May 13, 2015

Why Hockey’s small business splurge is a waste of money

Treasurer Joe Hockey announced some overly generous budget packages for Australian small businesses. This is a mistake, writes freelance journalist and economist Jason Murphy.

Do we actually want to be a small business nation? Treasurer Joe Hockey thinks we do. In last night's budget speech, Joe Hockey spoke extensively of his father's property business, and made it sound wonderful:
"I, like so many of my colleagues, grew up in a small business family. That small business put a roof over our heads. It paid the bills. It gave all of the family a chance at a better life. Small business is often a family business. A business of brothers and sisters, uncles and aunts, cousins, parents and children. And for those who work in a small business, who are not related, well they often become family."
(The future Treasurer's experience with small business evidently shaped him so much that upon graduating university he went off to work for major law firm Corrs Chambers Westgarth.) Today, the head of the small business lobby described himself as "gobsmacked" and revealed that his sector got "far more" than it lobbied for. Small business owners are a powerful voting bloc. But the budget's unchained enthusiasm for the entrepreneurial class makes one wonder if it is, in fact, devoid of the ideological touch that soured last year's effort. Most of us probably have warm thoughts towards small businesses -- the people who cut our hair and wrap our fish and chips in paper. But the Treasurer's current small business obsession -- and make no mistake, this budget is obsessed with small business -- could have less benign effects than putting a smile on the local cafe owner's face. Failure Small businesses are a triumph of the human spirit when they succeed. But we must not let survivor bias colour our judgements. Thousands of small businesses go broke every year, with big personal costs. The failure rate is significant. Of all the small businesses operating in 2010, 68% remain by 2014. That's nearly one in three gone, often taking with them people's physical and mental health, their relationships, life savings, and possibly the homes they live in. Big businesses, for all their weaknesses, permit us to live more stable and certain lives. Efficiency Small businesses are not necessarily efficient. There are 2 million of them, providing employment for about half of all Australians that work in the private sector. But small businesses produce just a third of national output. That means priming the small business sector will produce less macro-economic bang for your buck. Many small businesses have few growth prospects and still others are small because they are failing. Some small businesses break out. In 2013, 27 small businesses grew from having just a handful of employees to more than 200. But more small businesses shrink than grow. There were 500,000 small businesses employing one to four staff members in June 2013. A year later, 34,000 of them had more employees, but 52,000 had none. Benefits to society Big businesses make big profit. But they are also subject to stronger regulation. For example, businesses that employ fewer than 15 people have much looser obligations under unfair dismissal laws, and businesses with payrolls under half a million pay no payroll tax, etc. A society with more small businesses is closer to the libertarian ideal of no regulation. Small businesses are caught far more often failing to pay their employees' superannuation, while big businesses can be incubators for generous policies on parental leave, etc. The upside to working for a big business is not always apparent when one is trapped in the daily bureaucracy of middle management or dealing with human resources, but its upsides are real. So, is Australia ideologically obsessed with entrepreneurialism and business ownership? Squatters and gold miners play an important part in our history. But so do Qantas, BHP and Holden. We should consider carefully if we want the nation to break down into smaller and smaller economic units. *Correction: An earlier version of this story misstated that 68% of small businesses that existed in 2010 still existed in 2014. In fact, 68% remain, with 32% gone.

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12 thoughts on “Why Hockey’s small business splurge is a waste of money

  1. Norman Hanscombe

    When Crikey isn’t attacking the evils of big business, it’s going after small business. Seemingly anything goes when it comes to wanting to be controversial enough to generate more revenue for Crikey.

  2. archibald

    @ Jason – you state that 68% of SB failed in 4 years to 2014. If so, that is more than 2/3, not “almost a third”.

  3. Peter Bruce

    Isn’t 68% more than 2 in 3 rather than “almost 1 in 3” ?

  4. Nicholas

    Norman, this article simply points out the strengths and weaknesses of large and small businesses as employers and producers. We need a corrective to the government’s tactic of romanticizing small business. The economy is a vital system which affects all of us. Mythology should not drive the government’s decisions about it.

  5. drsmithy

    So, is Australia ideologically obsessed with entrepreneurialism and business ownership?

    Is the country where rent-seeking and crony capitalism are practically national past-times “obsessed with entrepreneurialism and business ownership” ?

    You can’t possibly be serious.

  6. Northy

    Thanks for this different perspective.

  7. Paddlefoot

    Every suburban accountant is currently putting together a whole range of taxation minimisation opportunities to offer their clients. These generally involve being able to finesse the $20,000 threshold, in respect of automobiles and audio-visual equipment. This is where Keynesian economics has taken us. Construct a trough and they will come. So Australian. I’m up to my knees in it.

  8. MJPC

    So the treasurer waxes lyrical about his small business family. Who outside the family did they employ? As it is with many small businesses I associate with, keep it in the family.
    I have had discussions with tradies who I have contracted (probably the smallest small business unit). Firstly, they all complain that they have too much work yet none are willing to employ an apprentice because of a variety of excuses, mainly as they have to be trained which equates to loss of income for the tradesman.
    Will the $20,000 address that?
    It would be an interesting stat to see the % of apprentices trained by small business against larger concerns.
    Then we have the 457 visa fiasco, bring in workers from overseas to do the work of Australians because we don’t have the trained workers to do the tasks. How does this fit into the small busines equation?
    Maybe Uncle Joe is looking to a Barrista led recovery.
    [email protected], I am with you.

  9. Norman Hanscombe

    Nicolas, “romanticizing small business” has been as you say one of the more popular fetishes for decades, and “Mythology should not drive the government’s decisions about it.”
    This, however, doesn’t preclude us from pointing out Crikey’s inconsistent approach to issues.
    My response has been delayed by the gremlin affecting my emails. Dozens suddenly appeared a short time ago, so quite apart from Crikey’s Censorship Policies, my responses seem doomed to lag behind whatever you and others have posted.

  10. Aethelstan

    So the treasurer is going to reward small business families with extraordinary largesse … I hope it actually does create jobs … and it is not limited to private rooting by business families …

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