Katy Gallagher (ACT, Australian Labor Party, Shadow Minister for Finance) Share this | Link to 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.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

[by video link] The Greens have long led on policy and new legislation to help small business in Australia. We care about small businesses and recognise their importance and how hard they work. Indeed, my wife and I have both successfully run small businesses for a number of years; my better half still does. We're small-business people. Ultimately, much of our good work here in the Senate—and I will recognise the collaborative and cooperative approach of politics over many years in regard to small business from both sides of the chamber—has been focused on tackling the power imbalance between big business and small business and indeed the abuses of market power. In a nutshell, that's what we're attempting to do today with this legislation. I concur with Labor in the speech Senator Gallagher has just given that this reporting framework is a step in the right direction.

In the 2013 election, the Greens were the first to campaign for a tax cut for small business, which I note was legislated in the Senate shortly after, in 2014. We also campaigned on increasing the instant asset write-off threshold from $6,500 to $10,000 in 2013 and proposed new loss carry-back provisions. These initiatives provided small businesses with new incentives to invest both in their businesses and in their employees. The instant asset write-off threshold was successfully increased, legislated again after the 2013 election, although I note that initially the new Abbott government tried to wind back the threshold from $6,500 to $1,500. I'd like to think that Greens leadership on this issue sent a clear signal to the Liberal Party and to small business that they had a true ally in the Senate to help get these changes through parliament.

I also introduced a bill to the Senate in 2014 called the Small Business Commissioner Bill 2013 to have a properly resourced advocate for small business with significant powers. Three years later, this resulted in the creation and appointment of an Australian Small Business and Family Enterprise Ombudsman.

Speaking about power imbalances and small business getting bent over a barrel, one of the Greens' most proud achievements in helping small business was leading the campaign to have a bank, or financial misconduct, royal commission to hold the big end of town, the big banks and big insurers, to account. I will note on this point that I look forward to that significant legislation being in this chamber in a few months time. I certainly hope there are no more delays to this critical reform because of COVID.

Many of the recommendations by Commissioner Hayne will help tip the balance in favour of small business, especially in areas of access to finance, insurance claims, fees for no service and financial redress. Most importantly, we pushed for years—since 2012—to get an effects test to reform competition policy in this country. In a rare political opportunity, our friends from the National Party joined the Greens to pass the long overdue and significant reform to section 46 of the Competition and Consumer Act 2010. I understand that was legislated in 2016. That's a very interesting story in itself.

For those who didn't follow competition policy reform, we managed to get the effects test through because the National Party supported a Greens motion and crossed the floor and voted against their Liberal colleagues on the day that Malcolm Turnbull toppled leadership in this country. It opened up a significant reform that we feel will make a big difference. We could throw in the establishment of a financial ombudsman as well—another piece of legislation initiated thanks to pressure from opposition in this place and ultimately thanks to cooperative politics.

To come back to the legislation before us today: it was a successful Greens amendment to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 that ensured most small businesses would be protected from unfair terms in standard contracts. We worked very closely with a number of small-business stakeholders over many years to successfully get that legislation through the Senate. That, by the way, included franchise agreements. This amendment increased the coverage of legislation from 80 per cent of small businesses to 95 per cent of small businesses—businesses that were under that unfair contracts legislation.

I don't want to leave this chamber with the impression that the Greens have had only wins in regard to small business. We haven't seen every Greens policy legislated yet. We still continue to push for the small business entity threshold to increase from $2 million to $10 million per annum, as we've seen in many overseas countries, and an increase in the threshold for the GST registration from $75,000 to $150,000 and $150,000 to $300,000 for not-for-profit entities. That, of course, would significantly reduce the burden on many small businesses and their constant requirement for paperwork, which I know is a huge, huge burden for any operator and owner of a small business.

We support any measures that help correct the power imbalance between small business and big business—any measures that level the playing field. We will be supporting today's legislation because this is a step in the right direction. We hope that we see improvements to this legislation. A register provides transparency, but, without further developments—especially in relation to coercive powers and penalties—we remain sceptical that this will tip that power imbalance. The Greens would also like to see more detail around Labor's amendments and Senator Lambie's amendments, if she's still going ahead with her amendments, but we will wait until we get to Committee of the Whole before we will talk on those issues. The Greens will be supporting this legislation today as a step in the right direction, and we look forward to assisting Australian small business as we have done proactively and constructively together for nearly a decade.

Amanda Stoker (Queensland, Liberal Party) Share this | Link to this | Hansard source

Mark is a tradesman on the Gold Coast. Yes, Mark is his real name. His business works for builders in residential construction. He's a contractor. In his career of 40 years, he has hired tradesmen, he has hired apprentices and he has hired subbies. He's really proud of what he does. In his career, he has seen this industry go up and down. He recalls with frustration the late eighties and early nineties, during the recession we had to have, where he had in quick succession—

Scott Ryan (President) Share this | Link to this | Hansard source

Order! Senator Stoker, you will be in continuation. Thank you for your understanding.