Tony Zappia (Makin, Australian Labor Party) Share this | Hansard source

I begin my remarks on the Payment Times Reporting Bill 2020 and related bill with some statistics from a McCrindle report. There are 2.3 million businesses in Australia, of which two million—that is, nearly 98 per cent—are regarded as small businesses that employ fewer than 20 people. Three in five Australian businesses—62 per cent, that is—are non-employing businesses, which means that they are probably subcontractors and sole traders and the like.

As others have already said, small business is the backbone of the Australian economy, adding around $380 billion annually to Australia's GDP and employing six million people, or nearly half of the Australian workforce. But small business can be extremely risky. New small businesses are particularly vulnerable, with only 54 per cent of new businesses surviving more than four years. Of more than two million small businesses operating in Australia four years ago, 36 per cent, more than one in three, no longer exist. Yet more and more people are being forced into small business as subcontractors, sole operators or gig workers because that's the only way they can get work.

Small business operators are not only exiting the system for reasons which are quite normal and by their own decisions. They are being driven out for many reasons. They are being driven out not just because of business inexperience but sometimes by greedy landlords, particularly some of the major retail shopping centre owners who are ruthless in their treatment of tenants; by slick-talking franchise owners who con them into taking up a franchise which is simply not sustainable; and, at times, by straight-out crooked business operators who intentionally don't pay their bills, become bankrupt and then shift their assets into a new entity and start all over again. And then there are individuals who simply don't pay for goods or services. They just plainly refuse to do so and say to the small business operator, 'Take me to court.' Most small business operators know that it will probably cost them more to take those people to court than to get the money that's owed to them. We then have large business operators who squeeze small businesses out of the market—we have seen that time and time again—because they simply don't want the competition.

The fact is that there are multiple reasons why businesses fail, and all too often it is for reasons outside of the small business operator's control. Then of course there's the issue that this legislation attempts to deal with—the long time delays in big business and sometimes government entities paying their accounts. I say upfront that, whilst I support the intent, I have very real reservations about how effective this legislation will be. For too long big business has used small business as a source of cash flow. Delaying payment, even when funds are available, creates income for big business. No sector understands this better than the banking sector. It was actually used very effectively for years and years. And, might I say, we often see even members of the legal profession delaying payments out of trust accounts for as long as they possibly can. Other large business entities have been just as exploitative at times by delaying payments by months and months.

Even more heartless, some large entities are telling subcontractors and other small business operators to whom they owe money that they will pay on time if the account is discounted. I recently had someone approach me on this very issue. After having carried out some work, if they wanted to get paid on time or within a reasonable time, they had to discount their account. That is simply unacceptable.

Another practice is the supply chain financing that others have spoken about, where small businesses are offered a third-party financier to pay the invoice on time but incur a fee for doing so. In other words, they have to pay to get paid, and others have quite properly ridiculed that notion. It is becoming a growing trend for business to adopt that practice. The member for Gorton spoke at length about supply chain financing in his own remarks. The supply chain finance review position paper from the Australian Small Business and Family Enterprise Ombudsman stated:

Late payments by large business to small business account for 53% of invoices.

I repeat: 53 per cent. The report goes on to say:

This means that $115 billion worth of payments to small business are late and stops $7 billion of working capital being available to small businesses every year.

That highlights the extent of this problem. It is not thousands of dollars or millions of dollars; it runs into billions of dollars.

The report also states that nearly 40 per cent of small businesses report significant cash flow pressure due to late payments. So late payments are a very serious issue for small business. Again, if they weren't we wouldn't have this legislation before us. Then there are always the shifty business operators or consumers who, after goods or services are provided, raise deceitful claims about the work not being as requested or being in some way faulty. For many small businesses, contesting that becomes more expensive than retrieving the money they are trying to get. Many small businesses become easy targets for those who want to unfairly take advantage of them.

The reality is that most small-business operators are very, very good at what they do, at their own specific profession, but they are not business managers per se, nor do they have the expertise or the resources or the money to engage other professionals to help them when these kinds of problems arise. In many cases, that's partly why they exit the small business they are in. These are people who work long hours, who put their money and their homes on the line. Quite often they would have mortgaged their homes in order to get a loan of some sort to establish their business. These are people who make family sacrifices, who don't sit back waiting for a handout. These are people who have a go. These are the people who, over the past four months, have borne the brunt of the COVID-19 shutdowns. They will continue in many cases to wear the fallout of COVID-19. We know that for many small businesses it won't be a matter of weeks; perhaps it will be months or even years before they are able to get back on their feet again. In some cases, we know that they may never get back on their feet again. They have been hit the hardest.

Whichever way we turn, it has been small business that has made the largest sacrifices with respect to the COVID-19 pandemic. Not only has their income been slashed; for many, lifelong investments, work and sacrifice are now seriously at risk. Yet when they turn to government for help it is rarely there. Again, we've heard from other speakers about that. In particular, we've heard about those small businesses that were devastated by the summer fires, many of whom, even before COVID-19 hit, had been left high and dry, and they are still waiting for government assistance which was promised but which it seems is very slow in being delivered. That delay may well also be the death knell for them, and perhaps they will never be able to re-establish. I hope that is not the case, because I know that most small-business people are in business not only to survive but because they have a passion for the industry sector they are a part of.

With respect to this legislation in particular, much of the detail will be contained in delegated legislation. It is becoming a trend of this government to do that. They don't put all of the specifics in it the primary legislation but refer matters to delegated legislation, regulations and the like. We still have not seen that and are unlikely to see it. Even when it does come up, you have to have a very thorough scrutiny process in order not to miss some of the things that, were they in the legislation, we might not agree to. The other concern is that it seems to me that, if we can't have things locked into legislation, it doesn't provide certainty for the small businesses that we're trying to protect, because they don't really know what they're going to get out of this. The payment term reporting brackets—less than 21 days, between 21 and 30 days, between 31 and 60 days, and then more than 60 days—are also too wide. They give too much latitude to business operators who want to pay late. The time frame should be much more restricted than that. In any case, what's even worse is that there are no penalties or remedies with respect to late payments. This is all about self-regulation. Self-regulation does work if you have industry sectors that are what I would call ethical sectors that want to do the right thing. But if industry sectors already want to do the right thing then they don't need to be self-regulated, because they are already doing it. So, effectively, we are trying to ask those industry sectors that really don't want to play fair to self-regulate—and I suspect that this legislation simply won't do that.

As with all pieces of legislation, and all pieces of regulation, it's always the case that those who don't want to be fair will find a way of not doing so. They will find loopholes in the legislation, or in the regulations, which will allow them to continue to do exactly what they are already doing. Nor does this legislation deal with late payments to small businesses by other small businesses or individuals, which represents a substantial part of the late payment problem. I speak to small businesses regularly. In recent months I have spoken with several operators of small businesses who were owed substantial amounts of money. Sometimes they might have put a particular facility in a property; in one case it was a security system which was worth several thousand dollars. The person who owed the money was not a big business. Yet to chase that money became an additional burden on the supply of that service. Again, this legislation doesn't deal with the money owed by smaller businesses to other small businesses, which, as I say, is often an even larger problem for small business. Indeed, many small businesses never deal with big entities at all; they simply deal with others in the community.

So, while the legislation is well intended, I doubt it will have the hoped-for effect. That is why this legislation should be referred to a Senate committee, where perhaps some of the issues that have been raised in the course of this debate will be further scrutinised and where perhaps some of the recommendations relating to fixed-time payments would be legislated and included in this bill rather than being left as part of the self-regulation system that the bill proposes. With those comments, as we have said on the side of the House, we support the intent but we would like to think that this legislation would go much further.

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