Welcome to the Fear and Greed Business Interview. I'm Sean Ailmam. Small businesses in Australia are under all sorts of pressure right now, from rising costs in energy, rent and insurance, through to cyber attacks and grappling with complex changes to industrial relations. Small business owners have been hit hard in the years since the pandemic, and those that are dependent on household discretionary spending are probably doing it even tougher. Food and beverage businesses, for instance, are facing a business closure rate above nine percent, a record according to Credit to Watch. So what does the small business sector need from this federal election to ease the pressure on operators and help SMEs thrive. Luke Arkterstrat is the chief executive of COSBOA, the Council of Small Business Organizations Australia. Luke, welcome back to Fear and Greed today. Sean, thanks for having me on the program. Characterize the state of small business in Australia at the moment.

Welcome to the Fear and Greed Business Interview. I'm Sean Ailmam. Small businesses in Australia are under all sorts of pressure right now, from rising costs in energy, rent and insurance, through to cyber attacks and grappling with complex changes to industrial relations. Small business owners have been hit hard in the years since the pandemic, and those that are dependent on household discretionary spending are probably doing it even tougher. Food and beverage businesses, for instance, are facing a business closure rate above nine percent, a record according to Credit to Watch. So what does the small business sector need from this federal election to ease the pressure on operators and help SMEs thrive. Luke Arkterstrat is the chief executive of COSBOA, the Council of Small Business Organizations Australia. Luke, welcome back to Fear and Greed today. Sean, thanks for having me on the program. Characterize the state of small business in Australia at the moment.

You gave a pretty good a summary there of a lot of the live issues at play. You know, it's interesting and the lead up to the election, a lot of the political commentary has been about what are the top three issues. It's cost of living, cost of living and cost of living. From a small business perspective, we would suggest it's cost of doing business. So that ability to actually manage energy, rent, insurance, borrowing costs that you mentioned in their inflation is still pretty stubborn in some sectors in terms of supply chain. So the state of small business at the moment is they are really between a rock and a hard place, you know, trying to absorb those costs to the best of their ability, noting that there's only so much a lot of small businesses can pass those costs on to their consumers. You know. We know that there's only so much people will pay for a cup of coffee before they simply make one at home. We know there's only so much someone will pay for a stintl at a pub or a club rather than choosing to stay at home. So it's really that perfect storm of costs you've talked about, combined with that reduction in discretionary spending. So you're absolutely right for discretionary industries. You know, we had an interesting example the other day a Gelado store in Western Sydney, and the feedback from the owner was you know, even though he's got high levels of customer satisfaction, really good product, really strong brand. You know, people are just not going out for ice cream with their kids the way that they used to. That's just something they have had to cut out of the monthly budget to focus on, you know, school fees and energy bills and mortgage repayments. So the state of small business is highly challenging, and I think it's just worth saying when you've got two and a half million small businesses in Australia, they are the overwhelming majority of businesses in the economy, but they are quite different from large enterprise. So we're talking about mums and dads who have got the business mortgaged against the house. It's difficult for them to simply go back to their shareholders to refinance or to get more working capital. So very precarious situation at the moment, and I think the next six to twelve months are going to probably be even more challenging as a lot of those you know, the tail, A lot of those challenges come through the pipeline.

You gave a pretty good a summary there of a lot of the live issues at play. You know, it's interesting and the lead up to the election, a lot of the political commentary has been about what are the top three issues. It's cost of living, cost of living and cost of living. From a small business perspective, we would suggest it's cost of doing business. So that ability to actually manage energy, rent, insurance, borrowing costs that you mentioned in their inflation is still pretty stubborn in some sectors in terms of supply chain. So the state of small business at the moment is they are really between a rock and a hard place, you know, trying to absorb those costs to the best of their ability, noting that there's only so much a lot of small businesses can pass those costs on to their consumers. You know. We know that there's only so much people will pay for a cup of coffee before they simply make one at home. We know there's only so much someone will pay for a stintl at a pub or a club rather than choosing to stay at home. So it's really that perfect storm of costs you've talked about, combined with that reduction in discretionary spending. So you're absolutely right for discretionary industries. You know, we had an interesting example the other day a Gelado store in Western Sydney, and the feedback from the owner was you know, even though he's got high levels of customer satisfaction, really good product, really strong brand. You know, people are just not going out for ice cream with their kids the way that they used to. That's just something they have had to cut out of the monthly budget to focus on, you know, school fees and energy bills and mortgage repayments. So the state of small business is highly challenging, and I think it's just worth saying when you've got two and a half million small businesses in Australia, they are the overwhelming majority of businesses in the economy, but they are quite different from large enterprise. So we're talking about mums and dads who have got the business mortgaged against the house. It's difficult for them to simply go back to their shareholders to refinance or to get more working capital. So very precarious situation at the moment, and I think the next six to twelve months are going to probably be even more challenging as a lot of those you know, the tail, A lot of those challenges come through the pipeline.

Come to the policies of the politicians in a moment, but at the end of the day is the thing that's best for small business. A strong economy, I think it is combined with the right regulatory settings. So I think you're absolutely right. I think a strong economy consumer confidence that costs are doing business right. So there is that consumer sentiment that's really important. As we've talked about discretionary spending, getting that back up. Obviously, some more interest rate cuts we feel would be really impactful for small business. But until as an economy we really address this cost crisis, it's going to be extremely difficult for small businesses. Let's just zone in on one particular industry, you know, because there has been a lot of talk this election about housing. What's actually left out of that discuss in housing is that ninety eight percent of firms in building in construction SMB, they're small businesses. You know.

Come to the policies of the politicians in a moment, but at the end of the day is the thing that's best for small business. A strong economy, I think it is combined with the right regulatory settings. So I think you're absolutely right. I think a strong economy consumer confidence that costs are doing business right. So there is that consumer sentiment that's really important. As we've talked about discretionary spending, getting that back up. Obviously, some more interest rate cuts we feel would be really impactful for small business. But until as an economy we really address this cost crisis, it's going to be extremely difficult for small businesses. Let's just zone in on one particular industry, you know, because there has been a lot of talk this election about housing. What's actually left out of that discuss in housing is that ninety eight percent of firms in building in construction SMB, they're small businesses. You know.

There could be a carpenter who's become a builder who started his or her own business, and there are definitely a small business So we all sort of associate the large brands with construction, but the overwhelming majority of them are small businesses. Now, with raw materials going up, labor going up, insurance going up, all of that costs somehow needs to be passed on and that's what you're seeing in terms of a lot of really high insolvencies in the construction industry and a lot of those businesses being sort of, I suppose, again stuck between a rock and a hard place, particularly if they've entered into fixed price contracts where their margins are effectively have become effectively negative margins. So we need those economic fundamentals to be strong, as you absolutely say, but I think there's often too much focus on the demand side, which is important, and not enough on this supply side. So even access to Gill Shawn labor costs, you know, which is one of the reasons why Cosboa and other PEAT bodies have talked a lot about industrial relations trying to address that cost of doing business. And you know, and one of many reasons that house prices are so high is that cost of construction just has not been dealt with. So, yeah, the economic fundamentals, but also the regulatory and the policy settings that a light touch that are easy to navigate can really give small businesses a fair crack at, you know, not just remaining in business, but actually growing their business and becoming an even more important part of the economy.

There could be a carpenter who's become a builder who started his or her own business, and there are definitely a small business So we all sort of associate the large brands with construction, but the overwhelming majority of them are small businesses. Now, with raw materials going up, labor going up, insurance going up, all of that costs somehow needs to be passed on and that's what you're seeing in terms of a lot of really high insolvencies in the construction industry and a lot of those businesses being sort of, I suppose, again stuck between a rock and a hard place, particularly if they've entered into fixed price contracts where their margins are effectively have become effectively negative margins. So we need those economic fundamentals to be strong, as you absolutely say, but I think there's often too much focus on the demand side, which is important, and not enough on this supply side. So even access to Gill Shawn labor costs, you know, which is one of the reasons why Cosboa and other PEAT bodies have talked a lot about industrial relations trying to address that cost of doing business. And you know, and one of many reasons that house prices are so high is that cost of construction just has not been dealt with. So, yeah, the economic fundamentals, but also the regulatory and the policy settings that a light touch that are easy to navigate can really give small businesses a fair crack at, you know, not just remaining in business, but actually growing their business and becoming an even more important part of the economy.

The personal one. But good a mate of minds of Bill that he just can't get an overdraft at the moment because the banks, the regulations which are actually OPRA related rather than the banks, means he can't get an ave draft. And it is it's kind of quite broad what you're talking about. The changes that are needed to help small business filter into finance as much as it does the economy.

The personal one. But good a mate of minds of Bill that he just can't get an overdraft at the moment because the banks, the regulations which are actually OPRA related rather than the banks, means he can't get an ave draft. And it is it's kind of quite broad what you're talking about. The changes that are needed to help small business filter into finance as much as it does the economy.

For example, access to finance is a huge issue. On that example you site there with your builder. That does not surprise me at all. I think one of the other areas where small businesses feel they could actually have their cash flow access to credit improved is actually through tax reform, Shawn. So a couple of different things in the lad up to the election. One is we're actually calling for a small business company tax cut. So at the moment we've got a sort of two fase system in Australia where if you earn turnover of over fifty million dollars you pay the full thirty percent and if you're under fifty million dollars turnover you're paying twenty five percent. We feel that could be even more targeted towards the SMB section of the economy and that we should reduce the tax ray from twenty five percent to twenty percent for firms with the turnover of up to twenty million dollars, So that would capture the overwheling majority of incorporated small businesses. That would allow them to improve their retained earnings, improve their cash flow. Perhaps an example of your builder mate, you know, if he's keeping an extra five percent there on his margin, that's cash flow that he can put back into the business, demonstrate that positive cash flow back to his bangle, back to his financial institution. So you are one hundred percent right. A lot of these issues are quite broad and cut across not just construction, but across various industries. And that's why we feel, you know, broad based tax reform could really provide a stronger foundation for a lot of our small businesses. I think it's also just worth reminding ourselves here. You know, we're talking about firms that don't necessarily have a head of HR, ahead of sales, ahead of marketing, a head of legal. Well, actually they do, they probably they do.

For example, access to finance is a huge issue. On that example you site there with your builder. That does not surprise me at all. I think one of the other areas where small businesses feel they could actually have their cash flow access to credit improved is actually through tax reform, Shawn. So a couple of different things in the lad up to the election. One is we're actually calling for a small business company tax cut. So at the moment we've got a sort of two fase system in Australia where if you earn turnover of over fifty million dollars you pay the full thirty percent and if you're under fifty million dollars turnover you're paying twenty five percent. We feel that could be even more targeted towards the SMB section of the economy and that we should reduce the tax ray from twenty five percent to twenty percent for firms with the turnover of up to twenty million dollars, So that would capture the overwheling majority of incorporated small businesses. That would allow them to improve their retained earnings, improve their cash flow. Perhaps an example of your builder mate, you know, if he's keeping an extra five percent there on his margin, that's cash flow that he can put back into the business, demonstrate that positive cash flow back to his bangle, back to his financial institution. So you are one hundred percent right. A lot of these issues are quite broad and cut across not just construction, but across various industries. And that's why we feel, you know, broad based tax reform could really provide a stronger foundation for a lot of our small businesses. I think it's also just worth reminding ourselves here. You know, we're talking about firms that don't necessarily have a head of HR, ahead of sales, ahead of marketing, a head of legal. Well, actually they do, they probably they do.

It's the same person, that's right.

It's the same person, that's right.

That's right. It's the same as fear and greed. You know, you're the head of you and Michael are the head of everything, right, so.

That's right. It's the same as fear and greed. You know, you're the head of you and Michael are the head of everything, right, so.

We like to think so we're not that we like to think so loot yeah.

We like to think so we're not that we like to think so loot yeah.

Yeah, So you know, this is just the unique operating environment of small business. You and I have talked about this before, but it's where can we get policies that really meet these small businesses halfway? Spend a day in their shoes and understand what some of those constraints are. Whether it's finance, whether it's compliance costs, whether it's regulation, whether it's reporting. There's just a whole range of issues that are really tiny, a bit of a leg rope on our small businesses at the moment. I'll just quickly leave this with you for this answer. Some of the research that's come out of CPA Australia is really damning about Australia's small business policy settings in the region. So they did a bit of a litmus test of how does Australia effectively rank as a place of doing business, but specifically small business in all of those various policy settings. How hard is it to start a business, how hard is it to maintain a small business? And it actually found out of twelve comparable countries, we ranked second lowest. Well, so that you know, for a country like Australia, where we should be leading the world in terms of our ideas, our entrepreneurship, we were second worst, only just pipping New Zealand, which you know is not necessarily something to necessarily write home about unless it's a game of breakby Union. So I guess I'm just saying there is so much work we need to do as a country. We really want this election to really focus on a sector that can sometimes be taken for granted and is often hidden in full view.

Yeah, So you know, this is just the unique operating environment of small business. You and I have talked about this before, but it's where can we get policies that really meet these small businesses halfway? Spend a day in their shoes and understand what some of those constraints are. Whether it's finance, whether it's compliance costs, whether it's regulation, whether it's reporting. There's just a whole range of issues that are really tiny, a bit of a leg rope on our small businesses at the moment. I'll just quickly leave this with you for this answer. Some of the research that's come out of CPA Australia is really damning about Australia's small business policy settings in the region. So they did a bit of a litmus test of how does Australia effectively rank as a place of doing business, but specifically small business in all of those various policy settings. How hard is it to start a business, how hard is it to maintain a small business? And it actually found out of twelve comparable countries, we ranked second lowest. Well, so that you know, for a country like Australia, where we should be leading the world in terms of our ideas, our entrepreneurship, we were second worst, only just pipping New Zealand, which you know is not necessarily something to necessarily write home about unless it's a game of breakby Union. So I guess I'm just saying there is so much work we need to do as a country. We really want this election to really focus on a sector that can sometimes be taken for granted and is often hidden in full view.

Okay, we'll come back and talk about that in a moment. I'm speaking to Cosbala chief executive Luke ark Destrat. We left before the break talking or sort of edging into politics. What do you want to see We've got ten to eleven days till the federal poll. What do you want to see coming from both sides of politics around small business?

Okay, we'll come back and talk about that in a moment. I'm speaking to Cosbala chief executive Luke ark Destrat. We left before the break talking or sort of edging into politics. What do you want to see We've got ten to eleven days till the federal poll. What do you want to see coming from both sides of politics around small business?

Look, Sean, I think the first thing is actually getting some serious ri cognition of the importance of small business. You know, I have to say, you know, it is very rare that I meet a politician or a regulator who doesn't like to say, oh yeah, small business is the lifeblood of the economy. Or small businesses the backbone of the economy. We hear these really great platitudes, but then we look at things like the government's federal budget, we look at things like the Intergenerational Report, We look at all of these bodies of work coming out of central agencies, and just so often small business is an afterthought. It's as if small business has been consulted at the last minute to sort of tick a bit of a box, you know. And that's not just my view, that's the view of you know, fifty odd small business organizations that we represent at KOSBOB. So in terms of the major parties, I think we'd actually like to see a small business policy that really generates new ideas, but really actually anchors small business as that key driver of competition of innovation in the economy. You know, if we keep sleep walking towards becoming a corporatized Australia, that's going to mean reduced competition, which means higher prices and higher inflation. So the summary kind of asked that we've put to both parties is look at what we call the twin engines of reform, which is tax and red tape. So, you know, my most fundamental way of thinking about this tax reform, How can we keep more income in the pockets of small business owners so that they can reinvest, build and employ. Red tape, How can we get more time back in the day or in the week of small business owners so they have more time to reinvest, employ and grow. So tax and red tape are kind of the two pillars that we see. It's time and money and getting that back in the pockets and back in the day. I mean, just a quick stat we came out of some research. We saw fifteen hours per week is now the average amount of time a small business owner is spending on compliance. So that's paperwork, that's bureaucracy. Now, don't get me wrong, there's a role for reporting, there's a role for regulation that is not in dispute here, But fifteen hours a week. You know, when we wonder why we have a productivity problem in Australia, it's because even entrepreneurial young entrepreneurial men and women spending what's that equivalent of two full time days or two full days a week just trying to actually satisfy the government of various reporting and compliance costs. So we need to really address that head on. We need to not be afraid to go searching for red tape, and by that I mean making the system easier to navigate as well. You know, you shouldn't have to be a lawyer or a barrister to understand how to employ a casual worker. You know, you shouldn't have to be you shouldn't have to be a mathematician to understand what to pay someone in the retail industry. You know, the Retail Industry Award has almost one thousand, nine hundred and eighty six different rates of pay, so there is so many concrete examples, so we need to address that. And as I said, we need to get the tax settings right, things like the instant asset right off, make that permanent, give small business a certainty. But as I've mentioned, we do feel quite strongly and we will have some modeling on this coming out quite soon, so please stay tuned for that. But the impact some tax relief at a corporate level would have for small businesses could really make a big impact. So there's a bit of a wish list there in the market, and we're really hoping to see a little bit more engagement with that from the major parties and from the independence as well.

Look, Sean, I think the first thing is actually getting some serious ri cognition of the importance of small business. You know, I have to say, you know, it is very rare that I meet a politician or a regulator who doesn't like to say, oh yeah, small business is the lifeblood of the economy. Or small businesses the backbone of the economy. We hear these really great platitudes, but then we look at things like the government's federal budget, we look at things like the Intergenerational Report, We look at all of these bodies of work coming out of central agencies, and just so often small business is an afterthought. It's as if small business has been consulted at the last minute to sort of tick a bit of a box, you know. And that's not just my view, that's the view of you know, fifty odd small business organizations that we represent at KOSBOB. So in terms of the major parties, I think we'd actually like to see a small business policy that really generates new ideas, but really actually anchors small business as that key driver of competition of innovation in the economy. You know, if we keep sleep walking towards becoming a corporatized Australia, that's going to mean reduced competition, which means higher prices and higher inflation. So the summary kind of asked that we've put to both parties is look at what we call the twin engines of reform, which is tax and red tape. So, you know, my most fundamental way of thinking about this tax reform, How can we keep more income in the pockets of small business owners so that they can reinvest, build and employ. Red tape, How can we get more time back in the day or in the week of small business owners so they have more time to reinvest, employ and grow. So tax and red tape are kind of the two pillars that we see. It's time and money and getting that back in the pockets and back in the day. I mean, just a quick stat we came out of some research. We saw fifteen hours per week is now the average amount of time a small business owner is spending on compliance. So that's paperwork, that's bureaucracy. Now, don't get me wrong, there's a role for reporting, there's a role for regulation that is not in dispute here, But fifteen hours a week. You know, when we wonder why we have a productivity problem in Australia, it's because even entrepreneurial young entrepreneurial men and women spending what's that equivalent of two full time days or two full days a week just trying to actually satisfy the government of various reporting and compliance costs. So we need to really address that head on. We need to not be afraid to go searching for red tape, and by that I mean making the system easier to navigate as well. You know, you shouldn't have to be a lawyer or a barrister to understand how to employ a casual worker. You know, you shouldn't have to be you shouldn't have to be a mathematician to understand what to pay someone in the retail industry. You know, the Retail Industry Award has almost one thousand, nine hundred and eighty six different rates of pay, so there is so many concrete examples, so we need to address that. And as I said, we need to get the tax settings right, things like the instant asset right off, make that permanent, give small business a certainty. But as I've mentioned, we do feel quite strongly and we will have some modeling on this coming out quite soon, so please stay tuned for that. But the impact some tax relief at a corporate level would have for small businesses could really make a big impact. So there's a bit of a wish list there in the market, and we're really hoping to see a little bit more engagement with that from the major parties and from the independence as well.

Luke, thank you for talking to Fear and Greed.

Luke, thank you for talking to Fear and Greed.

Boys a pleasure. Sewan, thank you.

Boys a pleasure. Sewan, thank you.

That was Luke Arktastrat, chief executive of Cosboa. This is the Fear and Greed Business Interview. Join us every morning for the full episode of Fear and Greed Business news for people who make their own decisions. I'm Chanelman. Join your day.

That was Luke Arktastrat, chief executive of Cosboa. This is the Fear and Greed Business Interview. Join us every morning for the full episode of Fear and Greed Business news for people who make their own decisions. I'm Chanelman. Join your day.