Numerous policy recommendations have been adopted from the first edition, which was launched in 2015. However, we recognise that the state of our economy is reliant on the productivity, growth and prosperity of the small business sector, so this work must be ongoing,” the IPA’s chief executive officer, Professor Andrew Conway, said.

“The world does not stand still, and issues impacting small business constantly change; the impact and speed of technological advancements is just one example. However, there are some areas that still remain as ongoing issues, such as access to responsible and affordable finance.”

Professor Conway said there are a raft of policy issues affecting business leaders and impacting on SME growth and productivity, with cyber security and mental health among the new additions in the second version of the paper.

“Simply put, if we are to drive economic prosperity and retain or improve the level of living standards that we currently enjoy, we must do a lot more in support of small business. Our intention is to turn Australia into the best place in the world to start and run a small business,” he said.

One of the standouts from the research is that small businesses are delivering smaller improvements in productivity than their larger counterparts (28 per cent versus 36 per cent), and that overall, Australia’s productivity rate has declined sharply over the past decade.

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“Living standards are directly reliant on productivity. So if we want to maintain or improve our living standards, then we must increase our productivity,” the report noted.

“Our research also indicates that small business can play an important role in lifting national productivity growth and, more importantly, national living standards through a variety of ways, including improved diffusion of knowledge, products, processes and technologies across businesses,” said Deakin Business School’s George Tanewski, professor of accountant and co-director of the IPA Deakin SME Research Centre.

The report also repeated calls for a major overhaul of taxation, which is currently seen as a major barrier to growth.

It suggested raising the GST rate to 15 per cent (currently fixed at 10 per cent), with the additional revenue to be used by state and territory governments to abolish restrictive taxes like payroll and stamp duty as well as vehicle fees, plus an overhaul of income tax rates.

Core recommendations to improve SME growth prospects

  • Broaden the base and lift the rate of GST (subject to the appropriate equity measures)
  • Cut direct taxes
  • Undertake a zero-base design of a thoroughly modern taxation system
  • Reform and simplify the personal income tax scale
  • Standardise a company tax rate at 25 per cent
  • States and territories should be held accountable to the Intergovernmental Agreement on Tax Reform to eliminate payroll tax and stamp duties. These revenues should be channelled into a state and territory infrastructure fund to grow their economies
  • Commit an incoming federal government to hold a small business summit within the first six months of assuming office
  • The Prime Minister should form and chair a small business advisory council to provide direct policy input and options to the government to inform the Council of Australian Governments (COAG) agenda, with a core focus on productivity
  • The federal Small Business Minister should remain a permanent position in cabinet, preferably with its own department
  • The Australian government should facilitate small businesses joining global value chains to remain competitive and access global markets.

The full paper can be viewed on the IPA website.

Low productivity, high taxes strangling SME growth
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