Boost the bottom line

Solutions: Answers to the failings of government

When it comes to government influence on their small and medium-sized enterprises, entrepreneurs have a long list of bugbears. Payroll tax is a blunt and heavy instrument, excessive red tape cripples small business and the banks are too tight – these top their list of complaints.

But it’s easy to stand on a soap box and rue the failings of policy and regulation. It’s much more difficult to come up with politically palatable and economically sensible solutions. This is where the founders of BRW fast companies come in. The entrepreneurs behind these companies have come up with solutions to what they see as the failings of government at all levels.

Following a reshuffle of ministerial responsibilities in December 2011, Senator Mark Arbib was appointed as federal Small Business Minister. And although payroll tax is a state tax levied on the wages, business owners want Senator Arbib to do something about it.

“It sounds cliched but it’s a tax on jobs,” the director of Melbourne and Sydney removalists MetroMovers, Daniel Maguire, says. “It’s encouraging entrepreneurs to move more towards starting businesses that don’t hire staff.”

The founder of cardboard box maker Brasco Australia, Brad Steyn, wanted to boost staff numbers at the end of 2011, until his accountant cautioned that the business could encounter cash flow problems if it pierced the payroll tax threshold too quickly. “He said ‘let’s hold off a bit’,” Steyn says.

The payroll tax threshold is a measure of total annual wages paid to staff and varies from $550,000 in Victoria to $1.5 million in the territories. The rate ranges from 4.75 per cent in Queensland to 6.85 per cent in the ACT. This variation is another problem for owners.

MetroMover’s Maguire would like to see payroll tax abolished. “But obviously being a bit pragmatic about it, that’s not going to occur,” he says. He’s probably right. The Australian Bureau of Statistics says the $16.8 billion in payroll tax collected by the states in 2009-10 amounts to 31 per cent of total state taxation revenue.

Former treasury secretary Ken Henry described payroll tax as efficient because it taxes a high number of people (employees) from fewer sources (employers). But Maguire says it is inefficient because of the variation across borders. “If each state harmonised rates [and thresholds], that’s a step they could take within the current framework to ease the administrative burden,” he says.

Maguire contends that distribution of revenue from the GST to the states by Canberra should take the place of payroll tax. If that means raising the rate of the GST, he admits that the cost burden would probably still flow back to business owners, rather than customers.

“But at least it would be an easier mechanism,” he says. It takes two staff just to manage tax and payroll for 48 MetroMovers employees, he says.

They might disagree on who makes the best taco but the founders of rival restaurant chains Mad Mex and Beach Burrito Company both think hospitality award wages need simplifying.

Beach Burrito founder Blake Read says it is crazy that he has to pay a food runner a different wage for handling cash, even “for 10 minutes”. This complexity and the difficulty in locating (“You try and Google it!”, he says) and understanding the information for employers means errors are all the more likely, he says. “What we end up doing is paying everyone well above the award wage to avoid problems,” Read says.

Mad Mex founder Clovis Young says the penalty rates for evening, weekend and public holiday work are too high.

“We’re closing stores over the public holidays because the labour rates make it uneconomical to stay open,” Young says. “The staff who are dying to work don’t get a shift.”

Young says many of his employees, especially students or those with other work, can work only on weekends and at nights and would be happy to forgo penalty rates in place of more shifts.

“I think people should be able to elect into a class of employment that says, ‘I prefer to work nights and weekends’,” he says. “We would be able to hire more people and give more people a job if the labour rates weren’t as punitive on the weekend.”

When it comes to human resources, staff at consultancy Objective Digital are often recruited from overseas and are sponsored through a 457 visa. “The e457 visa application process is relatively slow and cumbersome but it’s our only option,” operations director Kylie Breeze says. “It can take up to two months for an application to be approved.”

The founder of payroll outsourcing company Job Capital, Jo Burston, says some companies can have applications fast-tracked but only if they have had lots approved in the previous year. “Smaller companies may have only one or two applications approved per annum,” she says. “It’s a barrier to entry [for small business] because of the cost and time involved with that process.”

Both Burston and Breeze applaud the research and development tax concession policy. But both believe it can be too complex for under-resourced businesses to take advantage of. “It takes expensive expertise to interpret the legislation,” Burston says.

“You would normally have to go to a specialist accounting firm or a top four firm. You could pay [for the accountant] and find out it’s not appropriate for your business.

“Although [the scheme] can be of great benefit it’s not easy for typical business owners to interpret.”

A number of founders want the government to have more sway when it comes to the banks.

The founder of Queensland builder Palladio Homes, Brad Fullin, goes so far as to suggest the need for a nationalised bank.

“Whenever the RBA announces changes to interest rates, if there’s a government bank, then if rates go up or down, that bank will go in line with the RBA – and it will keep the other banks honest,” he says.

The chief executive and co-founder of telecommunications company Voxcom, Allan Dib, says government should consider increasing its influence. “The government tops up banks in hard times, but it doesn’t mandate that the money given to banks . . . should be used to help start-ups and small business,” he says.

Objective Digital’s Breeze says help with start-up funding could come as tax breaks in the first few years of operation.

“It would be much better if there was a one, two or three-year period of either a reduced tax rate or delayed payments,” she says, adding that it would have boosted cash flow for Objective Digital after it started up in February 2007.

“Most small businesses start with their own savings and you make a measly amount of profit in your first year or two and so much of that goes to tax and you think ‘what’s the point?’,” she says.

“The point” for Small Business Minister Mark Arbib to remember is that companies that employ fewer than 20 people (the ABS definition of a small business) produce 35 per cent of gross domestic product and employ 4.8 million people. So anything that makes it difficult for that sector to prosper that can be improved by government intervention should be high on his agenda.

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