Inflation is rising at its fastest pace in more than two decades. Australian Bureau of Statistics data shows the consumer price index has risen by 6.1% this year, the fastest rate since 2000 when GST raised the price of many goods and services by 10% overnight.
Amid rising interest rates, challenges around minimum wage, and supply chain woes driven by the global conflict and natural disasters, worries are spiralling that Australia could enter its first recession in decades.
While much of the rhetoric has rightly pointed out how these conditions affect household budgets, it represents yet another period of instability for our nation’s small businesses, who face new supply chain challenges, rising fuel and energy costs, and staff shortages.
Australian businesses have dealt with two years of decreased margins and cashflow, meaning many are going into a potential recession without a savings plan. While the sector is resilient, it’s critical they’re supported if conditions get worse.
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As the cornerstone of the Australian economy, the public sector has an obligation to support small businesses through yet another tough period. There is significant opportunity for targeted government investment in things like population growth and digitisation that could help these organisations thrive amid historic uncertainty.
Here are three ways government support could help small businesses stay healthy as recession looms.
1. Work with industries to relieve staff shortages
The ABS estimates job vacancies rose to 480,100 in May, with one in four (25.2%) Aussie businesses reporting at least one vacancy. This has led to a highly competitive ‘war’ for talent, as candidates with sought-after skills become increasingly hard to find.
The public sector is already making efforts to ease this burden. The new government recently established a statutory body aimed at addressing the “urgent” skills crisis, dubbed ‘Jobs and Skills Australia’. It is hoped that outcomes from last week’s Jobs and Skills Summit will help address large economic challenges, including sparking better engagement between government and private industry to help develop fit-for-purpose skilled migration lists and policies.
While Labor’s election platform was focused on sourcing talent from the Pacific, we’d encourage tighter policies that incorporate other regions as well. Skilled migration amendments are critical for addressing the needs of Australia’s small business labour market, providing long term solutions for both businesses and employees.
We also encourage the government to consider tax incentives for small businesses and sole traders to train employees, helping small businesses better utilise the talent they already have.
2. Continue investment in common-sense digitisation and data initiatives
Aussie businesses massively ramped up digital transformation over the past few years. Gartner predicts Australian tech spending to exceed $111 billion this year, with enterprise software and IT services the two highest growth areas.
We know that a strong SME sector is a key driver of a healthy economy and nothing makes small businesses stronger than smart digital investment strategies. We encourage the government to maintain a relentless focus on digital enablement, building on the previous government’s efforts, which most recently included tax incentives for upgrading digital infrastructure.
With so many small businesses in Australia relying on the power of financial data to succeed, it’s critical that our regulatory framework supports the development of innovative new products and services, fuelled by the consumer data right (CDR) regime.
We encourage the new government to make immediate and common-sense changes to the CDR rules to redefine what constitutes ‘business data’, enabling SMEs to share their data with trusted third parties, whilst gaining more control over this data type.
Businesses that use digital tools to streamline core functions are less likely to experience economic hardships under pressure. The government should work hard to incentivise investment and streamline regulation where possible to help small businesses build future-proof digital strategies.
3. Refine regulatory barriers that inhibit growth
Along with digitisation to improve business processes, we’d also encourage further deregulation to remove unnecessary red tape for SMEs in certain areas.
The expansion of a scheme for automatic mutual recognition of occupational licences is one such example, allowing trade professions to work in any state in Australia without needing a state based qualification. This allows business owners some flexibility in hiring interstate workers, leading to an estimated $2.4 billion in additional economic activity over 10 years.
Additionally, the PAYG budget overhaul amended the calculation used to set how much tax businesses are required to pay each quarter, leaving 2.3 million small businesses and sole traders with more cash to spend on other things.
We encourage the new government to continue exploring ways of reducing the regulatory burden on small businesses, where it makes sense to do so. This, along with the other two measures we’ve talked about here, will help safeguard our most important business sector against the impending downturn.
Whether we’re heading to a recession or not, it’s critical we prepare for one. We know our SME sector will carry its characteristic sense of resilience into whatever is on the horizon, but it’s critical they’re supported by a flexible and crisis-proof policy approach that ultimately allows them to thrive.