Opinion

John Hewson
How Scott Morrison is failing small business

There will not be a sustained economic recovery without a recovery of small businesses, and at this point they are on their knees. They are an essential element of the fabric of Australia and employ millions of Australians. They are the most innovative of our businesses and the developers of new technologies in our country. Small businesses are increasingly fundamental to our overall export performance, too. In 2022, they are “the sheep’s back”.

The Morrison government has defined itself by its general dishonesty and by its unwillingness to truthfully outline our actual situation and the magnitude and urgency of the challenges before us as a nation. Nowhere is this more the case than with small business.

In recent weeks Treasurer Josh Frydenberg has boasted about the fact business failures and insolvencies have been lower than pre-pandemic levels – and way below what was initially feared as the likely impact of the pandemic. The industry has put this down to a range of measures, including JobKeeper, loan guarantees, the changes to ASIC rules, with a moratorium on insolvent trading, an increase in the minimum amount over which a creditor can serve a company and increased time to comply with a statutory demand. In addition, the tax office and the banks decided not to pursue debts as vigorously as they had in the past, and there was some tenant protection from eviction by landlords.

More recently Frydenberg has claimed that the government “has been there every step of the way” for small businesses. He took this opportunity to announce the government’s decision to extend its loan guarantee by another six months. “This is,” he said, “money for them to back themselves.” However, it is not clear that businesses want more debt – or see it as a longer-term “solution”.

Other developments have further complicated the existence of small businesses. Most significantly, national spending has collapsed, as revealed in a recent ANZ survey that suggests wary Australians are spending like they are still in a lockdown. The data reveals that spending across all states is a little lower than 2021’s out-of-lockdown levels. This is true both instore and online.

The government’s muddled response to the pandemic – particularly to the more recent variants, and following the failings of the rollouts of vaccines, boosters and now rapid antigen tests – has worried Australians. The uncertainties created are coming home to roost. Spending has been at its lowest level since the Delta lockdowns. This impact on small businesses has been compounded by continuing supply chain disruptions and a shortage of staff and skills.

This must have come as a complete surprise to Scott Morrison and his government, having apparently pinned their hopes for a sustained recovery on strong household spending reflecting pent-up demand and savings built during the pandemic. But wages have been flat and are expected to remain so, and job insecurity has increased markedly. Two million Australians are either unemployed or unable to work as much as they would like or need to. Moreover, the costs of living have accelerated alarmingly, further adding to the spending hesitancy.

Most noticeably, the combination of people’s uncertainty about being in public places while also being told to work from home where possible, along with the factors above, has seen spending stifled across dining, retail and travel – basically any business that relies on foot traffic is suffering seriously. It’s a lockdown effect without a formal lockdown. This is then compounded by poor and often conflicting messaging from governments and the authorities, and no continuing financial support. The government has wanted us to learn “to live with the virus” but has kept stepping back from its responsibilities, assuming “Australians want governments out of their lives”.

By its muddling, the Morrison government has ensured its most feared “worst-case outcome” for small businesses. This is a massive failure for a conservative government, especially one that has repeatedly argued “small business is the engine room of the economy” and our “biggest employer” and a “significant exporter”.

This could have very significant political consequences for the Morrison government. While they seem hell-bent on paying off mates and donors at the top end of town – the big banks, miners and other corporates – they forget that small businesses, as individuals and companies, have been their constituency. This was the party’s financial and membership backbone.

The Coalition has benefited in recent years from the collapse of the traditional Labor vote, as many tradies became small businesses with some significant tax advantages from income splitting within families and so on. These voters – to some extent “Howard’s battlers” – were aspirational, needing a sense of hope and direction from a government, as well as occasional support.

There was some fear in the early stages of the pandemic that assistance to small businesses such as JobKeeper would work to keep otherwise zombie companies alive – that is, businesses that were failing anyway. As true as this was, it was no justification for not trying to assist those in genuine need. It sits very poorly when so much of the JobKeeper assistance was channelled to those who didn’t need it and were able to abuse it, especially the major retailers.

Obviously worried about the likely reactions of these larger businesses, the government refused to name those who had benefited obscenely and who were able to sustain profits and even pay senior executives bonuses while receiving millions. At the same time it paid money to churches that really didn’t need it, but not to institutions such as universities, which really did. In doing so, the government undermined its bona fides in accepting reasonable responsibility.

The recently announced difficulties of Coles and Woolworths concerning staffing and transport and distribution are of particular concern to small businesses that are significant suppliers to these two supermarkets. It is visible in the empty shelves. As yet, there is no effective response from Scott Morrison.

Australians have every reason to be disappointed with the way the government has handled the pandemic. We have been tested as required, worn masks and social distanced. When the vaccine was finally available, we were vaccinated at exceptional rates. In many cases we have changed the way we live, work, travel, spend and save, for our own benefit and to the health benefit of the broader community.

In this regard, I was particularly struck by a recent example of small business reaction and community generosity shown by a small Italian eatery in Bangalow, New South Wales. The restaurant was offering free meals to front-line health staff, hospitality workers without shifts, and “anyone out there just doing it tough right now”. The post asked people to wear a mask and be patient. “There are only a couple of kitchen staff left in our team who aren’t currently at home isolating, they’re generously helping make this happen. If you’re after contactless car pick-up, drop us a message and we’ll make it work.” This is an extraordinary kindness in such challenging circumstances. It is also a world away from the meanness and indifference of the Morrison government’s response.

Small business is now just another area where Morrison has abrogated his clear responsibility, as he did with quarantine, aged care, vaccines and rapid testing. If small businesses ultimately survive, you can bet Morrison will be front and centre to take the credit.

I fear there is a very real risk, however, that small business will be decimated as part of Morrison’s ill-defined belief that “we should all learn to live with the virus”. He is forcing all of us to accept individual responsibility for our own health, beyond what we do anyway, and leaving us to adjust to the consequences of his government’s incompetence.

Mr Morrison, do you really feel that you can just walk away and leave us to it?

This article was first published in the print edition of The Saturday Paper on Jan 15, 2022 as "Small sacrifices".

A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.

John Hewson is a professor at the ANU Crawford School of Public Policy and former Liberal opposition leader.