Brendan O'Connor (Gorton, Australian Labor Party, Shadow Minister for Employment and Industry) Share this | Link to this | Hansard source

In relation to the Payment Times Reporting Bill 2020, 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 expresses concerns over deficiencies in the bill, including:

(1) the lack of certainty that the measure will lower payment times;

(2) the light treatment of supply chain financing; and

(3) the ability for businesses to hide extremely long payment times to small businesses".

Labor welcomes the debate on the Payment Times Reporting Bill and the Payment Times Reporting (Consequential Amendments) Bill. We do so because we have long advocated for better practices for payments to small-business suppliers. We welcome this bill as a step in the right direction. From the outset, I emphasise that Labor supports the intent of the bill as a first step in improving the payment practices of larger businesses to their smaller suppliers of goods and services.

As my colleagues and I—and, indeed, our fantastic candidate in Eden-Monaro, Kristy McBain—are all too aware, cash flow and prompt payment terms are critical to small businesses. Prompt payments to small businesses are far more important to cash flow than they are for larger businesses. Unlike larger businesses, which have a variety of ways to increase working capital, including bond markets and equity raisings, small businesses rely far more on payments and bank finance, which often involves high interest fees. Yet increasingly in Australia we see large businesses using small businesses as their piggy banks and to boost their own working capital position. I've been particularly concerned by the coupling of unconscionably long contracted payment times—sometimes 120 days or more—with the practice of supply chain financing, or what has been described as reverse factoring. In these situations, if the small business supplier wants to be paid on time they essentially pay a fee, often to a third party financier. That's a point I'll return to later in this debate.

The treatment of supply chain financing is one of the deficiencies in the government's approach and in this bill. Labor has been saying for some years that it is unacceptable. As my colleague the member for Fenner noted in 2016: 'The reason these large companies are squeezing suppliers is simple: it improves their cash flow and makes them money. Even in the current low-interest-rate environment, there's money to be made from taking your time to pay up. The reason firms can get away with longer payment terms is straightforward: they're big companies.' That was 2016. At the time, data from Dun and Bradstreet showed that, on average, large companies in Australia were almost 20 per cent slower in paying their bills than small companies were. However, during the COVID-19 crisis we've heard some shocking examples of large companies unilaterally telling smaller suppliers that their payment terms are being blown out to 120 days or more from the date of invoicing. Sometimes never wasting a crisis can take some very pernicious forms. In light of the increasing prevalence of these practices, it is troubling that this transparency initiative provides no means to differentiate a firm that pays in 60 days as opposed to a firm that pays in 120 days or more.

I'll briefly cover the details of the bill, which will help to illustrate why this bill is light-touch transparency, unlikely to significantly improve the status quo of self-regulation of payment times by big business. The Payment Times Reporting Bill 2020 introduces a new payment-times reporting scheme. It requires approximately 3,000 large businesses and government enterprises, with annual turnovers of $100,000,000 and above, to publicly report biannually on their payment terms and practices for their small-business suppliers. Small businesses will be defined as businesses with less than $10 million in turnover per annum, and a small-business identification tool will be created to assist larger businesses identify their smaller suppliers. Some business entities such as large cooperatives are exempt from reporting, due to constitutional limitations. Charities and not-for-profits are explicitly exempt from the reporting requirements.

The ostensible objective of the scheme is to improve payment outcomes for small businesses by creating transparency around the payment practice of large business entities. The government contends that, by providing access to information on large-business payment performance, small businesses will be able to make a more informed decision about their potential customers. The government also contends that greater transparency on payment practices and performance will create pressure for cultural change to improve payment times. I think it is rather fanciful to suggest that transparency alone will change the culture of payments by larger businesses to smaller businesses.

Payment time reports will include aggregated data on the reporting entity's payment terms and practices and will identify the entity and other relevant information. Reporting entity reports will be published by the regulator on a central public register known as the Payment Times Reports Register. A regulator will be created to oversee the scheme. The regulator will be, as we're advised, a Senior Executive Service role appointed by the Secretary of the Department of Industry, Science, Energy and Resources. Consequential amendments will be made to the Taxation Administration Act 1953 to enable the Commissioner of Taxation to disclose certain tax information to the Payment Times Reporting Regulator for the purpose of administering the scheme, and the scheme is intended to begin its first biannual reporting period on 1 January next year. Entities that fail to maintain payment records or provide false or misleading information in a report may contravene a civil penalty provision, and penalties can be up to 350 penalty units, which is $73,500, or up to 0.6 per cent of turnover. Reporting entities will be given an 18-month penalty-free transition from the implementation date of the scheme to enable them to familiarise themselves with the scheme and transition effectively.

The payment times reporting scheme is the second of three tranches of measures the government has committed to in order to improve payment times to small businesses from large businesses. The first tranche was to have 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. This measure, as I am advised, has been implemented administratively. The third tranche of the payment time measures announced by the Prime Minister in November 2018 was to link government procurement with payment times, with the Prime Minister stating:

Through a new procurement policy we will require those same large businesses seeking to tender for government contracts to match our 20 day payment policy.

It is at this juncture that we should start to put forward reasons why we are somewhat sceptical about the government's soft-touch approach to payment times to small business. Internal documents reported in The Australian newspaper reveal that, as the procurement link policy has not been implemented to date, implementation is likely to take place in late 2021. Furthermore, should the procurement link payment time policy be enacted, it is only for large businesses looking for federal government contracts that it will provide an incentive to pay small businesses within 20 days. Many of the businesses with payment times of 60 days or more are not ones that provide services to government. Therefore, the government's three measures are unlikely to have a significant effect on their behaviour, if any effect. It may well be negligible.

The bill does not mandate maximum payment times to small businesses, nor does it provide for penalties or remedies on invoices that are paid late or with payment times greater than 30 days, although the regulation impact statement clearly argues:

Without Government intervention, payment times from large to small businesses are unlikely to materially improve.

The RIS only considered business-as-usual and the proposed reporting regime approaches, because:

… introducing the payment times reporting scheme was an election commitment of the Government.

As such, the RIS, the regulation impact statement, does not discuss or consider mandated payment times or other mechanisms to incentivise better payment practices.

Small business stakeholders, including COSBOA and the Australian Small Business and Family Enterprise Ombudsman, have welcomed the reporting framework as a step in the right direction, as we do. As I've said from the outset, this is a bill that is in the right direction, but we do worry about its impact and its ability to really change the nature of the relationship between large and small businesses when it comes to payments. The reason it remains a first step is that, as many stakeholders note, the government's arguments for the reporting scheme involve a belief that small businesses can shop around for large business customers. We think that's fanciful in most circumstances. Such a belief is not reflective of the power imbalance large businesses have over their smaller counterparts, both in terms of size and market power, which is often a problem because of oligopolies and monopolies in the marketplace. So it's not going to be as simple as choosing another partner in business and eschewing one larger business over another. That's really not the case in most sectors of our economy. There are concerns. Frankly, smaller businesses feel intimidated about even suggesting changing the arrangements of payments, so of course they don't speak up and try to exact a fairer arrangement from the larger businesses.

Indeed, stakeholders the opposition consulted universally noted that a substantial degree of detail of the scheme is to be addressed via delegated legislation—that is, ministers' rules—including the reporting treatment of supply chain financing. Again, the more significant areas where the government could go are determined not under this proposed legislation but, indeed, by regulation by the minister. Virtually all stakeholders have expressed concern about the significant amount of detail that has been left to ministers' rules and regulations. Small business stakeholders want legislative certainty on the design of the scheme, emphasising the need to ensure controversial provisions, such as those related to supply chain financing, are legislated. Given the government has dramatically expanded the use of delegated legislation and regulations, including no less than the JobKeeper program, which included a $60 billion error, those concerns seem quite valid.

Small business stakeholders unanimously welcome transparency but note that the framework is unlikely to significantly change the behaviour of most firms. Kate Carnell, the Small Business and Family Enterprise Ombudsman, said her office supports 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'. Further, she stated:

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.

That is from the small-business ombudsman, who was appointed by this government to advocate and act on behalf of that constituency, and her words clearly show that she is very sceptical about this bill providing the panacea, providing the answer, to a situation that is increasingly becoming a problem for many, many small businesses across the nation.

Importantly, it's likely this regime will not dampen the abuse of supply chain financing. Supply chain financing has attracted scrutiny from small business stakeholders, including the small-business ombudsman, who issued a critical report on the practice, and the media are also of course very much onto this significant matter. To understand why supply chain financing has attracted such condemnation, I ask those on the government benches: is it fair to ask a small business to pay a $1,000 fee so they can be paid on time? That is what is happening in the marketplace. Of course that is not fair.

The concerns I've heard about reverse factoring led me to write to the Australian Competition and Consumer Commission about situations where payment times are extended, even by 120 days or more, and small businesses are offered third-party financiers to pay the invoice on time but incur a fee. The ACCC chair, Rod Sims, confirmed publicly and in correspondence with me that the ACCC was reviewing the arrangements of some large firms using reverse factoring for breaches of the Australian Consumer Law relating to unfair contract terms, misleading or deceptive conduct, and/or unconscionable conduct.

It isn't just Labor raising concerns about supply chain finance solutions. Stakeholders across the board are particularly concerned about the increased prevalence of reverse factoring. The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has launched a review of supply chain financing and said it is 'totally unacceptable' for businesses to use supply chain financing arrangements as a replacement for reasonable payment terms being offered 30 days or less from invoice. In her review of payment terms, times and practices in March this year, third-party financing must not replace reasonable payment terms being offered 30 days or less from invoice and paying to those terms. It is not acceptable for large businesses to use small suppliers to optimise their cash flow. The Australian Accounting Standards Board is already looking into the tiger trap of reverse factoring and will be discussing it further with the International Accounting Standards Board and other relevant regulators.

Supply chain financing has also attracted international regulatory scrutiny for obscuring the true debt positions of firms using it for systemic economic risks. The European collapse of infrastructure firm Carillion, for example, is attributed to the firm's use of supply chain financing. Labor is part of an international chorus of voices concerned about certain supply chain financing arrangements, including ratings agencies and international audit firms. So we are not alone. We're on the side of many, many regulators and others who are concerned about this. It is also telling us who isn't raising their voice. The Prime Minister, Scott Morrison, and the small-business minister, Michaelia Cash, like to talk a big game on small business but are conspicuously silent on this issue. We've heard barely a peep about the practice from the government.

The banking royal commission was a lesson on how our economy has become over-financialised. We've seen the problems that arise when middlemen financiers insert themselves into the arrangements of small businesses. It appears the government has not learnt a thing. In November last year, TheGuardian reported that the Prime Minister had a one-hour meeting with leading proponent of reverse factoring Lex Greensill, who pitched the use of reverse factoring in the payment system for public servants. The government is yet to respond to my questions on notice as to whether the Treasury and Finance departments have met supply chain financiers in regard to the government's own payment practices to suppliers. While local and international regulators swim one way, the government swim another.

The Australian Securities and Investments Commission confirmed in correspondence to the opposition that it was investigating the use of such arrangements by an unnamed large firm for possible noncompliance with auditing and financial reporting requirements. The definitions of 'supply chain financing' and 'associated reporting requirements' are contained in the minister's rules. The draft rules only require a large entity to report on whether they use supply chain financing—the details of those arrangements and the proportion of invoices paid under such arrangements—and that's all. The only legislative reference to supply chain finance is a passing reference to what the minister may include in their rules. Small businesses have no guarantee that a minister may not simply, on a whim, remove requirements to report on the use of such arrangements, because they're in the regulations.

As I noted earlier, Labor will refer this bill to the Senate Economics Legislation Committee for a brief inquiry. Stakeholders and the opposition have a number of concerns that need to be examined. Ironically, this is in part due to the government's lack of transparency on consultation about a transparency regime. Submissions to the payment time discussion papers and the exposure draft of this bill have not been made available. A brief inquiry should be no impediment to this regime being properly debated and ready to go for the intended 1 January 2021 starting date, lest anyone on the government benches seek to misrepresent our position. To be sure, the government announced this in November 2018 and has dragged its heels ever since. Labor supports the intent of the bill as a step in the right direction but has significant concerns over its likely efficacy and shortcomings, which Labor senators will explore in committee.

Some of the matters that should be explored include that the bill does not appear to have a clear target on when the average payment times should ideally fall, should this be a feature of the regime. The payment times reporting scheme is a transparency initiative to support self-regulation. The efficacy of self-regulatory regimes is usually poor to questionable unless backed by a genuine threat of effective regulation. Labor has concerns that a self-regulatory payment regime as proposed will not result in faster average payment times. The Senate committee should explore what genuine incentives need to be considered for large businesses to improve their payment practices collectively. As I noted before, the government's procurement-linked payment times policy does not create any incentive for better payment practices for the many large firms who do not seek government contracts.

Comparable jurisdictions have implemented or are actively considering legislative payment times. New Zealand is consulting on legislating 20-day payment times, with interest charges for payments over 20 days. The small-business ombudsman has explicitly said that a 30-day maximum payment policy is the only way to go.

On the matter of high-level data, the bill does not require the regulator to publish average or median payment times or representative invoice sizes by reporting entities, although the regulator may choose to do so. The committee should explore whether the regulator must be required to release this data publicly. The committee should also explore stakeholder suggestions that the reporting requirements and the definition of 'supply chain financing' in the draft regulations be legislatively enshrined.

On hiding egregiously long payment times, the bill intends to legislate the following brackets for reporting entities to provide information on payments made less than 21 days after the invoice was issued: between 21 and 30 days; between 31 and 60 days; and more than 60 days. However, the concern with the brackets is that many large firms, particularly those using supply chain financing, use contracted payment times of 120 days or more. The top bracket, of 60 or more days, allows egregiously long payment times to be hidden and therefore not disclosed, despite the efforts to make this arrangement more transparent. For these reasons, it is incumbent on the Senate to review this bill's efficacy and shortcomings in a constructive way.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Mark Butler (Hindmarsh, Australian Labor Party, Shadow Minister for Climate Change and Energy) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Andrew Wallace (Fisher, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. Just last week the Treasurer announced that, as a result of the devastating bushfires, followed soon after by the COVID-19 pandemic, Australia had ended its historic 29-year economic run, and that, regrettably, we are now in a recession. He also warned us that although our GDP only fell 0.3 per cent for the March quarter, there will be more difficult days ahead. Whilst this is of course disappointing news, it's worth comparing Australia's drop in GDP of 0.3 per cent with those of other nations. The average fall across OECD countries was indeed six times that of Australia's.

Let's look at the specifics of some of those other countries: Japan had a fall of just under one per cent; South Korea and the US—just over one per cent; the UK, Canada and Germany—a little over two per cent decline in their GDPs; France and Italy—a little over five per cent each; and China saw an almost 10 per cent decline in their GDP over the March quarter. In a new economic report issued by the OECD today, Australia is forecast to have the third-best recovery of member nations, behind only South Korea and Turkey.

Whilst Australia falling into recession is indeed bad news, when we look at what has happened around the world, just as in our own health situation, things could have been so much worse. But, as the Treasurer has said, economically and health wise we are not out of the woods yet, and it is likely that things are going to get tougher before they get better.

Many Australians under the age of 50 will not have worked through a recession before. Unlike my parents' generation, and theirs before them, those under 50 have not worked in a recession. They have not survived world wars or the Great Depression. I can vividly recall working as an apprentice carpenter during Paul Keating's 'recession that we had to have'.

Mr Drum interjecting—

The member for Nicholls agrees with me on that. He would have been swinging a hammer at the same time I was!

I recall listening to my old boss speaking to us over smoko and lunchtime about how difficult things were going to get, particularly in the building industry. I remember him saying that, in times such as those, cash was king. Well, Peter Mahoney, you were right back then, just as you would be right if you said it now—and I'm sure you are saying it now. Cash flow is indeed king. Without cash flow a business is on life support, if not dead.

I first learned the importance of cash flow from my old boss Peter Mahoney and from when I went on and had my own building business. Later, as a construction law barrister, I represented countless subcontractors who were chasing payment from builders. In my 16 years as a construction lawyer and adjudicator, I saw literally hundreds of cases where subcontractors' and suppliers' payments were being withheld by builders, principals and developers. Sometimes there was a legitimate dispute. There may have been an argument for the lawful withholding of some moneys for rectification costs, for example, or where the parties had agreed on liquidated damages claims, but there were many, many instances where payments were unreasonably, and sometimes capriciously, withheld. Sometimes these payments were withheld because the larger business was simply insolvent.

In 2012, I was appointed by the Queensland government to undertake a review of the security of payment laws in Queensland. That review led to legislative reforms which made the state's building payment system more robust and equitable. Regrettably it has since been amended again, changing many of those reforms that were instigated as a result of my review.

The building industry is a very good example of how important cash flow is to small businesses. I read the Sunshine Coast Daily, and not a day goes by when I don't see an article about a builder going broke. There are many, many builders going broke on the Sunshine Coast and, unfortunately, when they go broke they take subcontractors and suppliers with them. Mick de Brenni is the housing minister in Queensland. This Labor government in Queensland has been in power for five years. When Mick de Brenni became the housing minister around four years ago, he promised the building industry that, with the reforms he would bring in, every subcontractor would be paid in full, on time, every time. That promise has never been satisfied. Mick de Brenni, you should hang your head in shame for making that promise in the first place and, having made that foolish promise, never being able to deliver it.

I have had a long interest in ensuring that businesses—in particular, small businesses—are paid promptly and that larger businesses do not treat them as an unofficial bank, using the small businesses' money to keep the large businesses afloat without the payment of interest. In fact, as part of that review, I can recall speaking with a large builder on the issue of retentions. I had a robust discussion with this builder, who honestly believed the retentions he was withholding from his subcontractors were his money. He earnestly and honestly held the belief that the money he was withholding in retentions from his subcontractors was his money. Such is the cancer, the misinformation and the miscommunication, particularly in the building industry—

Llew O'Brien (Wide Bay, National Party) Share this | Link to this | Hansard source

Order! The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour. The member will have leave to continue speaking when the debate is resumed.