Half of Australia’s GDP: Why the budget should focus on SME growth

While speculation over Tuesday’s federal budget is as feverish as ever, there’s general consensus that tackling inflation will be top of the agenda. The government will likely look at ways to offer relief to those struggling with the escalating cost of living, but at the same time exercise restraint where it can. This is a sensible approach in the short-term but risks structural weakness over the horizon.

What we need is a growth-focused budget, particularly for Australia’s small and mid-sized companies. SMEs represent 99.8% of all businesses in Australia, contribute half of the GDP, and are critical to the nation’s economic prosperity and diversity. For the past few years, they have weathered unprecedented volatility and uncertainty and have shown tremendous resilience.

But the ordeal has come at a cost. SMEs don’t have the resources and contingencies that enable larger enterprises to ride more smoothly over the bumps. Many smaller companies have survived the COVID crisis but are substantially more fragile with limited resources left in the tank. 

Compounding the cyclical challenges, access to capital is becoming more difficult and likely to become more constrained. And while there is likely improvement on the skills front in the form of a review of immigration policy, we continue to see constraints in the talent pool for the short term.

To increase our economic complexity, and therefore our national resilience, we must move into growth mode, and provide additional support for SMEs in the budget as we look to maintain access to capital and support the development of our talent base. Without this leverage, there is a real risk that many SMEs would struggle, stagnate or fold.

Growing existing companies

When governments prioritise “getting back into growth mode”, there’s often a focus on entrepreneurship, innovation and startups. While this is important, existing companies are frequently overlooked. Many startups fail within the first 12-24 months — a reality that will be even more acute in a tight funding environment. 

Companies a few years down the track have already overcome the teething stage and are a surer bet. They have viable products and services and an established customer base. They need to continue to innovate and expand. 

In a CSIRO report on SME leaders, R&D was considered a must for businesses to become and remain competitive. Those investing in R&D found it easier to stay afloat during the pandemic. Some had even experienced growth.

According to Melina Morrison, CEO of the Business Council of Co-operatives and Mutuals, the “missing middle” has also contributed to Australia’s low productivity growth. She notes that mid-sized enterprises are often major employers in regional Australia, and “it makes sense to encourage their expansion and diversification as a way of maintaining and increasing high-quality jobs, wages growth and market access”.

Helping SMEs grow will not only lead to the maintenance of longer-term low unemployment rates but also benefit the government with a more diverse, resilient economy as well as an increased tax base.

A more holistic policy approach

Ultimately the budget shouldn’t need to be either/or. It’s not about pitting startups against medium-sized companies. But policy needs to recognise the importance of supporting businesses holistically across the spectrum, in ways that maximise their chances to grow sustainably and therefore drive our economic and social prosperity. 

After all, today’s entrepreneurs are tomorrow’s mid-sized CEOs, and today’s mid-sized CEOs are tomorrow’s large enterprise leaders. To encourage them in the early stages of their journey and abandon them as they mature is at best a lost opportunity and at worst a self-defeating strategy.

Ryan Williams is the director and playford professor of business growth at the Australian Centre for Business Growth, part of UniSA Business.