Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

I rise tonight to speak on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. Before speaking about some of the elements of these bills, I would like to make some broad observations about the importance of small business, of SMEs, to our economy. As everybody in this chamber would know, there are thousands of SMEs in each of our electorates. As everybody in this chamber would know, they are the backbone of the economy. These are many of the most innovative and dynamic businesses in our economy, and they are going to be absolutely instrumental to Australia coming out of the recession that it has just entered.

Of course, small businesses operate in every single sector of our economy. Every day, so many of us in this place are talking to owners of small businesses that are struggling: the restaurants whose business has collapsed; the TCF manufacturers in my electorate who have come under huge strain, some of them supporting many, many families; the services microbusinesses, many of which are the entire income of a household; and the tradies in the construction business. They reach into every single segment of our economy. And, of course, this COVID recession is having a devastating impact on so many of them.

For me, one aspect that this debate has highlighted is that, when we talk about the 120 days that small businesses have to wait for payment that is rightly theirs, we forget how long that period actually is. It's a number on a piece of paper, but think about what 120 days is. It's four months. Four months from today takes us back to the pre-COVID environment. Four months takes us back to a period which seems like an eternity ago. In that time our whole economy and society—businesses, workplaces and households—have been turned upside down. For me, this debate has reinforced what an eternity it is for small businesses in my electorate to have to wait for payments that they should have received earlier, and often these payments are being withheld by businesses that are in a much better position to deal with a lack of funds in their pockets. So the first point I'd like to make is not just the importance of small business to the Fraser electorate—and to all the electorates in this place—but the fact that, at this time when SMEs are doing it particularly tough, the problems that this bill aims to address are so much more difficult and damaging than they ordinarily would be.

The second critically important issue is that we need to reflect on the systemic issues that have motivated these reforms, which these reforms do go some way towards dealing with but nowhere near far enough. One of the underlying issues, which earlier speakers from this side have addressed, is the inherent inequality in the relationship between SMEs and their customers. The member for Bendigo and the member for Macquarie spoke powerfully and from personal experience about the fact that we are not talking about an abstract relationship where two equals are bargaining on commercial terms. What we are talking about, often, is a relationship where one side, in effect, has very little choice. The contributions from the member for Bendigo and the member for Macquarie powerfully set out why these reforms are so important but also why they need to go so much further. A regime which is based upon large businesses reporting twice a year will be nowhere near enough to deal with the fundamental challenges of that very unequal relationship. As the member for Macquarie pointed out, moral suasion in and of itself is nowhere near enough of a regulatory mechanism to deal with a practice which, like a cancerous growth, has spread throughout our commercial sector, because it has proved to be so advantageous to large companies. We need something far more powerful, far stronger, than moral suasion, naming and shaming, putting somebody's name on a register that may or nay not get much attention, hoping that will change a fundamental commercial relationship which has become standard operating practice for many large companies. Supply chain financing and reverse factoring have spread for very good reason, and this bill will do nothing to address that fundamental problem.

As so many speakers on my side have said, this bill is a step forward but it's nowhere near enough. We will support it because it is a step forward, but we want to see a more systemic inquiry by the Senate economics committee to see what more should be done in this space. Because this bill reflects a number of systemic challenges that small businesses face in their working capital and systemic problems arising from the inequality in bargaining positions, we need a systemic and holistic policy response, which this bill definitely is not. That's why we need the Senate economics committee to examine what more needs to be done and what other jurisdictions are doing.

This bill will require approximately 3,000 large businesses and government enterprises with an annual turnover of more than $100 million to publicly report biannually on their payment terms and practices for small-business suppliers. It is the second of three tranches of measures the government has committed to. The first tranche was to have the government pay its small-business suppliers within 20 days of invoicing if using standard invoices or within five days if using an approved e-invoicing system. That measure was implemented administratively. The third tranche, which was announced by the Prime Minister in November 2018, was to link government procurement with payment times. This third and final tranche, as I said, is a small step forward from the other two tranches of this package but goes nowhere near enough to deal with the fundamental policy challenges that our small-business sector is facing.

Prompt business payments to small businesses are critically important, as earlier speakers on this side have shown—people who have actually operated small businesses. This is a critical issue for small business, because, unlike large businesses, which often have a variety of means to increase working capital, including bond markets and equity raisings, small businesses rely more on cash payments and bank finance, which can often be far more restricted and difficult to obtain. Increasingly, despite this inequality in options, we see small businesses as the piggy bank—as so many speakers have alluded to—of larger businesses. What this reflects is not the fact that that is appropriate; rather, it reflects the inequality in the bargaining position.

Small businesses will undoubtedly welcome the improved transparency of this measure. But I suspect they will almost all say it doesn't go far enough and will be highly sceptical of the extent to which it will change behaviour in a systemic way. This is reflected in comments from Kate Carnell, the small-business ombudsman, who said:

We support the Payment Times Reporting Framework as one piece of the puzzle, but it won't solve the problem of late payment times on its own.

Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.

Indeed, that mechanism she suggested is exactly what we see in New Zealand—a jurisdiction that we should look at closely to see what is needed in order to achieve lasting and meaningful change in this sector.

Labor is particularly concerned by the coupling of unconscionably long contracted payment times—sometimes 120 days or more—with the practice of supply chain financing or reverse factoring. It is troubling that this transparency initiative that we are considering here this evening provides no means to differentiate between a firm that pays in 61 days and one that pays in 120 days or more. As I've said, 120 days is a number, but, when one thinks about how long that actually is for a precarious small business desperate for cash flow, it's four months. In that long period of time, the world can be upended, and a small business and a household can be totally turned on its head. It isn't just Labor raising concerns with these aspects of the current bill and the proposed solution. It is stakeholders across the board who are concerned with this practice and with the need to adopt a far stronger approach.

I also want to make some references to some recent analytical work that supports the position that is being put forward by the speakers on this side. AlphaBeta, an economic consulting firm, recently undertook some analysis in relation to these practices. What they found is that this practice is extremely widespread. AlphaBeta calculated, for the first time, the economic cost of big businesses paying Australia's small and medium businesses late. They analysed more than 10 million invoices issued by more than 150,000 small and medium businesses. The results are a damning indictment of the practice of reverse factoring and supply chain financing. They provide a real, compelling argument for doing more in this space. Late payments by big businesses are sucking $7 billion from Australian small and medium businesses. This is costing the wider economy over $2½ billion in net economic benefits over 10 years, largely because SMEs pay more for their financing than larger businesses. This goes back to the point raised earlier, that it is highly inappropriate for small and medium businesses to be the piggy banks of large businesses with so many additional financing options.

There are some other points that are worth drawing out of this study. Each year, Australian SMEs extend an estimated $216 billion in trade credit to larger businesses, and, as the member for Macquarie just alluded to, quite often small businesses feel like banks. AlphaBeta found that 53 per cent of trade credit payments are paid late, by an average of 23 days. The scale of this problem is staggering. If these late payments were paid on time, it would be equivalent to $7 billion in working capital being transferred from large businesses to small and medium businesses.

Of course there are many examples we could point to and earlier speakers on this side have pointed to. There's the Carillion collapse, which was a very significant example of the problems in this space. There's the behaviour of Telstra and Rio Tinto, and I'd like to draw attention to the fact that it was attention brought to that problem by the shadow minister, the member for Gorton, and also by the media, that caused some of those practices to be cut short.

This problem is very widespread. The behaviour of many large businesses in Australia; the practices that were being implemented or that were being considered by Rio Tinto and by Telstra; the practices that we see reflected in the data that came out in the recent AlphaBeta study—they show that this practice is now entrenched. And, as I indicated earlier, that's for good reason: it makes good business sense for large businesses. So it requires far more than this very softly-softly approach.

The Business Council of Australia's voluntary payments code, which was launched in 2017 as a way of driving big business towards a public commitment on 30-day payment terms for small business, has failed to deliver change. Small-business ombudsman Kate Carnell recently said that the small number of businesses that signed up to the code was disappointing and that firmer action is needed. This is a good reflection of the fact that we need to seriously consider the mechanism that we use, and that biannual reporting on its own is highly unlikely to be enough to change what have become systemic, entrenched practices.

Labor supports the intent of this bill, but it does not support how far it goes. It does not support the execution. Labor believes that we need a thoroughgoing inquiry by the Senate committee to look at what is occurring in other jurisdictions, as a guide, a signpost, to what we should be doing here. This is self-regulation when what is needed is effective regulation. New Zealand is one good example of a jurisdiction which has looked at a 20-day payment time through legislation. The small-business ombudsman, Kate Carnell, has explicitly said that a 30-day maximum would be appropriate here.

So what we have here is—and I feel like I've said this on so many pieces of legislation over the last few months—a small step in the right direction, a piece of legislation that we can support but that, in some ways, we support reluctantly, because we should be discussing a far more substantive piece of reform for such a systemic and problematic issue in our business environment. This is an issue that needs a far more serious policy response, particularly at a time when we've just headed back into recession and when small business deserves so much more.

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