Labor's feeble appeal to enterprise

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Australian Financial Review 27th May, 2014

In Chris Bowen's budget reply speech to the National Press Club last Wednesday we were introduced to an apparent change in direction for Labor's economic policy, with welcome acknowledgment of the important role entrepreneurs can play in Australia's future economic growth. But it was hard not to see the disingenuousness in Bowen's rhetoric given how damaging the previous Labor government's policies were to Australia's entrepreneurial culture.

The 21,000 new regulations introduced during the six years of Labor government - leading to Australia being ranked 128th in the world in terms of "the burden of government regulation" by the World Economic Forum - are testament to this. While the regulatory burden impacts all businesses, it inevitably falls hardest on the smallest operators that lack the resources, or the time, to complete the seemingly endless stream of government paperwork.

Nonetheless, some of the ideas put forward in Bowen's speech must be welcomed, particularly creating a new visa class for entrepreneurs. Such moves have had success overseas, and the idea of providing visas for job creators would be easy to sell to the electorate.

Bowen is also right to highlight the inane regulations that restrict the use of crowdsourced equity funding in Australia. Crowdfunding websites allow innovative start-ups and rapidly growing companies to access capital from a diversified group of investors through online channels. As it stands the Australian Securities and Investment Commission categorises crowdfunding websites as an unauthorised financial service. However, this issue has been apparent to Australian entrepreneurs for a long time, much of it while Labor was in government. It is therefore strange to see Bowen seemingly chastise the Abbott government for its lack of action, when Labor also failed to act while in office.

Indeed, it is hard not to see the hypocrisy in Bowen's attempt to position Labor as the party of entrepreneurs and small business. His government oversaw the implementation of regulations that saw upfront taxation of employee share options in 2009. Cash starved start-ups rely on these schemes to attract high-quality employees. By imposing the tax in advance, the Labor government added a layer of red tape that many tech start-ups found difficult to overcome.

REGULATION ACTS AS A DISINCENTIVE

In fact, a recent survey by Deloitte and Norton Rose found that 82 per cent of technology businesses found the regulation so complex that it acted as a disincentive to issuing share options. Speaking earlier this year, the co-founder of Atlassian, an Australian tech company recently valued at $3.3 billion, Mike Cannon-Brookes, noted it was the primary roadblock to tech start-ups in Australia - "everything else is secondary," he said. But Labor showed complete disinterest in the damage caused by this impost.

Changes in industrial relations were equally damaging. The introduction of the Fair Work Act in 2009, and the bloated bureaucracy that has accompanied it, has strangled small business with onerous regulation and reduced flexibility. In its first full year of operation, there was a 110 per cent increase in the number of cases brought before the Fair Work Commission. Further overreach of the system in the form of anti-bullying provisions which came into operation on January 1, introduced by the previous Labor government, will no doubt add to the litigious nature of the system.

The difficulties faced by entrepreneurs and small business owners do not stop there. 2012 research conducted by Philip Lignier and Chris Evans found that smaller enterprises with less than 50 employees spent an average of $28,000 and around 500 hours a year just to comply with their tax obligations.

The international literature in this area shows beyond doubt that the most effective mechanism to increase entrepreneurial activity within a country is to increase economic freedoms. Government programs are inevitably misdirected and crowd out the private sector from doing what it does best.

Bowen described the government as one "that has no faith in its people and no confidence in our ability to meet the challenges". But he fails to realise that having faith in entrepreneurs means getting government out of their way.

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