Katy Gallagher (ACT, Australian Labor Party, Shadow Minister for Finance) Share this | Hansard source

I'm doing this on behalf of Senator Farrell. Labor welcomes the debate on the Payment Times Reporting Bill 2020 and Payment Times Reporting (Consequential Amendments) Bill 2020, as we have long advocated for better payment practices to small business suppliers. From the onset I emphasise that Labor supports the intent as a first step in improving payment practices of large businesses to their smaller suppliers of goods and services. As my colleagues and I are all too aware, cash flow and prompt payment times are critical for small businesses. Unlike large businesses, which have a variety of ways to increase working capital, small businesses rely far more on payments and bank finance, the latter of which often involves high interest rates. Yet increasingly in Australia we see large businesses using small businesses as their piggy banks to boost their own working capital position.

Labor has been particularly concerned by the unconscionably long contracted payment times, often coupled with the practice of supply chain financing or reverse factoring. In situations where long payment times are coupled with reverse factoring, if the small business supplier wants to be paid on time, they essentially pay a fee, often to a third-party financier. Labor has been saying for years that this is unacceptable. As my colleague in the other place the member for Fenner noted in 2016:

The reason these companies are squeezing suppliers is simple: it improves their cash flow and makes them money.

That was 2016. At the time, data from Dun & Bradstreet showed that, on average, large companies in Australia are almost 20 per cent slower in paying their bills than small companies.

However, during the COVID-19 crisis we've heard some shocking examples of large companies unilaterally telling small suppliers that their payment terms are being blown out to 180 days or more from the day of invoicing. In fact, just this fortnight we've seen more examples. One of the most egregious is by Premier Investments and Just Group—run by a supporter of the Treasurer, Solomon Lew—who wrote to their small business suppliers saying that due to COVID-19 they were unilaterally extending payment terms to 180 days, six months. What makes this particularly galling is that Mr Lew and Just Group also told landlords they weren't paying rent. They accessed JobKeeper and reported record profits for the financial year. Now we've learned that this company told small businesses they wouldn't pay them for six months.

But Just Group aren't the only ones; the Small Business and Family Enterprise Ombudsman, Kate Carnell, has been inundated with examples of small business suffering because big business refused to pay them on time, and that's not to mention the ones who abuse reverse factoring, where payment times are blown out well beyond 30 days and a third-party financier steps in to pay the bill on time but at a discount. In other words, small business needs to pay a fee to be paid on time. It's outrageous, and nothing in this bill will stop it. Only Labor has a plan to reduce payment times and stop these practices, which I'll discuss in more detail in committee of the whole.

In contrast, while we welcome this as the first step, this bill has clear and obvious loopholes. Labor found it troubling that this transparency initiative originally provided no means to differentiate a firm that pays in 61 days from a firm that pays in 180 days or more. We understand the government will move an amendment to fix this glaring error, which we will support. This bill introduces a new payment times reporting scheme, which requires approximately 3,000 large businesses and government enterprises with an annual turnover of $100 million and above to publicly report biannually on their payment terms and practices for their small business suppliers. The government argues that, by providing access to information on large business payment performance, small business 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.

Payment times reports also include aggregated data on the reporting entity's payment terms and practices, identify the entity and provide other relevant information. Reporting entity reports will be published by the regulator on a central public register known as the Payment Times Reports Register, and a regulator will be created to oversee the scheme. Entities that fail to maintain payment records or provide false and misleading information in a report may contravene a civil penalty provision.

It is at this juncture that we should start to put forward reasons we are sceptical about the government's soft-touch approach to payment times for small business. Internal documents reported on in The Australian reveal that the government's planned procurement linked policy has not been implemented to date. Implementation is likely to take place in late 2021. Furthermore, should the procurement linked payment time policy be enacted after this bill, it only provides an incentive for large businesses looking for federal government contracts 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, and therefore the government's three measures are unlikely to have an effect on their behaviour. The bill does not mandate maximum payment times to small businesses, nor does it provide penalties or remedies on invoices that are paid late or with payment times greater than 30 days.

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. But the reason it remains a first step is, as many stakeholders note, that the government's argument for reporting involves a belief that small businesses can shop around for large-business customers. Such a belief is not reflective of the power imbalance large businesses have over their small suppliers. Small business stakeholders unanimously welcomed transparency but noted that the framework is unlikely to significantly change the behaviour of most firms. Importantly, it is likely this regime will not dampen the abuse of supply chain financing.

Supply chain financing has attracted scrutiny from the opposition; the Australian Competition and Consumer Commission; small business stakeholders, including the small business ombudsman, who issued a critical report on the practice; and, of course, the media. It isn't just Labor raising concerns about supply chain finance solutions; stakeholders across the board are particularly concerned about the increasing prevalence of reverse factoring. Given these concerns, the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has launched a review of supply chain financing. In addition, we know that the Australian Accounting Standards Board is already looking into the tiger trap of reverse factoring and will be discussing it further with international accounting standard boards and other regulators. Labor is part of an international chorus of voices concerned about certain supply chain finance arrangements, including ratings agencies and the international audit firms.

It is also telling 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 overfinancialised. We've seen the problems that arise when middlemen financiers insert themselves into the arrangements of small business. But it appears the government hasn't learned anything from this.

In November 2019 The Guardian reported that the Prime Minister had a one-hour meeting with a leading proponent of reverse factoring, Lex Greensill, who had pitched the use of reverse factoring in the payment system for public servants. While local and international regulators swim one way, the government swims 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.

As senators in the chamber know, the Senate Economics Legislation Committee conducted an inquiry into the bill. During the course of the inquiry, coalition senators ran defence for the big business arguments against incentives to pay in 30 days. Their only additional recommendation was to review the bill in two years time. In stark but unsurprising contrast it was Labor senators who outlined the flaws in the bill and the areas that need fixing. We will elaborate on these concerns and how Labor's payment time fail-safe mechanism can fix this issue during the committee stage. In the meantime, as mentioned, Labor welcome this debate on such an important issue.