Rudd’s Labor: Dollars and dangers for SMEs

The business landscape is about to change. Survival for SMEs will very much depend on not seeing the imminent changes as problems, but as opportunities. MIKE PRESTON runs through the options.

By Mike Preston

The change of government means big changes to the way every small and medium sized business operates. There are dollars to be made, but there are also dangers to watch out for.

SMEs have good reason to be nervous about Kevin Rudd and the new Labor Federal Government – Rudd is untested in government, and many SME owners don’t like Labor’s policies in key areas such as industrial relations and tax.

But it would be a mistake to see only downside in Labor’s decisive election win. Business will benefit from the many millions in new spending Rudd has promised for the environment, skills and grants, as well as red-tape cuts and reform of government tendering.

During the campaign Rudd sought to paint himself as the candidate with a vision for the future, and this was reflected in Labor’s policy promises. For SMEs, it will also define who will be the winners – cutting edge businesses in the green-tech, ICT, training and services sectors – and the losers – old-style manufacturers and high green-house gas emitting businesses.

Rudd’s preference for picking industry winners and delivering services by bureaucratic structures also reflects Labor ideals, and will set his government apart from the more market-oriented hands-off Howard government.

A new government inevitably brings change, and where there is change there will be new opportunities and threats for business. For SMEs, moving nimbly to best take advantage of these new directions in government and society could be the key to success in the Rudd era.

The skills shortage

Boosting Australia’s skills base will be crucial if the Australian economy is to continue to grow without fuelling inflation. It will be one of the toughest challenges the Rudd Government will tackle.

Labor has promised to create a new statutory body, to be called Skills Australia, to lead the effort. The effectiveness if this new body, and the extent to which it consults with business on what is required, will be central to Labor’s success or failure on this issue.

Dollars: Labor has promised to create 450,000 new training places across Australia. The race will be on among Australia’s industry sectors to lay claim to a fair share of these training places.

SMEs in training and recruitment sectors will be big winners. The lion’s share of more than $1 billion Rudd has promised to fund the new training places will go to training providers in the public and private sector – businesses positioned to provide services in key shortage areas such as ICT and engineering are particularly well-placed.

Dangers: Under the Coalition, significant funding was delivered by giving individuals and businesses vouchers for them to choose the training they needed.

Labor’s system is more bureaucratic. Funding will go via industry skills councils, comprised of union, government and business representatives, which will determine which industry areas require more training.

This could take control over training out of business owners’ hands. It will also mean good training outcomes will depend on the ability of the industry skills councils to consult effectively and make smart decisions on what training is needed where.

The environment

SMEs in the renewable energy and green-tech sectors are undoubtedly the biggest business winners from Labor’s election victory.

But as always, when you pick winners, someone inevitably loses out. Businesses in old-style industries, especially in the energy-intensive manufacturing sector, will need to move fast to get in line with the new government priority or risk being left behind.

Dollars: With close to $750 million on the table, there is plenty of money to go around for SMEs in a position to take advantage of Labor’s green grants.

Money for businesses that sell environmental solutions:

• A $500 million program of grants for businesses to develop and commercialise renewable energy technologies such as solar and wind – the government will match every $2 spent by business with $1 in public funding.
• A $500 million fund for research into clean coal technology.
• $75 million in grants through the Commercial Ready program for businesses to commercialise and develop green technology generally.

Money for businesses in any sector that want to improve and reduce their environmental footprint:

• A $90 million fund for grants of up to 50% of the cost of installing energy efficiency measures into new or existing buildings, up to a maximum grant of $200,000.
• $75 million to SMEs in the manufacturing sector to make their processes more energy efficient. SMEs will be eligible for grants worth up to a third of the full cost of the change, to a maximum of $500,000.

Underpinning Labor’s funding in this area is its promise to force energy providers to obtain 20% of all energy from renewable sources by 2020. This will create a strong competitive advantage for businesses in and associated with the renewable energy sector.

Labor’s promise to sign the Kyoto Protocol and establish a carbon trading scheme will also open up significant opportunities for innovative SMEs able to find a niche in what will eventually be an international market in carbon permits.

Dangers: If you are a business that uses large amounts of power, prepare yourself for this reality – Labor’s policy settings will almost certainly result in higher electricity prices.

Renewable energy is likely to become cheaper as new technologies come on line, but it is still unlikely that it will be cheaper than the coal-generated power we heavily rely on now.

Rudd has committed Labor to a carbon trading scheme that will produce 60% cuts in greenhouse gas emissions by 2050. Big emitters will be forced to improve their energy efficiency and spend big money on permits to offset their emissions.

Industrial relations

Industrial relations is the major Labor policy bugbear for most SMEs. Last week’s SmartCompany Election 2007 Poll found that 57.5% of businesses polled said they will be more reluctant to hire under Labor, while 45% said they would be more reluctant to fire under Labor.

Labor has moved quickly to put a timetable in place for its new IR laws, with transitional laws expected by early 2008. It is a sign of the magnitude of the changes Labor plans for the system, however, that it may not have its new IR regime completely in place until early 2010.

Because of this long lead time, SMEs that best handle the transition to the new regime may be able to build a strong advantage over competitors. Cool heads and good IR advice will be more important than ever in the period ahead.

Opportunities (not dollars, but…): SMEs have a window of opportunity to take advantage of WorkChoices before the new laws come into effect.

The exemption from unfair dismissal laws for businesses with 100 employees or less could be gone by early 2008. SME owners who move quickly to get rid of unsuitable staff could save themselves on legal costs and go-away money down the track.

There is also an opportunity for SMEs to maximise the benefit they derive from AWAs. Labor has promised AWAs signed before its laws come in will be allowed to operate until 2012.

If done well, Labor’s proposed fair dismissal code could help guide SMEs through the dismissal minefield. All eyes will be on the business representatives that sit on the small business consultation committee that will advise Labor on the content of the code.

Dangers: Once Labor’s IR regime is in place, SMEs will lose a competitive advantage they currently hold over larger businesses.

Larger firms, with dedicated HR staff, will be better placed. They will be to deal with unfair dismissal claims and collective agreements, which will both become more common under Labor.

SME groups are also nervous about Labor’s proposed central IR regulator, Fair Work Australia. Labor says the body will be flexible, decentralised and informal, but many in the business community fear that it will just mean interfering government officials without proper oversight.

Industry, R&D and grants

Labor’s $200 million for 10 new “enterprise connect” centres around the country attracted the most attention during the campaign. Their focus on innovation and commercialisation will be of most benefit to technology intensive services providers and manufacturers.

But Labor’s lower profile commitments to fatten several grants programs could end up providing the juiciest opportunities for SMEs – as long as they know where the money is and how to get it.

Dollars: SMEs should be looking to take advantage of two Labor promises – reform of the Export Markets Development Grants scheme, and a new grants program to support family friendly businesses.

Labor has promised to boost the EMDG scheme by $50 million to $200 million per year and to increase the maximum grant available to businesses from $50,000 to $200,000. Just as importantly, more businesses will now be eligible to apply for money under the scheme thanks to Labor’s commitment to relax the thresholds:

• Lifting the maximum revenue threshold for businesses eligible to receive grants under the scheme from $30 million to $50 million.
• Cutting the minimum spending threshold from $15,000 to $10,000.

Rudd has also pledged $12 million to provide grants to SMEs to implement family friendly measures such as flexible rosters, school holiday leave arrangements and family rooms. Set to commence in 2008-09, grants of up between $5000 and $15000 will be available.

Dangers: Labor is planning to cut mainstream funding to the popular Commercial Ready program.

Although more money will be available for business to develop and commercialise renewable energy and green technology (see above), $160 million over four years will be cut out of the $800 million that was previously available for business to develop other innovative products and processes.

Broadband

Labor’s early promise to spend $4.7 billion on a new fibre to the node broadband network helped Kevin Rudd build the political momentum that eventually saw him defeat John Howard. The pressure is now on to get the process of selecting a private sector partner and commencing roll-out of the network moving as quickly as possible.

Dollars: An internationally competitive broadband network will offer the biggest advantages to businesses in the ICT, media and entertainment sectors.

Australian business in these global industries will be able to deal confidently with international clients, knowing they will be able to send and receive large amounts of data with ease.

But SMEs in all areas will enjoy some benefits. Not only will broadband prices fall, consumers will also be able to use online retailing with ease.

Dangers: Labor’s decision to make public funding available for a fibre-to-the-node network will make life harder for those seeking to build a business based on providing other technologies such as WiMax wireless broadband.

Labor’s handling of the tender process for the network should also be carefully watched. A failure to use this opportunity to introduce greater competition into Australia’s telecommunications sector could see SMEs paying higher prices for broadband and telephone services.

Red tape

Labor made a virtue of its plans to cut red tape during the election campaign, plans that resonated particularly loudly with many SMEs wrestling with the Coalition’s botched introduction of the AWA fairness test.

Rudd has promised a minister for red tape and a “one in, one out” rule to ensure regulation does not proliferate beyond current levels.

However, slashing red tape is the easiest promise in the world for a party in opposition to make – carrying it out in government is entirely another matter. SMEs will be watching closely to ensure Labor is held to its promise.

Dollars: By its very nature, cuts in red tape will tend to benefit those businesses that deal with government the most.

Labor has also promised to make government tendering processes more accessible to SMEs. With $26 billion in government work per year up for grabs, changes to reduce the complexity of tender documents and contracts required to deal with the government could be a real boost for SMEs.

Dangers: Labor has promised to initiate a plethora of reviews and inquiries into everything from grocery prices to the operation of the Commercial Ready program. Whether or not these measures are warranted, they will make it difficult for Labor to stick to its no new red-tape promise.

Tax

Labor didn’t match the Coalition in its personal tax cut package, but its $31 billion promise is still one of the biggest in Australian history.

There was some disappointment that Labor chose not to deliver cuts to people paying the 45% top marginal tax rate, a cut many business owners would have seen as a just reward for effort.

But a bigger question is whether Labor’s cuts can be delivered without overheating the economy – and if the can’t, whether Rudd will have the guts to abandon or delay them.

Dollars: Rudd’s cuts focused on making it more attractive for low income earners to enter or return to the workforce.

For businesses with the flexibility to hire part-time workers, or who can make themselves attractive to mothers or retirees returning to the workforce, this could provide a partial fix for the skills shortage.

Rudd has also said he has a longer term “aspirational” plan to cut the top tax rate to 40% in the next term of government.

Dangers: The threat represented by Rudd’s tax cuts can be captured in one word: Inflation. Although the tax cuts will help support consumer spending, too much stimulus will push Australia’s inflation rate into dangerous territory.

If this happens, the Reserve Bank of Australia will have no choice but to lift interest rates – possibly more than once. Doing so would not only slow down the economy, it would mean much of the benefit of any tax rate cuts, which will simply go into bank coffers in the form of higher interest rates.

Related story

>> The SME guide to Labor’s plans

See our Election section for more stories:

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>> Industrial relations

>> Tax

>> Skills

>> Environment

>> Industry, R&D and education

>> Broadband