10 October 2016
Speech - #2016004, 2016

‘Innovation meets opportunity’ – Opening speech to the National Franchising Convention 2016

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Good morning, everyone — it’s fantastic to be here, and to have the honour of officially opening this convention.  

Since I became Minister, I’ve met some remarkable folk right across the small business community.

They’re decent, hard-working people who take challenges in their stride, welcome new opportunities, and always have one eye on the future.

It makes for a vibrant community. A growing community. A community that is capable of great things.

And franchising is a significant part of that community.

For instance, franchising alone produces yearly revenue in excess of $170 billion. It employs well over half-a-million workers.

And, if you add them up, there are more than 1,100 franchise systems in place across Australia.[1]

Innovation

What’s more, they’re just as capable as their other small business peers when it comes to innovation — or, put another way, taking ideas and making them sing.

Of course, that’s not something you often hear when it comes to franchises.

I’m sure many of you are familiar with the time-old criticisms. “You can’t be creative” is one of them. “They’re too formulaic” is another.

But you know better, and so do I. There’s more to it than that.

Now, there’s certainly truth in the statement that franchises come with a good helping of predictability. And, most of the time, that’s exactly as it should be.

That’s why franchises exist!

However, no small business — and especially not a small franchise business — can or should shy away from innovation.

The world today is powered by innovation — from new technologies, to new twists on old ideas. And, as I’ve said, small businesses of every stripe are particularly good at it.

They’re nimble. They’re flexible. They’re free of the structures and layers that can burden larger businesses.

And that means they’re able to think outside the box — to use innovation to meet the opportunities of today.  

That’s an idea I want to expand upon today.

And I want to do it by specifically talking about what the Turnbull Government is doing in this space — in short, how we’re helping small business folk to innovate, to seize opportunities, and to grow.

Because that’s important.

If we’re to grow Australia’s economy — to create jobs and boost living standards — our small businesses need to be firing on all cylinders.

And it’s the job of any fair-dinkum government to put in place the right settings so they can do this — which, you’ll be pleased to hear, is exactly what the Turnbull Government is working on.

We want Australia to be the best place to start and grow a small business. What’s more, we’ve got a big agenda to do this — a small slice of which I’ll run through today.

Competition 

So let me start with something I’m particularly passionate about, and that’s competition.

Competition and innovation go hand in hand. It’s a spirit of competition that encourages the innovators among us to try something different.

It could be new products. It could be new ways of doing business. Either way, it means better services and better value.

It also keeps existing businesses on their toes — and forces them to get in on the action.

It’s a dynamic that’s good for the economy and good for jobs. But for it to work as it should, it’s got to be fair competition — there’s got to be a level playing field.

That’s why competition reform is one of the Government’s priorities.

In our last term of government, we launched a root-and-branch review of competition policy.

The result, as some of you know, was the Harper Competition Policy Review. Fifty-six recommendations, all of them aimed squarely at revitalising and reshaping competition in this country across all levels of government. 

The Government accepted most of the recommendations in the Commonwealth’s sphere and is also working with States and Territories to develop a new competition and productivity-enhancing reform agreement.

Last month we released exposure draft legislation for public consultation to improve and modernise the competition law.

And, for me, there’s none bigger than the reform to strengthen the misuse of market power provision — or Section 46 — of the Competition and Consumer Act.

I’ve long thought businesses should compete on their merits and not be unfairly excluded by rivals. And the Harper Review agreed, finding that Section 46 in its original form is not fit for purpose.

It creates a roadblock for new and innovative firms, delaying the entry of new technologies into Australia, and hampering growth.

But with our reforms, this will change. We’ll strengthen the law to prevent big business from misusing their market power or seeking to dominate markets.

It’ll mean businesses, large and small, will be on a more even footing. It will support competition on its merits.

And they will be assisted in this with other changes.

For instance, we’ll broaden the definition of ‘competition’ to include potential imports of goods and services — reflecting the full range of competitive pressures facing Australian businesses.

And we’ll introduce more flexibility into the notification process for collective bargaining by small businesses.   

Franchising Code of Conduct

So, in many ways, our competition law reforms inject a fresh dose of good faith into how businesses deal with one another.

The same can equally be said of the Government’s new Franchising Code of Conduct, which I want to briefly mention.

In our previous term, we introduced a new code to improve the regulation of conduct between franchisors and franchisees.

We listened to what was being said across the franchising sector. We heard what many of you in this room were saying.

And I think we hit the nail on the head. 

The code, which came into effect last year, is a much-improved — and modernised — approach to regulation for the sector.

For instance, it improved the disclosure of information by franchisors to franchisees. It also has minimum standards for franchise agreements, and provides protection for small business franchisees from unfair termination of their agreements.

Not only that, it’s done in a way that doesn’t impose excessive red tape — which is a bugbear of mine, and something I’ll pick up again later.

Innovation

But first, I want to return to the measures the Government is pursuing to help small businesses innovate and maximise their opportunities.

And they don’t get much more direct than the National Science and Innovation Agenda, which was launched late last year.  

It’s a billion-dollar package that we hope will result in a more dynamic culture of entrepreneurship in this country.

It means it’ll be easier than ever before for Australians to try something different. We’re clearing the roadblocks so they can take a risk.

So let me unpack some of that.

Our budding businesses will find it easier to raise equity finance thanks to a 20 per cent non-refundable tax offset for investors. There’ll also be a 10-year exemption on capital gains tax if investments are held for at least three years.

These are both important changes — particularly given the research telling us that about 4,500 start-ups are missing out on equity finance each year.

That’s also why we’re introducing Australia’s first dedicated framework to make it easier to access crowd-sourced equity funding.

This new way of fundraising means entrepreneurs can raise funds online from lots of people in return for equity in the company — a ‘say and a stake’, in other words.

There are other things, of course. There’s new arrangements for venture capital limited partnerships; increased access to company losses; and new rules for intangible asset depreciation.

It’s a broad-ranging package — and I’ve only skimmed the surface. But before I move on, I want to say that these changes won’t only help Australians looking to have a go.

They’ll also benefit the small business folk who are already out there — right in the thick of it running a small business.

It’s important that our existing businesses also try something new. 

As I said at the beginning, they have the right structures and — from what I’ve seen — the enthusiasm to do it.

And franchise businesses are particularly well-placed. There’s a ready-made network of businesses to rollout new products and new processes.

Furthermore, individual businesses within that system can pass on their experiences to others in the network. It’s win–win, really.

Other policies

Now, with all of that said, there’s more than can and should be done so that innovation can meet opportunity.

Small business owners — as I’ve said from the get-go — need a fostering environment.

We need to free up more money in the pockets of business folk so they can more easily invest in innovation. And we need to strip back the red tape so they have time to scope out opportunities. 

That’s what many of the Government’s other policies zero in on — so let me run through a few of them.

In the Budget — for the second year in a row, we cut the tax rate for incorporated small business, this time from 28.5 to 27.5 per cent.

And we went further still by extending eligibility for this tax rate and certain small business concessions to businesses with an annual turnover of up to $10 million. 

These changes benefit about around 870,000 incorporated businesses — ones that employ more than 3.4 million people.

These businesses will also be able to access a range of other small business tax concessions, such as simplified depreciation rules, simplified trading stock rules and a simplified method of making Pay-As-You-Go instalments.

We’re also extending the unincorporated small business tax discount to businesses with annual turnover less than $5 million, and increasing the rate of the discount from 5 per cent to 8 per cent, and later moving towards a discount of 16 per cent, of the tax small business owners pay on their business income, up to a maximum discount of $1,000.

Lastly, we’re simplifying the reporting requirements for Business Activity Statements, meaning small business owners can focus less of form-filling and more on what they do best. Legislation giving effect to these changes is currently before the Parliament.           

Now, simplifying reporting requirements is part of a broader tape-cutting agenda the Government is pursuing.

And I can’t stress enough how important that is.

Small businesses simply don’t have the time or specialised staff to get bogged down in energy-sapping red tape.

Last month, for example, I was down in Launceston. I did a walk down the main street, popped into some of the businesses, and met a lot of fantastic people.

One of them was Ryan Hughes, the sales manager at Phil Hughes Office Solutions. And two of the first words out of Ryan’s mouth were “red tape”.

In fact, he said, “If I could cut the amount of time I spend making sure everything’s right, I could actually get back to doing my job.”

It’s a complaint I hear time and time again.

That’s why red tape is one of my bugbears. And it’s why, over the last three years, the Government has reduced annual compliance costs by over $4.8 billion and repealed thousands of unnecessary legislative instruments.

Concluding remarks  

So on that point, let me start wrapping this up.

The Turnbull Government knows that ideas are how you change the world. And Australians have a lot of them.

That is why we are focusing on creating the right environment for businesses — particularly small businesses — to innovate and meet the opportunities it presents.

By encouraging competition, driving innovation, and freeing up business folk’s time and money, it means more opportunities for growth and more opportunities for success.

And that’s in everyone’s interest. A strong small business community — of which franchises are a critical part — ultimately means a stronger Australia.

And you can bet that’s what I’ll be working towards — with gusto — as I continue this extraordinary adventure as Small Business Minister.

It’s an honour to represent the interests of a sector I know so well, and one that is populated by folk with good sense and good humour.

So thank you again for welcoming me here today. I hope some of what I’ve said will guide your thinking — both during this convention, and beyond.

Now, feel free to fire some questions my way.

[1] Figures are from the IBISWorld 2016 Franchising in Australia: Market Research Report https://www.ibisworld.com.au/industry/default.aspx?indid=1902.