Small businesses touched by dozens of recommendations in massive Productivity Commission report

Source: Unsplash/Ryland Dean

The Productivity Commission’s new report, which warns of longer workweeks and reduced wages if the nation does not become more efficient, is big in every sense.

Clocking in at over 1,000 pages, it levels 29 reform directives and 71 distinct recommendations to improve how the Australian economy operates.

Yet the vast document also addresses small business issues in several key moments, calling for decision-makers to reassess the workplace awards system, reconsider how banks finance entrepreneurs, and better share innovative ideas with startups.

Awards and workplace relations

In the wake of the federal government’s landmark Secure Jobs, Better Pay legislation, Australia’s decision-makers must ensure the awards system is keeping pace with the needs of business, including SMEs, according to the report.

“A renewed focus on awards is a key priority — to expand flexibility for many small businesses, improve compliance and provide a better basis for formal agreement-making,” according to one of the report’s recommendations.

“Incremental changes to the latter would also make it easier for businesses and workers to make mutually agreed workplace changes through formal agreements, and re-focus enterprise agreements on their core objective — productivity improvement.”

Productivity gains could also be wrought by tweaking the Fair Work Act to consider “the needs of employers” and “the likely impact of any exercise of modern award powers on efficiency and productivity”, among other proposed amendments.

The report’s focus on pure productivity improvement runs slightly askew to the federal government’s reform agenda, particularly in the Secure Jobs, Better Pay legislation, which sees the improvement of employee wages and conditions through expanded bargaining options as a primary goal.

Naturally, those reforms warrant their own recommendation, too: a review of the Secure Jobs, Better Pay package should consider the “use of multi-enterprise bargaining and its effect on wages, prices, competition, and productivity,” the Productivity Commission says.

While the public and lawmakers now have time to digest the report and its findings, Treasurer Jim Chalmers has already established the federal government will not take every recommendation onboard — potentially preserving its own Secure Jobs, Better Pay goals.

“While we won’t be taking up every idea, or progressing those suggestions which conflict with our values and priorities, our work is aligned with the five themes and we are progressing, in some form, more than two-thirds of the 29 reform directives outlined in the report, and methodically working through the specific recommendations,” Chalmers said Friday.

Bank financing

Innovative businesses can only succeed if they have the financial backing to do so, and the Productivity Commission has called on the federal government to maintain an “enabling environment” for SMEs and startups to attract the foundational capital.

To do so, lawmakers should monitor the effects of how the Australian Prudential Regulation Authority (APRA) sets “capital requirements and risk weights for loans to small and medium enterprises (SMEs) that are not secured by property”.

With homeownership trending downwards, fewer small business founders have a home to put up as collateral when seeking a loan than in years prior; in its recommendations, the Productivity Commission effectively calls for APRA to set rules which allow entrepreneurs to safely borrow capital without first owning property.

The federal government should also assess the Australian Business Securitisation Fund, which backs SME debt funding to the tune of $2 billion, to see if it is “having the desired impacts on SME lending.”

“Adjustments or further responses could be required if barriers to SMEs accessing finance remain,” the report adds.

“APRA may need to collect more detailed data about business lending to enable the government to undertake this monitoring.”

Innovative idea-sharing

Even if small businesses have capital, they still need strong ideas to compete in the market.

Ensuring SMEs have access to innovative concepts is vital to boost their productivity, the report states.

To boost the “diffusion” of forward-thinking concepts, the federal government should fund and operate “extension service” trials, “which have so far been focused on the agriculture industry in Australia, to support diffusion of technical knowledge and relevant technologies in other sectors.”

Lawmakers are already considering how small businesses can harness the power of emerging technologies, like artificial intelligence, but the Productivity Commission suggests bridging programs could take many other forms.

“The initiative should be tailored by sector depending on what services are relevant for most small businesses in that sector, with early engagement between government and businesses to identify
the types of services that would be most beneficial,” it says.

Canberra should also open the books on the results of government-funded research, giving more businesses the chance to capitalise on their findings.

Small business touched by dozens of recommendations

While the report explicitly mentions small businesses in three of its proposals, dozens of other recommendations could touch the SME sector if enacted.

It calls for major changes to Australia’s skilled migration program, including the total removal of list-based restrictions on employer-sponsored temporary and permanent skilled visas.

The system should utilise an income threshold system instead, potentially enabling employers to sponsor workers with niche skills not covered by existing priority lists.

In the same vein, Australia’s regulatory bodies should increase their recognition of international qualifications and licenses, making it easier for skilled workers to ply their trade without seeking domestic qualifications for skills they already possess.

Digitally-enabled businesses in regional Australia could be buoyed by better infrastructure and improved funding mechanisms, the report says.

Firms which sustain a cyber-attack should be able to report the incident through a single interface, instead of navigating a slew of potential options.

The report also makes a bold recommendation pertaining to climate change: businesses and homeowners looking to establish themselves in disaster-prone areas should be informed of the risks upfront, the paper says.

The federal government should also start mapping out transition plans for industries and communities whose livelihoods are rendered unviable by climate change, the report posits.

“If transitional assistance is provided to climate-impacted regions, industries, and workers, it should be structured in a way that lets people decide which regions, sectors, and occupations they are best placed to transition into,” it says.

“It should not be made conditional on recipients committing to live or work in a particular region, sector, or occupation.”

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