Small businesses need support, not a wage hike

13 Jun 2017 |

Last week’s decision to hike award wages by well beyond inflation delivers yet another blow to small businesses already doing it tough.

At a time when energy prices are surging, consumers are anxious about a possible housing bubble and a major foreign retailer is preparing to enter the Australian market, small businesses are feeling vulnerable.

The decision to increase award wages by 3.3 per cent will intensify the pressure and may tip some small businesses over the edge.

Australia’s 2.1 million small businesses are the backbone of our economy. Often the people who start these small businesses have risked everything they have, including their home, to turn their entrepreneurial dream into reality.

For many it is hard yakka. Typically these business men and women work extraordinary hours and take few holidays, and nearly half earn less than the people they employ. Often these businesses operate on incredibly tight margins, where a few percentage points increase in costs is the difference between running at a profit and at a loss.

So you can see why many small businesses see the Fair Work Commission’s hike to award wages as a slap in the face. While the decision does affect the approximately 200,000 people on the minimum wage, its bigger impact for business is its application to the 2.3 million people on award wages.

These employees have a wide variety of experience – and a wide variety of pay packets. The 3.3 per cent pay increase goes to people employed across the 122 awards, including pilots, architects, financial planners, journalists, models, real estate agents and property managers. Salaries for these employees stand beyond $150,000 in some cases, so the idea that the wage increase targets only the lowest paid is absurd.

And it is not just wages that are impacted by the wage decision. As small businesses know, the impact will flow on to payroll tax, superannuation payments and other costs that are linked to pay.

The reaction of one small retailer in Sydney sums of attitude of many small businesses. “I needed this increase like I needed a hole in the head,” he told the media the day of the decision. “It’s going to put more pressure on me and my family to the point where I will have to get rid of staff.”

The reality is that many of the industries that most depend on award wages are the very industries where young people often get their first job – hospitality and retail. By driving up wages we are making it harder for small businesses to give young people the career break they need.

The award wages decision came just a day after the announcement of the schedule for reductions to penalty rates. The decision means it will be several years before small businesses see a meaningful reduction in the cost of employing people on Sundays, and up to four years before the full impact of the change comes in.

In fact, when you combine the slight reduction in penalty rates next month with the sharp increase in the award, hourly pay for Sunday work will actually increase from July 1 for most people on awards.

Beyond making it easier to employ people, there are other ways we can give small businesses a hand.

Power prices have shot through the roof for many businesses over the past two years, so we need to end the political squabbling over energy policy in order to improve supply. With our abundance of natural resources, electricity prices in Australia should be going down, not up.

And businesses need to know that a future government will not hike their taxes. Just last week MYOB released some sobering data in its Snapshot survey of SMEs: 30 per cent of respondents said they do not plan to make changes to their business – such as hiring new staff or investing in equipment – because the tax cut passed by Parliament recently may be reversed later. That’s a clear signal that the Labor Party, as the alternative government, needs to commit to keeping the tax cut in place, otherwise it will jeopardise efforts to support small business.

Politicians often claim to be champions of small business. It’s time for the action to match the rhetoric.

An edited version of this piece was published in the Daily Telegraph on June 13, 2017.

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