Jim Chalmers (Rankin, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

Labor strongly supports small and medium-sized businesses in Australia. We want to see them thrive. They're a critical driver of the economy. Currently, more than three million SMEs employ around seven million Australians. Clearly, they're a crucial part of the economy and we need to give them support where we can out of this building so that they can continue to serve Australians right around Australia, particularly right now, at a difficult time for so many in bushfire-affected communities. Labor does support, in principle, the legislation that is before the House tonight, given the importance of SMEs and the challenges that they face in accessing the finance they need to grow and to employ more people.

As the Reserve Bank, the Australian Small Business and Family Enterprise Ombudsman and others have pointed out, small and medium-sized businesses have faced big challenges in accessing finance, particularly in the post global financial crisis environment. The Australian Business Growth Fund Bill 2019 authorises the government to invest $100 million in a Corporations Act company that will become the Australian Business Growth Fund. The fund itself is intended to increase access to finance for SMEs through equity funding by the government, partnering with financial institutions such as banks and superannuation funds. It's based on the model proposed in 2018 by the Australian Small Business and Family Enterprise Ombudsman, which was informed by similar funds that exist in the UK and Canada.

It's important to note for the House that the bill itself doesn't contain much detail on the operational and governance arrangements of the fund. But what it does do, according to the government, is provide long-term equity capital investments of between $5 million and $15 million to eligible Australian businesses where they've generated annual revenue of between $2 million and $100 million and can demonstrate three years of revenue growth and profitability. The fund can only have an investment stake of between 10 and 40 per cent of an eligible business so that SME owners maintain a controlling interest. The fund itself won't be a Commonwealth company. The Commonwealth will not have a controlling interest in the fund itself.

Labor support this fund in principle, as we've indicated before, including in the previous term of this parliament. We want to see it work properly. We want to make sure that it does benefit commercially viable SMEs that need finance but are currently unable to access it. We do have some concerns, including the fact that the government allowed something like four days of consultation on the draft legislation. We think that, if the government were serious about getting this right and making sure that the $100 million injected by the federal government had every chance of being effective and well invested, they should have, as part of the consultation period, given people more than four days to consider it. I also think the government hasn't provided enough detail on the governance and operation of the fund, and I think it's really important that we clarify that given the government's poor record in recent times—but not just in recent times—when it comes to governance and especially when it comes to integrity.

For these reasons, Labor will support the bill in the House but will seek to refer it to a short Senate inquiry for the purposes of seeking clarity on the governance and operational arrangements of the fund and getting views from stakeholders and experts on how best to implement the fund. We think that this Senate inquiry can happen quite quickly. It needn't hold up some of the other progress that needs to be made in time if the bill does stack up and gets through the houses of parliament, but we think it's important that we allow some of these issues to be aired, discussed and considered, because we don't think the government has given sufficient time for that sort of consultation to date.

We also need to be clear on what the bill doesn't do. The bill won't be enough to turn around the economy, which has been floundering on the government's watch since well before the events of this summer. It doesn't fix the government's failures when it comes to small business. It doesn't fix the fact that the government has let small business down by failing to act to ensure small businesses get paid on time, by delaying any action on unfair contract terms and by taking action to combat illegal phoenixing only after ongoing pressure from Labor after refusing to take action on this issue for years. Whether it's payment times, unfair contract terms or phoenixing, it's clear in my view that those opposite take the small business community for granted. So we will continue to hold them to account to ensure small and medium sized businesses are not left exposed by this government failing to manage the economy in the interests of ordinary communities right around the country. That's why I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes the Government's lack of adequate public consultation in relation to the Australian Business Growth Fund; and

(2) further notes that the Government has failed to support the economic climate faced by small and medium sized businesses, with the economy deteriorating well before the bushfire crisis and the coronavirus outbreak hit".

Under the Liberals—and we've seen it time and time again in recent releases of key economic data—the economy is defined by below-trend growth, stagnant wages, weak consumption, falling business investment and record high net debt. The economy has been floundering for some time now. It has substantially deteriorated since the election. Growth has almost halved since Treasurer Frydenberg took over. Quarterly growth slowed in the most recent quarter. The government's own midyear update downgraded growth in wages and said unemployment was going to rise. The private domestic economy has gone backwards for two quarters. Consumption is at its slowest pace since the GFC and business investment at its slowest pace since the early 1990s recession. The list goes on and on, unfortunately.

In this context it is important that we take steps like the one that we are discussing today. But it's not enough. More needs to be done. Right around Australia, whether it's the calls from the business community or the calls from others such as expert economists, other analysts and peak groups like the AiG, there is a recognition that something needs to be done to turn the economy around. The government needs to plan not just to get through an election by spraying around dodgy grants in marginal seats; it needs an actual plan to get the economy going again and to get wages going so there is some consumption and small businesses can thrive in this country.

What we're talking about today is important in that regard if we get the details right, and the Senate inquiry will help us with that, but more needs to be done to support our small businesses. Part of that is making sure that people have the incomes to spend in the shops of this country so that small businesses get the customers and the business that they need and deserve in order to employ more Australians.

Lucy Wicks (Robertson, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Josh Wilson (Fremantle, Australian Labor Party, Shadow Assistant Minister for the Environment) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It's always a pleasure to rise in this House and speak about the things that this government is doing for business across the country and, in particular, small to medium businesses. The Australian Business Growth Fund Bill 2019 seeks to establish the Australian Business Growth Fund. The purpose of this special fund is to help small and medium businesses to more readily access equity funding to raise capital, fund their growth and prosper in the long term.

I know from many discussions I've had with small-to-medium business enterprises across my electorate, and I have some 17,000, that access to capital at affordable interest rates or through other avenues is one of their greatest dilemmas. It is always far easier for the big end of town to raise capital reasonably cheaply from a range of sources. The provisions in this bill go a long way towards establishing another avenue for small-to-medium businesses to access equity funding rather than constantly having to put their house on the line and then, when their equity in their house runs out, running out of access to capital to continue to build and grow their business.

The provisions in this bill would authorise the Commonwealth to invest in the Australian Business Growth Fund to be established as a company under the Corporations Act. Essentially, this would allow the government to invest and purchase shares or debentures in the company. The government has previously committed $100 million to the Australian Business Growth Fund in addition to investment already committed by participating financial institutions. The investment capacity of the fund is currently at $540 million with the potential to grow to around $1 billion.

The case for establishing the Australian Business Growth Fund is clear. We know there is a gap in the Australian market for patient equity capital for small-to-medium enterprises that is not directly addressed by venture capital or private equity. We've also seen over time attempts at employee share ownership schemes, but they never seem to have gained the traction here that they have in many other countries around the world. Many SMEs find it difficult to raise capital for expansion or to fund innovation without taking on additional debt or giving up control of their business. That's where this equity funding, and equity funding more generally, is the best source of finance for many SMEs, because it provides a solid long-term foundation on which to grow their businesses.

In 2018, the Reserve Bank released a report highlighting the difficulties Australian SMEs face in trying to secure finance. The first is the well-known fact that banks are often reluctant to lend to small business, particularly start-ups, because of their perceived risk of default. Further, SMEs are often asked to put up real estate or other business assets as collateral to secure finance. Meanwhile, obtaining unsecured finance is normally difficult but also extraordinarily expensive in terms of the interest rates and fees they are likely to face.

(Quorum formed) One of the difficulties for small-to-medium enterprises in obtaining finance many times is the cost of that finance, particularly where it is unsecured. All these finance requirements are on top of strict prudential requirements associated with financial institutions lending to small businesses for equity investments.

As was mentioned by the member for Rankin in his contribution, small-to-medium enterprises are the backbone of our economy. They create jobs, drive innovation and boost competition across the Australian marketplace and overseas. When businesses are doing well, they'll generally employ more people. As a consequence, Australians right across the country are better off. We have over 2.2 million SMEs, which account for over 68 per cent of our private sector employment and over 35 per cent of our gross domestic product. A healthy small-business sector is a prerequisite for a growing economy creating better employment opportunities.

This government is committed to backing business and, by extension, hardworking Australians. We have been backing them in a range of areas: through giving them tax cuts, with the lowest business tax rate in 50 years; through red tape relief by simplifying business activity statements and with the Deregulation Taskforce; through the extension of the instant asset write-off to $30,000 for businesses with a turnover of less than $50 million; by improving access to finance, with the establishment of the $2 billion Australian Business Securitisation Fund so that small businesses can get the funding they need to grow and prosper; and by providing the ability for smaller banks to securitise their small-business loan book to free up capital.

As I mentioned earlier, my electorate has over 17,000 small-to-medium business enterprises. With the requirements around the Australian Business Growth Fund for long-term capital equity investments above $15 million, where these businesses have generated between $2 million and $100 million in turnover or annual revenue and three years of revenue growth and profitability, there are some 800 businesses across my electorate that may well benefit from the Australian Business Growth Fund. I've talked to a number of businesses recently who are looking to expand their operations. They've said to me, 'I'm not going to borrow any more money, and I'm looking for capital equity investment.' This bill presents the opportunity for these businesses to realise their growth potential without longer term access to equity funding across a range of industries each year, without being a burden on the assets they might already have secured for the loans they currently have.

The Australian Business Growth Fund will take a minority stake in businesses it invests in of between 10 and 40 per cent, to allow owners to retain control of their business while also allowing the fund to retain sufficient capital to encourage business growth. One of the advantages I see with this fund, with these equity injections, is that it may actually provide an opportunity for some of these SMEs to reduce the debt load on their businesses and make their businesses more profitable and more viable for the longer term.

Similar successful business growth funds have been established in the UK and Canada and have shown there is a demand for this type of finance and that patient capital investment can be profitable for investors. As such, the Australian Small Business and Family Enterprise Ombudsman supports the establishment of the Business Growth Fund for the private sector in Australia as was highlighted in its research paper in June 2018.

The Australian Business Growth Fund will operate commercially and independently from the government and participating financial institutions. The Commonwealth will make arrangements relating to the operations of the fund but will not retain any controlling interest and will hold less than 50 per cent of the shares. The Australian Business Growth Fund will be run by an independent board and management team, investment decisions will be made by professional managers and performance will be assessed on a fully commercial basis in accordance with private-sector funding models.

I commend the work and the effort of the hardworking small-to-medium business owners and operators around the country and I trust that this bill and this Australian Business Growth Fund will further help them by giving them an additional opportunity to continue to grow, develop their businesses and continue to create wealth for Australia, employing Australians right across our great country. I commend this bill in its original form to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Link to this | Hansard source

Labor will support the Australian Business Growth Fund Bill 2019 subject to the amendment moved by the shadow Treasurer in the House but will refer it to a Senate inquiry. The reason for that is there are many unanswered questions and issues regarding the operation and governance of the company that is established by this bill that will be important in deciding whether or not the government should be investing $100 million of taxpayers' funds into a company that is essentially a partnership between the government and some big Australian banks.

This particular bill authorises the government to invest up to $100 million in a Corporations Act company that will soon become the Australian Business Growth Fund. The bill allows the Commonwealth to make arrangements relating to the operations of the fund but won't allow the Commonwealth to control the fund. The fund is intended to increase access to finance for small-to-medium businesses through equity funding by the government and partnering financial institutions such as banks and superannuation funds.

The fund is based on a model proposed in 2018 by the small business ombudsman, Kate Carnell, which was informed by similar funds that exist in the UK and Canada. The bill does not contain much detail on the operational and governance arrangements of the fund, and that is why Labor sees fit to refer this to a Senate inquiry, to try and get more information out of the government about how this fund is going to operate and, importantly, how the government arrangements will work. According to the government, the fund will provide long-term equity capital investments of between $5 million and $15 million to eligible Australian businesses where they have generated annual revenue between $2 million and $100 million and can demonstrate three years of growth and profitability. It can only have an investment stake of between 10 and 40 per cent of eligible businesses, with SME owners maintaining the controlling interests.

In addition to the government's commitment, each of the four major banks have agreed to commit $100 million to the fund, and Macquarie Group and HSBC will each contribute $20 million. The government aims to grow the fund from the current investment capacity of $540 million to $1 billion as it matures. The fund will not be a Commonwealth business enterprise or Commonwealth company; it will be a company incorporated under the Corporations Act, and the Commonwealth effectively will be a minority stakeholder in a private company.

The bill allows the Commonwealth to make arrangements relating to the operations of the fund but it must not control the fund. According to the Treasurer's office, the fund will have four independent directors, including a chair, with the Commonwealth and each of the banks appointing one director. The Commonwealth-appointed director is likely to be a senior Treasury official. The fact that this is a private company and not a GBE raises questions about how the Commonwealth and the banks will work together for that common purpose, and this is hard to know given the fund doesn't have a clear mandate.

These are the questions that we're asking the government to answer and to supply information about to the parliament before we can all make an informed decision about whether or not $100 million of taxpayers' funds should be invested in this company. We need to know about the investment mandate of the fund. Who will be on the board? What happens with profits that are generated by this particular fund? Will it offer dividends to shareholders? And what, importantly, do these banks get out of being involved in this particular fund? These are questions that the government has been unable to answer to date, despite attempts by some outside of parliament and by the opposition to get those questions answered. Yet they expect the parliament to sign off on a $100 million investment of taxpayers' dollars basically without doing their due diligence, without providing the necessary information for due diligence to be done to credit whether or not this is a wise investment.

Labor is correct to be sceptical about the operation of this fund, particularly given that there is a similar example of this that occurred in New South Wales with the establishment of the GO NSW Equity Fund. That is a fund that is currently being wound up because of problems and dubious investments that were made by the fund. According to media reports, one circumstance that related to an agricultural investment made by the fund was controversial because one of the investment advisers was a majority shareholder in an investment that was made by that particular fund. These are all of the issues that have to be sorted out before the parliament should properly sign-off $100 million worth of taxpayers' funds going into this particular investment.

It surprises me somewhat that the banks are making an investment in this. When the former CEO of Westpac appeared before an economics committee and was asked about this, he stated:

I'm not sure it's going to make a material change in the overall growth of the SME sector.

That was the view of the CEO of a bank that's making an investment in this, yet this government expects the parliament to just blindly sign-off on a $100 million investment without the necessary due diligence being done.

There are some concerns that the fund risks replacing other private sector investment into SMEs that would otherwise be able to attain equity finance, rather than providing finance to commercially viable business that are currently missing out. Concerns were also raised about the short time frame provided for public consultation in respect of the exposure draft of this bill, which was only four days. So that consultation period on a $100 million investment of taxpayer funds ran from 4 November to 8 November. That, and the fact that the submissions weren't made public, raised red flags for us on this side of the parliament about this particular fund. And, as I said earlier, the bill doesn't provide much detail around the fund's governance mandate or its operational arrangements. This should be explored as part of a Senate inquiry, particularly given this government's poor record when it comes to fund governance in other areas of government.

In conclusion, we will be supporting the passage of this bill through the House, but it is correct and it is right for the Labor Party to refer this to a Senate inquiry and to ask the government to provide the information, not only to the people who are potentially going to use this fund but also to the Australian public who, no doubt, want to see value for taxpayers' dollars in investments that are being made by the government in cooperation with the banks in establishing a company. On that basis, we request that this bill go to a Senate inquiry to sort out those issues and for a report to be given before it comes back to this place so that we can vote on it. This will ensure that the integrity of the fund is assured and, importantly, that its operational requirements and its governance are first-class and ensure that taxpayers get value for money.

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

I will speak briefly about the Australian Business Growth Fund Bill 2019, but not so briefly that you cannot call a quorum on me!

Australia is a very interesting country. We have never had an abundance of capital and we have never had an abundance of risk capital. It is for this reason that when we look at the top 20 companies the United States has by capitalisation, all of them bar one were founded or started after 1975. In Australia, when we look at our top 20 companies by capitalisation, the youngest of those companies—the one that was founded at the latest date—was Woolworths in 1928. When we think about the challenges facing our economy at the moment, which the Labor Party points out to us on a regular basis, it is normally the case that we have seen productivity growth halve since the time of the Howard government due to the onerous and negligent laws introduced by the Gillard-Rudd government that have so tied up our corporations and financial service companies in red tape, ensuring that they do not have the ability or the capacity to allocate capital in our economy as efficiently and as effectively as we would otherwise want them to have.

The result of this has been that, because productivity has been lower, we have seen that real wages have been lower. Because productivity has been lower, consumers have suffered because we have not seen the formation of new companies. We have seen an increase in the barriers to entry for new corporations. Consumers do not get the innovation in products and services that they would normally have because of the fact that there are no new companies coming into the market. If Apple had been founded in Australia it would never have got off the ground because of the laws and policies that the Labor Party have inflicted upon the people and the economy of Australia. And we need to understand that the same would go for Google, the same would go for Microsoft and the same would go for a whole raft of companies that have created untold wealth, products and services for individuals everywhere across the world.

It is interesting that Australia's most famous and probably most successful IT company is a little company called Atlassian, founded by Scott Farquhar and Mike Cannon-Brooks. When they came to the point of listing that company, they didn't choose Australia to list that company in; they chose the Nasdaq in the United States. We have companies, like Palantir, which have had to move large parts of their workforce to the United States because of the tax laws introduced by 'Chairman Swan' when he was Treasurer of this country. This meant that no-one wanted to start an employee share scheme.

So we have the so-called party of the workers ensuring that when the people who were working hard to make these companies as successful as they are, who were putting their intellectual nous and all that they had into the starting of these companies and the success that they were—and the founders wanted to share that success; they wanted to share the upside of their ventures, their ideas, their sweat and their labour—that it couldn't happen. They must go outside this chamber and hang their heads in shame at the damage they have done to Australian workers in this country.

But now the Liberal Party is the party of the worker, because we care about people getting a fair share of what they put into the work and effort that they put into their companies. This bill is only necessary because of the onerous financial service regulations introduced by the Labor Party, which, by the way, did not help consumers. In fact, they did quite the opposite. There was more harm at the hands of financial service companies under the Labor Party than there has ever been under the Liberal Party! They had Trio and Storm Financial—and that's just two!

And we don't have to go far back to the Victorian government under John Cain. They had the State Bank of Victoria that at one point made every Victorian poorer than your average citizens of some very developing countries. That's what you get under the Labor Party. This bill is necessary because we need to free up risk capital in Australia, and I recommend this bill to this House in the unamended form.

Debate interrupted.