Monday, 17 August 2015
Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015; Second Reading
I rise in support of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. It is part of the government's reform agenda to assist small business to be the best it can be. Indirectly, by strengthening small business, this reform will assist in providing additional jobs—and, because small business is the lifeblood of rural and regional Australia, this bill will assist in job creation in my rural electorate of Eden-Monaro.
This bill will amend the Australian Consumer Law, which is set out in schedule 2 of the Competition and Consumer Act 2010, and the Australian Securities and Investment Commission Act 2001. It will extend the consumer unfair contract term protections to cover standard form, small business, consumer-like contracts that are valued below a prescribed threshold. It is our view that, in many cases, small businesses have no more market power or ability to vary take-it-or-leave it standard form contracts than an individual consumer; however, those small businesses have lacked the consumer-style protections that provide for unfair terms to be struck out of such contracts. Thus, this is real reform.
Consumers have been protected from unfair contract terms since 2010. We said before the election that we would extend this provision, and now we are implementing it. This issue has been around for many years. I know that when I was the Chief Executive of the Australian Chamber of Commerce and Industry it was a matter of considerable debate. For many years, small business has been protected by unconscionable conduct provisions in legislation. However, small business associations have, for many years, put the case that these provisions do not go far enough and that an equivalent of the unfair conduct provisions afforded to consumers was needed to adequately protect Australian small business.
As the minister has noted, unfair contract terms can come in a variety of forms and can be used to unfairly shift risks to another party, who may not be well-placed to manage them. For example, they may permit one party to unilaterally vary terms, limit their obligations, terminate or renew the contract, levy excessive fees on outstanding moneys or affect the availability of redress. Under the new protections, a court will be able to strike out a term of a small business contract that it considers unfair. This will reduce the incentive to include and enforce unfair terms in contracts with small businesses. Under the new protections in this legislation, a contract will be a small business contract if at least one party has fewer than 20 employees and its value is below the prescribed threshold of $100,000—or $250,000 for a multiyear contract.
I am proud to be a member of a government that does not just talk the talk on small business—we walk the walk. We put the role of Minister for Small Business into cabinet, and what a champion the member for Dunkley has been. We are the party of small business people who have been on that journey, having a go, putting the family home on the line and putting in the hours—maybe failing, maybe falling over, but getting up again and having another go. This is the Member for Dunkley's story and it is the same for so many Australians creating livelihoods and creating communities, and, ultimately, creating an economy that is the envy of the world.
We are taking steps to boost the capacity of our small business sector. But have a look at the vandalism that those opposite engaged in for six years. Under Labor, 485,000 jobs were lost in Australian small businesses! Not just employees losing livelihoods but employers losing their business, homes and hopes for a better future. And Labor lecture us on how things should be done! Around half a million jobs down the drain on their watch, and they have the temerity to demand we do something. Well, guess what? We have done things that Labor have neither the imagination nor the inclination to achieve.
A few brief examples: as part of the 2015-16 budget, we delivered the nation's biggest jobs and small business package, worth $5.5 billion. It includes: a 1.5 per cent cut in the company tax rate for small business, to 28.5 per cent; a five per cent tax discount for non-incorporated small businesses; an immediate deduction for assets valued up to $20,000; expanding the FBT exemption for work related portable electronic devices; capital tax gains relief when a business changes its legal structure but keeps the same owners; the ability for start-ups to immediately deduct professional expenses incurred when they start a business; expanding the tax concessions for employee share schemes; and the removal of obstacles to crowdsourced equity funding
In the previous 2014-15 budget, we allocated $8 million over four years to transform the existing Office of the Australian Small Business Commissioner into a Small Business and Family Enterprise Ombudsman with additional functions and real powers to ensure small businesses can find answers to the questions that they have, quickly and efficiently. We have streamlined access to Commonwealth procurement contracts to ensure bills are paid on time. We have made changes to the way the government pays its bills: small businesses who contract with government and who have not been paid within 30 days will automatically receive interest on their invoices without having to separately apply for it. Under changes to the Commonwealth Contracting Suite, we are making it easier for small business to supply their products and services to the government. This includes a simplified process for tendering for contracts below $200,000.
There is more. An estimated 372,500 small businesses have benefited from administrative changes to the PAYG instalment thresholds announced by the government. As a result of the changes, around 32,500 small businesses that have no GST reporting requirements will no longer have to lodge a business activity statement. The remaining 340,000 small businesses with modest or negative income that were required to lodge a BAS no longer have to interact with the PAYG instalment system. Franchisees have also benefited from a new Franchising Code of Conduct. For the first time, breaches of the code will carry penalties—giving the code real tools and teeth. The government has also enacted the first ever Food and Grocery Code of Conduct, to protect small suppliers from the big supermarkets. There are other areas where real progress is being made—progress that is only possible under a government that prioritises small business, and has a dedicated minister in cabinet and, indeed, an entire leadership team that believe in it.
Small business will benefit from our wider policy actions on economic growth, productivity and deregulation, but we are also helping the sector in more targeted ways. That is because we recognise how important small business is to our economy. For example, even our rollout of base stations to fix mobile phone black spots will be a huge boost to small business in rural areas. In Eden-Monaro we have recently announced 12 new base stations, which will help address mobile phone black spots in 59 localities. I would like to particularly thank the member for Bradfield, who is at the table, who has been significant in providing this important rollout of our mobile phone black spot policy.
The coalition is committed to improving regulator reform and enhancing the way regulators engage with small business. And the government will continue to protect those who depend on independent contracting and self-employment for their livelihoods. The coalition is committed to the tax white paper process. We have introduced legislation to re-establish the Australian Building and Construction Commission. Nobody in the construction industry is more affected by the tactics of the unions than subbies and small businesses.
This will be a defining moment in this parliament. Will Labor join us in putting a construction industry cop back on the beat to rein in rogue unions? We actually know what the answer is. It is 'no'. We are very disappointed, but we are not surprised. Labor will not support disinterring the ABCC. They buried it when in government and they will not be joining us in reviving it. Because they are beholden to the CFMEU, there is no way they will help breathe life into the only effective mechanism for defeating lawlessness and intimidation in the construction industry.
Equally we can ask: will they join us in supporting real action against unfair terms in contracts? As I said before, consumers have been protected from unfair contract terms since 2010. However, the Rudd-Gillard-Rudd government, despite its initial interest, decided not to offer similar protections to small business. With this bill the government has moved on its election commitment to extend unfair contract term protections from consumers to small businesses and has provided $1.4 million to support this initiative.
As the minister has noted, in designing the legislative amendment, the government consulted extensively with stakeholders. State and territory governments were actively engaged in the development of this measure, and consumer affairs ministers—indeed, across all states, Labor and Liberal—formally agreed to the proposal to amend the Australian Consumer Law in April 2015, as required under the Intergovernmental Agreement for the Australian Consumer Law.
Finally, as the minister has also noted, with this legislation, the government is restoring time and resources back to Australia's two million small businesses to invest in their business success rather than navigating a costly and time-consuming maze of standard form terms. I commend the bill to the House.
I rise, like my good friend and colleague the member for Eden-Monaro, to speak in favour of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 and to commend the Minister for Small Business. I do not know whether it is rare or not, but I can remember the precise moment that I decided that I wanted to run for federal parliament. I was driving in my car, while working for my father in our family business, and I was listening to question time—probably some sort of a sign that I needed to get a life! I heard the then opposition leader, now Prime Minister, ask Prime Minister Gillard a question on the carbon tax. He asked how businesses were supposed to compete with the resultant price increases that would come from increased electricity fees. Standing at the dispatch box, Prime Minister Gillard said: 'We have compensated consumers. They should merely put up their prices.' I do not think I have ever heard better defined the misunderstanding by those on the other side of parliament, the Labor side, of how business actually operates.
At the same dispatch box today, the Treasurer said, 'It is not government that creates jobs; it is business.' I used that same line in my maiden speech—almost to a word. I rise again to talk about the role that not only small and family business plays but this government is playing in enabling small and family business to succeed. Whilst everyone else has spoken about the detail of this legislation, which I will get to, tonight I thought I would tell a couple of yarns, because it is what I like doing—and I know the member for Chifley always enjoys it when I tell him a yarn or two.
In the winter break I managed to lock myself out of my home. My wife and children were away on holidays. The last sitting week of parliament overlapped with the first week of the school holidays, so Susie and the kids had gone away. I was the only one with a key to the place, and it is fair to say the security at my place is first-rate, because I was locked out and there was no way I could get in. So I rang the local locksmith, who said, 'We subbie out our premises work to a young guy that lives in the area.' He gave me the number, and I rang Peter. As I spoke on the phone, in true publican/politician style, I said: 'Hello Peter. My name is Craig Laundy. I've locked myself out of the house.' At the other end, I heard a voice say, 'Craig!'—as if I had known Peter all my life. I of course did not have a clue who Peter was over the phone. But Peter, I am sure, over the next 30 seconds, thought I had known him since life. I ordered Peter to come over.
Peter came over in his own little van. He works himself. He would be in his early 20s. He spent an hour with me trying to help me get into the house, which he ultimately did. In the middle of that hour, he said: 'I'm going to be running late for the next appointment. I've got to do a school at North Strathfield. I've won a tender on the locks, but I had to meet the principal there at a very specific time,' which was 1.15, and this was about 12.45. I said, 'Mate, you go.' But I had another complication—I had to get to a funeral of a local identity and I was not in a suit, so I was in all sorts of trouble. Peter knew that and he stayed with me. He rang the school to tell them and ask whether he could make the appointment later. The school, which had been let down many times apparently by local locksmiths, was, I think it is fair to say, none too impressed.
I was quite disturbed. I said, 'Peter, how long have you been doing this?' He said: 'I started out about 12 months ago. I was working as an apprentice. I did my time. I worked with a business. But I've decided to take this step and go out on my own.' North Strathfield Catholic school is a new school that we launched earlier in the year. It was at that moment that I picked up the phone and said, 'Mate, I'm going to ring that school and explain that I'm absolutely the reason you're running late,' because I thought: 'There's a contract for a young guy who works by himself. He's handling the phone in between drilling in the lock on my front door, trying to get ahead.' He still lives at home. The reason that Peter answered the phone so familiarly is that I had actually doorknocked his parents' home during the election campaign, run into him and his mum and dad, had a cup of coffee with them and spoken about what the area needed, not knowing that some two years later I would run into Peter when I needed him.
I picked up the phone and I rang North Strathfield. I spoke to Sinead, who is the right hand for the principal there, and I threw myself on the sword, because I thought it was only fit. I said: 'Sinead, it's Craig Laundy. I met you at the opening of the school a few months ago. You've just received a phone call from Peter. I am the reason Peter is late, and I want to apologise. I really hope you can reorganise a time that would suit, because this young bloke is starting out in his own business, and the last thing I want to do is something that would in any way hinder his progression.' Sinead said, 'Craig, I completely understand.' I have not followed up with Peter, but I will, and I hope that that contract has gone well for him.
The moral of the story is that today's apprentice or tradie is tomorrow's small business owner. Here is a young guy, Peter, starting out answering phones and doing everything. What we speak about today is that, as these young guys and girls work their way through their trade or through whatever course they take in their education, and they take that momentous step to go from employee to employer, in their infancy we must protect them. The sobering fact is that between 1 January 2011 and 31 December 2014 there were 1,375 small businesses that contacted the ACCC to complain about unfair contracts. I would be lost as a young guy, because I do not have a legal background. Neither does Peter. Neither do many of these people that are taking this momentous step.
So what has this government decided to do about it? It has decided to launch this bill, which will help new entrants to the small business market. There are three categories. The contract has to fall between the prescribed thresholds of $100,000 and $250,000, or one party has to have fewer than 20 employees. It is very important that in their infancy these businesses, if they enter into a contract—as 1,375 did in the four years, or 350-odd per year between 2011 and 2014—are given some protection for what could ultimately be an honest mistake but, more importantly, could ultimately lead to the end of a small business in its embryonic stages.
Who is to know where Peter will end up in 10 years time? Knowing him as I do now, I would not be surprised if that one van becomes 10, and if instead of him answering the phone there is someone at the office answering the phone—perhaps multiple people. In those 10 vans will be, I hope, 10 employees of Peter's and 10 apprentices, and those employees and those apprentices at some stage in the future may be the next generation of small businesses—of locksmiths—within the Inner West of Sydney.
It is not just this measure tonight, proposed by the Minister for Small Business, that is a sign of the changes we have made in this space. There is of course the tax cut; there is of course the instant asset write-off. I have spoken in the chamber about the instant asset write-off of a business, a hospitality venue on Henley Marine Drive at Drummoyne, that has been closed for years. Not long after the budget I saw a lease sign; it has been leased. Because it has been empty for so long, I made a point of ringing the real estate agent and finding out who had taken the plunge and taken a lease on the place. It was very pleasing to hear that the person has decided that because there was a plan in place pre-budget to open it up as a hospitality facility, a function centre—it was going to be staged over a three- to four-year period, with capital investment made and employment resulting from that investment—that he would bring forward that expenditure and that resulting employment. He is not far away from opening up. He has decided to bring forward that expenditure because of the decisions that were made by this government in the budget.
From that day—sitting in the car, listening to the answer given by then Prime Minister Gillard, with no understanding that business cannot just put up prices to combat increased expenses when they compete in both export and import markets against companies and businesses that do not face the same infrastructure—I know I will stand with this government all day, every day, in whatever time the people of Reid give me, to fight for small and family businesses, not only within Reid but throughout Australia. Why? Because there are—back of the envelope—11.7 million people employed in Australia at the moment. Around two million of those are public servants. That leaves a ballpark figure of 10 million. Of that, 4.7 million are employed by small business—50 per cent, the same as medium-size business and large business combined. That is how important this sector of our economy is to our economy. That is something I am proud of as a member of the Abbott government and that I understand not only through working with people like the Hon. Bruce Billson and my other colleagues but through my family involvement and history in employing people. I have great honour and pride in supporting this bill, and I commend it to the House.
I rise tonight to speak on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. I commend the member for Reid for his anecdote, because all bills relating to small business and the treatment thereof go to the heart of what makes this nation tick. The member for Reid mentioned some employment statistics. We know that small business is the major employer in this country, and we need to do everything we can to support it.
In my maiden speech, I mentioned that small business is the lifeblood of our community. We have a very common saying in Australia—'Have a go.' There is nowhere that is more about 'having a go' than in the commerce of small business. There are many men and women out there in our communities in Australia having a go and wanting to make their own success in commerce by having a successful small business.
There are a couple of reasons why this is important. It is obviously important to the people who start a business. They are hoping to secure their own financial responsibility and security, and they may well then employ people as they grow. But it is also important because we know that all we do here in government is transfer wealth from one person to another. We do not create wealth in this chamber. We certainly want to encourage people and make it as easy as we can for people to create wealth and to employ people. We want to do that. We need to do that because, without a healthy private sector, we have nothing. We then tax successful small businesses and people who are doing well. What do we do with that money? We give it, in most cases, to worthy people who need the support of the public purse. Whenever I go and talk to people who want taxpayer dollars—I respect them and we need to give many of those people money—I say we should always be respectful and acknowledge those who are creating the wealth in this country.
If we do not have a healthy private sector and businesses employing people and creating wealth, we will have no money to give to the social welfare sector, the health system and the education system. That money does not come from government. That money does not come from me, the Prime Minister, cabinet or the minister; it comes from the private sector and those many small businesses out there in our country creating wealth, creating jobs and, obviously, paying taxes.
I had the pleasure on Saturday night of going to Clarence Valley Business Excellence Awards night at the Yamba Golf and Country Club. It is the time of year in my community when many businesses have awards, and I love to go to as many as I can. I missed a couple on Saturday night because they were at the same time. It is lovely to go to these events and to acknowledge those small businesses which have exceeded and excelled. They are acknowledged by their peers by winning awards. On Saturday night, many businesses were awarded prizes, and it was great to be there. In fact, the New South Wales Small Business Commissioner was also there. She talked about the work that they do and echoed a lot of what I have just said about the importance of small business in our community. I told her this is quite a big and important part of this government's commitment.
In the 2013 campaign, we spoke about our red-tape repeal days. Sometimes, when those days come around—and I think we have had two already—those on the other side of politics almost treat it with disdain or as a bit of a joke, saying, 'Yeah, right. It's not that important. We are all on side with this.' Obviously, they were not. We are talking about repealing legislation and red tape that cost businesses money. When you have regulation that is duplicated across three levels of government there is a lot of red tape and green tape that small businesses have to comply with. It means they have to employ someone, or use some of an employee's hours, to fill out these forms. It costs money. It is not without its costs. In fact, it has quite surprised me in the last two years that a lot of people who have been complaining to me about red-tape costs are not just from the private sector. They are, in fact, from the not-for-profit sector. They have an inordinate number of forms to fill out, t's to cross and i's to dot, which is costing them a lot of money. They say, 'We are just wasting the taxpayer dollar by filling out these forms and doing what we do.'
So I speak with great fervour in favour of this bill. We are committed, as I said, to ensuring Australia is the best place to start and grow a small business. That is why we are extending the consumer unfair contract term protections to small business. We took more than 20 small business-specific promises to the last election. We said we would extend the unfair contract term protections available to consumers to small businesses. With this legislation, we have met yet another small business election commitment. Consumers have been protected from unfair contracts for a while. However, the former government, despite its initial interest, decided not to offer similar protections to small businesses. In many cases, small businesses have no market power or ability to vary 'take it or leave it' standard form contracts, other than as individual consumers. However, they lack the consumer-style protections that provide for unfair terms to be struck out of such contracts. We know that it is time for small businesses, which often face the same vulnerabilities as consumers, to also receive these protections when offered 'take it or leave it' contracts.
The bill will amend the Australian Consumer Law, which is set out in schedule 2 of the Competition and Consumer Act, and the Australian Securities and Investments Commission Act to extend the consumer unfair contract term protections to cover standard form, small business, consumer-like contracts that are valued below a prescribed threshold. This is a long-sought-after and very welcome new protection for small business and one which the coalition has long supported.
Extensive consultations have indicated that small businesses across a wide range of industries have concerns with unfair terms. Unfair contract terms can come in a variety of forms and can be used to unfairly shift risk to another party who may not be well placed to manage them. For example, they may permit one party to unilaterally vary terms, limit their obligations, terminate or renew the contract, levy excessive fees on outstanding moneys or affect the availability of redress. We are supporting small businesses so they can confidently enter into standard form contracts for day-to-day transactions where the costs and time involved in reviewing these contracts and seeking legal advice can be disproportionately high.
Under the new protections, a court will be able to strike out a term of a small business contract that it considers unfair. This will reduce the incentive to include and enforce unfair terms in contracts with small businesses. Under the new protections, a contract will be a small business contract if at least one party has fewer than 20 employees and its value is below the prescribed threshold of $100,000 or $250,000 for a multi-year contract. In designing the legislative amendment, the government consulted extensively with stakeholders. This transaction value threshold was chosen so that the protections apply when small businesses engage in day-to-day, consumer-like transactions, while encouraging them to conduct due diligence on the larger contracts that are fundamental to the success of their business.
Beyond these values, it is right and reasonable for all enterprises to seek advice on these larger contracts. It is important to make it clear that we do not believe it is the government's role to be contract nannies nor to be injecting agency bureaucrats to pour over specific clauses of multimillion dollar commercial transactions that small businesses should only enter into after much thought, careful examination and taking proper advice. State and territory governments were actively engaged in development of this measure and the consumer affairs minister has formally agreed to the proposal to amend the Australian consumer law in April 2015, as required under the Intergovernmental Agreement for the Australian Consumer Law.
In line with the Corporations Agreement 2002, the Commonwealth notified the states and territories that these legislative protections would be mirror in the ASIC Act. These protections will come into effect six months after the bill receives royal assent. The Australian Competition and Consumer Commission, who the government provided $1.4 million to in the 2014-15 budget, will support businesses transitioning to new protections. With this legislation, the government is restoring time and resources back to Australia's two million small businesses to invest in their business success rather than navigating a costly and time-consuming maze of standard form terms. On that note, I again acknowledge every small business in this country. I thank them for the risks that they take, I thank them for the capital that they invest in their small business, I thank them for the people who they employ, I thank them for the taxes that they pay and I thank them for the services that they fund to do what this country needs to do.
As has been often said in this chamber, small business runs through the DNA of this side of politics. In the last two years, as I have got to know many members of this side of politics, I have been humbled by their expertise, I have been humbled by the experience that they bring to this chamber and I have been humbled by the fact that they know how commerce works and about the types of risks and type of mindset that you have to have to make a business thrive and prosper. There is much expertise that they bring. We understand it, we acknowledge it and we want to support it.
I would like to take this opportunity to follow on from the excellent contributions my colleagues have made to this bill. This important bill before us today is another component of the coalition's election commitment to the important reforms that our small business sector needs. The coalition has a strong commitment to small businesses, because—unlike those opposite—many of my colleagues come from a small business background. This side of the House understands the needs of small businesses, the challenges of running small businesses, the sacrifices individuals and families make to keep their businesses afloat and the enormous contribution the sector makes to our communities and economy.
The statistics around small businesses have been reiterated many times in this House and, for the purposes of this bill, I would like to take the opportunity to mention them again. Ninety-six per cent of all businesses in Australia are small businesses, and they employ the majority of our workers. This includes the 13,000-plus small businesses in my electorate of Barton. Under Australian regulations, you are classified as a small business when you employ less than 20 people and have an a annual revenue turnover, excluding GST, of less than $2 million. Unsurprisingly, these are the majority of businesses that are owned by our constituents, whom we are elected to represent. As a consumer, these are the majority of businesses that I would personally come into contact with in my electorate.
We all know that small businesses make a significant contribution to the Australian economy, in terms of employing Australians, and that their collective output totals one fifth of the nation's gross domestic product. As the Minister for Small Business has mentioned previously, we on this side of the House are committed to ensuring that small businesses have the access to the resources to help them invest in success and that they are provided with adequate incentives to continue working in their business without unnecessary hassles, like red tape and excessive bureaucracy, so that entrepreneurs are rewarded for their efforts rather than punished.
The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 will seek to address some of the issues that our small businesses continue to face on a day-to-day basis, particularly with their contractual needs. We on this side of the House have argued for many years that small businesses have relative or no market power when it comes to negotiating contracts and often this means that they have no real bargaining power when doing business with other businesses who are bigger and better resourced. This can mean a 'take it or leave it' approach when it comes to standard form contracts with minimal, if any, protection for the small business if they are left with unfair terms and conditions.
Prior to this bill, there has been no real assistance for small businesses, who are left disadvantaged or financially crippled when this occurs. Unlike consumer law, where consumers have an avenue for appeal or assistance in a contractual context, small businesses do not have this assistance. They are left with the ultimatum of either taking the risk or no business deal at all. The coalition believes this is unfair, given that most Australian businesses are small businesses; therefore, this leaves a majority of businesses vulnerable to those with greater market power. We believe that a fair playing field is just and enables a realistic fair go for small businesses by allowing the unfair contract terms protections available to consumers to be made available to small businesses as well.
I would like to acknowledge quickly that although consumers have been protected since 2010, businesses were never afforded this opportunity despite the Rudd-Gillard-Rudd Labor years. So whilst the opposition claims that it is the best friend of small businesses and that they truly understand their needs, this seems implausible given the many opportunities they have had for reform, to really listen to the sector and to heed their advice.
The Small Business and Unfair Contract Terms Bill is an Australian first, designed after the government has listened extensively to stakeholders. Many of the submissions and survey responses indicated that a standard form contract should provide a remedy for small businesses that will at least create a disincentive for unfair contract terms to be enforced upon the other party, thus lowering the risk of the small businesses that lack the resources to analyse and foresee issues arising out of an unfair contract.
In addition, the Australian Small Business Commissioner has observed instances of misuse of market power in the contracting of telephone and internet services, office or commercial leasing equipment and retail outlet leases. Other examples of unfair contract terms can include unfairly shifting risks to another party who may not be well placed to manage them, unilaterally varying terms, limiting one side's obligations, terminating or renewing the contract, levying excessive fees on outstanding moneys or affecting the availability of redress for the other party. This can also include terms that are seen to cause financial detriment or otherwise to a party if they were to be relied on or enforced. If any of these were imposed in a consumer setting, the consumer would be disadvantaged. The consumer would also have access to help, whereas prior to this bill, the small business would not.
All of the above are reasons why we need to make sure we have mechanisms in place to offer strong protection for small businesses. Therefore, the bill before us today is long sought after and very much welcomed new protection for small businesses, and one that the coalition has long supported. When we help small businesses, we provide small businesses with greater confidence to enter into contracts to invest and grow their businesses. This in turn is better for local communities and our broader economy. This is especially important to note when we consider some of the risks that businesses take in their operations, including refinancing personal assets and putting the family home on the line to ensure that their businesses can remain open and so forth.
Whilst the law still expects small businesses to undertake due diligence in the larger value contracts, we want to ensure that in all fairness they should not be forced to either take it or leave it when they are given unfair contractual terms in their day-to-day transactions. We simply cannot assume that what is considered fair by medium- or large-sized businesses is fair for the small-sized businesses. The challenges faced by one end of the spectrum do not relate to those at the other end, quite simply due to the economies of scale and resources.
Every successful large business started small, and often with livelihoods in the balance. That is why it is crucial to give the right support to these businesses so that they grow and prosper and continue to employ workers and drive the economy. The new protections outlined in today's bill will enable a court to strike out a term of a small business contract that is considered unfair. As I mentioned previously, this can reduce the incentive to include such a term in a contract and this is helpful for small businesses that do not have the time or resources for legal advice, lengthy negotiations and so forth.
I want to reiterate that, along with the coalition's election commitments of extending help and protection to the small businesses of Australia, this legislation will still be in line with our commitment of reducing red tape and bureaucracy. This legislation is not designed for the government to become 'contract nannies' and it is not designed to encourage bureaucrats to spend time examining the multitude of small business contracts made daily. The inclusions are there because it is important to offer small businesses a necessary level of protection—they are often small fish in a pond with larger, more resourced and well-equipped fish. This government is committed to being the positive partner that small business needs and to working as hard for the success of small business as those in the businesses do.
The small business and unfair contract terms legislation allows our small businesses to restore time and resources back to their enterprises, part of Australia's two million small businesses. We are simply delivering on our election commitment by putting into practice what we have always believed in. This is the government that has provided $1.4 million to the Australian Competition and Consumer Commission to ensure businesses comply with the new rules. The coalition wants to ensure that Australia is the best place to start and grow a small business. Today's bill is an important part of the 2015-16 budget that we developed to produce the largest jobs and small business package in Australia's history. There are more than two million actively trading small businesses. They are an important driver of our nation's employment and innovation. This coalition is the only party that can be relied upon to ensure the needs of small business are represented and that the men and women have our support to ensure they continue doing what they do—employing locally and contributing to Australia's ongoing prosperity.
I rise to support the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. This bill seeks to extend the consumer contract term protections for small business and to deliver on another election commitment made to small business during the 2013 election campaign. Small business interests are front and centre in the thinking of this government. In opposition we made more than 20 specific promises to small business at the last election. This bill to extend the unfair contract terms protections to small business is delivering on another of these promises.
This government has runs on the board in support of the vital role that small business plays in the Australian economy. Australia's two million small businesses produce more than $330 billion in economic output and employ over 4.5 million people. As a government, we do not just recognise but value the contribution made by so many who courageously embrace this challenge and who take the risks. These are the men and women who invest and strive for success in the creation of opportunities for themselves and others in their community. We on this side of the House recognise the self-employed for the valuable contribution that they make to the economic health of this country and to their local communities. Our commitment to small business is real, durable and embedded in our DNA.
The bill before the House today will ensure that small businesses are provided with the same protections currently limited to consumers. The unfair contract terms protection for small business legislation will give them a fair go and support within the business environment in which they operate and compete. Small businesses, like many consumers, lack the resources and the skills to understand and negotiate contract terms. Many small businesses find themselves operating on a take-it-or-leave-it basis, which tends to place many of them at a disadvantage. Stakeholder feedback indicates that small businesses across a wide range of industries had concerns about unfair contractual terms. It also revealed that small businesses, like consumers, are vulnerable to the inclusions of unfair terms in standard form contracts. The government will provide $1.4 million to the ACCC to assist businesses in complying with the new law.
What does this mean small businesses? Simply this bill extends existing legislation to small businesses that employ fewer than 20 staff and enter into contracts with a value of no more than $100,000 or $250,000 for multi-year contracts. It will extend the consumer unfair contract terms and protections to cover standard form small business contracts that are valued below the prescribed threshold. Consumers have been afforded protection from unfair contract terms since 2010, but the former Labor government decided not to proceed with offering similar protections to small business. It has taken this government to address this inequity and put in place the protections that are outlined in this bill.
Under the new protections, courts will be able to strike out the terms of small business contracts that they determined to be unfair. A remedy for small businesses when an unfair contract term is included in a standard form contract will also be provided. This bill will reduce the incentive to include and enforce unfair terms in contracts, providing for more efficient allocation of risk and giving small business greater confidence to enter into contracts and to invest and grow. Under the new protections, the contract will be a small business contract, if at the time it is agreed to, at least one party employs fewer than 20 employees. A head-count approach, rather than full-time equivalent, will also simplify the application of the law.
The reforms assume that small businesses will find it easier to recall the number of people they employ at the point of entering into a contract rather than a full-time equivalent calculation. Additionally the contract must not exceed $100,000 or $250,000 for contracts of more than one year in duration. This transaction value threshold has been chosen so the protections apply even when small businesses engage in day-to-day transactions. It was also designed to encourage small businesses to conduct due diligence on large contracts fundamental to the success of their business.
Research indicates that four to five small business standard form contracts will be covered by this reform. The ACCC's enforcement action will also have an impact beyond businesses or transactions falling within these thresholds. The bill will also provide a mechanism that will allow the government to exempt laws that it believes are equivalent to unfair contract law. The protections will apply to small business contracts and for all contracts that meet the criteria, regardless of whether the small business is involved in the acquisition or supply of goods and services. In calculating persons employed, each full-time, part-time and casual employee constitutes one person. Only casual employees who are employed on a regular basis—that is, not on a seasonal roster—are to be counted, consistent with the approach used in the Fair Work Act.
The minister will have the power to exempt the application of the unfair contract term protections for small businesses, where industry-specific legislation or regulation is deemed enforceable and equivalent. The protections proposed by this bill will come into effect six months following royal assent. Over this six-month period, the appropriate regulators will engage with industry to produce guidance material and other information to assist traders to comply with the new legislation.
The measures proposed under the government's $5.5 billion Small Business Package legislative reform provides amendments to various taxation laws to provide tax relief and reduce red tape for small businesses. Many organisations have put their hands up in support of this important reform for small business, such as the Australian Chamber of Commerce and Industry. Its Director of Economics and Industry Policy, Mr John Osborn, stated:
Small business is the backbone of the economy and they deserve the same protections against unfair contracts as everyone else.
Professional Contractors and Consultants Australia have said the extension of unfair contract term protections to small business 'will help address the power differential of parties involved in commercially based work arrangements'.
On this side of the House, we understand that you cannot have a strong and healthy society without a strong economy to sustain it, and you do not have a strong economy without profitable businesses. Statistics released by the ABS on 29 June 2015 reveal that the Abbott coalition government has overseen a period in which the number of jobs in small business has increased by 146,000. This is in contrast to the almost half a million jobs lost in small business under the Rudd-Gillard-Rudd governments. Small business entries are up 18.71per cent and exits down 12.5 per cent. Statistics are also indicating that more women than men are actually starting new businesses in Australia. These are women who are finding new avenues of innovation and skills and are doing so while balancing the other priorities in their lives, such as work and family.
I am constantly working with small businesses in my electorate of Dobell to identify and address the barriers that prohibit growth and employment opportunities. In Dobell small business is our largest employer and we have many small business achievers. Achievers such as Nicky and Wade Mann, who emigrated from Zimbabwe in 2002 and started their business, Roses 2 Go. Lately they have started growing blueberries. I know from talking with them that they welcome our proposed legislation on unfair contract terms. There is another company, called SpotGo, and this is a local success story whose products are now on the shelves in Woolworths and IGA stores. This is a family business that, like so many small businesses, took a risk and succeeded. Then we have local small business women like Christine Hornery, the CEO of the FMS Group, who has established Pearls of Wisdom. It is a business support group that is providing mentoring, support and assistance to other business women on the Central Coast.
Small business plays a crucial role in ensuring there are local jobs available for mums and dads, school leavers and mature Australians returning to the workplace. My electorate is a great place to live, grow and raise a family and it is home to 8703 small businesses. There is plenty of room and opportunity for others to take the risk and open a new small business. We want to see business thrive and grow, and at the heart of our economic plans for growth is small business. The 2015 budget focused on growing jobs and helping small business innovate and grow. The $5.5 billion Jobs and Small Business package is the biggest small business package in our nation's history. It reduces the tax rate for more than 90 per cent of incorporated businesses with an annual turnover of under $2 million. The package will also allow small businesses with an annual turnover of under $2 million to immediately deduct for each and every asset costing less than $20,000. The provision for unincorporated businesses with an annual turnover of under $2 million will mean they will receive a five per cent tax discount, capped at $1,000 per taxpayer. Red tape will be further reduced within the fringe benefits tax system by expanding the exemption for work-related portable electronic devices for small business.
This government has a plan for our future and is keeping our commitment to the Australian people. This bill is yet another step along the road being walked every single day by the Minister for Small Business as he puts in place the measures that will allow this sector to thrive and grow. In commenting on this bill the Council of Small Business of Australia stated:
COSBOA congratulates Bruce Billson and the Abbott government on today's announcement to extend legal protections from unfair contract terms to a million small business operators.
CEO Mr Peter Strong stated:
… when COSBOA was formed in 1977 one of the key issues on our policy platform was fair contracts. This policy need has been ignored for all these years until Bruce Billson stepped up and pursued fairness and now we have it. It is a moment to savour.
I join with these sentiments and also congratulate the Minister for Small Business. I commend this bill to the House.
What a great contribution from the member for Dobell on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill. I am one of many people on this side of the House who built a small business basically from the back of a ute. My wife and I took lots of risks and built up a relatively successful business over a very long time. We have heard lots of contributions about the bill but I would like to speak about some of the content—what is risk shifting, what are the risks that people come across, what are the unfair contract provisions? I have seen many of those unfair contract provisions—the take-it-or-leave-it contract option when you are out in the real world, when you have to provide services to big companies who know they have you over a barrel. They are simply unbelievable.
Many of us as we grow a business will start off with a one-person operation and we will work from home. We will hold enough insurance—we might have professional indemnity insurance for $5 million or $2 million and a public liability policy for $1 million; just enough to get by so that you do not knock your overheads too much. In small business, cash flow is king. If you cannot meet your commitments at the end of the month, you are simply out of business and you will most likely lose your assets. It is a very difficult thing to do every single month as you build a business. As that business grows, you tend to get bigger clients who have more stringent standards. Unfortunately when you get to the top end of the tree, when you are dealing with some of the biggest government-owned corporations and some of the biggest worldwide companies who have in-house legal teams that develop their vendor agreements and develop their contracts and then farm them out to another set of lawyers to determine how it is they can drive that risk down the food chain to the lowest possible provider, the person who might have one truck and two employees, with their home basically in hock and an overdraft, ends up carrying the can because they simply have no choice but to provide their product under the service arrangements that are given to them. When you look at a vendor agreement that says, for example, you must hold $50 million in public liability and take all risks on the premises in which you work regardless of the fact that the company that owns it has some $2 billion or $3 billion worth of capital invested and could quite simply cover those risks with their in-house insurance, it is absolutely unfair. I congratulate the Minister for Small Business on what he has done to put this development together.
I call those things the shotgun spread of risk shifting—effectively, it gets punched across every single subcontract provider, particularly the ones they think they can get to pay. Unfortunately, out in the real world, a lot of those are insured by the same people. There are only one of two major underwriters for major projects, and that is where things end up. Many people I have worked with and that I have spoken to, even in this role, and small businesses in my local electorate, tell me that on a major construction job they have quoted at 200 per cent of their usual rate and they have doubled the amount of time they think will be necessary, and it simply has not been enough—they needed three times as much time to develop it; the insurance costs and overheads were completely out of hand and they have literally signed their life away in the vendor agreement because that was where they were at and they had no other choice.
Some of these vendor systems are exceptionally complicated. If you are large enough to be able to push it up to your own lawyers to have a bit of a look at it, they will always recommend that you do not sign them because you have far too much risk. Unfortunately, when you have bills to pay, when you have employees to pay, wages to pay, you must take those risks or you quite simply are not in business. In our horticulture system there is the good example of the MO for the major duopoly, the major supermarkets. There are what I like to call the four Es of the process they use: the phase of excitement, the phase of expansion, the phase of extortion and then of course the phase of extinction. This is the standard way that they tackle their suppliers and the supply chain, and it is completely unfair in many circumstances. I admit that many providers have a good relationship with the large supermarkets but I could not count how many I have seen that have fallen over because of the predatory pricing factors of the major companies in Australia. It has been absolutely outrageous.
The excitement phase is when someone comes along and they have heard you have a good product, perhaps they have been buying it from the fresh market, they have identified that it is safe and that you know what you are doing, that you can produce a consistent product of the size they want, and they knock on your door and they offer you a wonderful agreement—they will take as much as you can provide. You have the opportunity and you have the spare land, you have the capacity, and you now have an offer which means you can go into the next phase, which of course is expansion. How do you do that? You borrow money. You borrow capital, you employ more people and you quite simply take more risk. You have a large growth phase—you get yourself into hock but that is not a problem because you are providing lots and lots of content, usually to the one supplier—the one big supermarket. Of course you then have extended risk.
Then comes the extortion. They will come back and negotiate with you, and you find you actually do not have a contract—you have a supply arrangement or a supply agreement or some other technical term put together by a team of lawyers to ensure that at any time they so choose the person buying your product no longer has to take it. This is when the price squeeze starts. Quite simply, there will be an offer that says: 'Down the road we can source your product for $1 a box less; you must match that price or you will be out of business.' So the options are very, very few indeed. This is the 'take it or leave it' offer. This is exactly what this bill is designed to knock over, for small suppliers in this country.
At the 'take it or leave it' point, you have two choices. You can take the option of extinction, which means you will shut up shop. You will sack your staff, you will leave and you will lose your money and pretty much everything you put in place—because the one thing I know about banks is that they always get paid. Wherever possible, they are first in line. They certainly ensure that they get every opportunity. Or you can take more risks and you can hobble on.
That is one of the issues right now in terms of the labour force in Australia. The government have set up Taskforce Cadena simply to make sure we can put some boxes around, and knock over, illegal labour hire contractors in this country. The primary reason they flourish is that the major supermarkets have forced a lot of suppliers to the point where they simply cannot supply at the right rate. So the options for smaller suppliers are to either lose your farm—lose your property, lose your investment, lose your children's future—or take more risks.
We need to fix that. We need to level the playing field. We need to balance it out. Taskforce Cadena will do that. They have been actively pursuing these people for some weeks and they have had a lot of success. It is typically the labour hire contractors, the ones who do the wrong thing, who get paid, because the overwhelming majority of growers actually pay the right money. They pay their bills, the money goes across, but the labour hire firms keep the money. They do not pass it on to the people who do the work—and they put those people in some very unsavoury and unhygienic places. They make an awful lot of money from people who probably do not know any better. Taskforce Cadena and this government are getting on with the job.
I also congratulate my good friend and colleague the member for Page on his contribution. He spoke about the huge efforts that small business put in in Australia, because it is them that take the risk. They are the ones that put their house on the line. They are the ones that employ people. In Queensland, over 90 per cent of all employment is provided by small business. They are the absolute backbone of this economy, and we need to ensure that we look after them. This bill is about ensuring that they do not get the 'take it or leave it' offer which is currently in place all over this country and that they have the opportunity to sort that out.
Consumers have been protected from unfair contract terms since 2010. However, the former government decided not to offer similar protections to small business. Small business simply does not have the capacity to lawyer up with someone from Sydney or Melbourne, pay those bills and successfully run a case. It costs an absolute fortune to run something under this legislation. So, in many cases, they do not have the market power or the ability to vary that 'take it or leave it' offer. Out in the real world, there is what is called competition! And there is much competition. They will take every opportunity that you do not. If you are not in the game, you are out of the game. You need to be able to act fast. Arguing about a vendor statement usually puts you out of work. That is not a position small businesses should be in.
This legislation will extend the consumer unfair contract term protections to cover standard form, small business consumer-like contracts that are valued below the prescribed threshold. Under the new protections, a court will be able to strike out a term of a small-business contract that it considers unfair—and that is the key point: one that is unfair. The contract is a small-business contract if it has at least one party of fewer than 20 employees and its value is below the prescribed threshold of $100,000, or $250,000 for a multiyear contract. These protections will come into effect six months after the bill receives royal assent. The Competition and Consumer Commission—the government provided $1.4 million to it in the 2014-15 budget—will support businesses' transition to the new protections.
I am very pleased that the minister has acted. This is something that needed to be addressed. Small business will continue to build the economy of this country. We need to ensure that they are protected. We need to ensure that their contract arrangements are fair and not prejudiced by the work that they need to do for major corporations in Australia. I commend the bill to the House.
I too rise to speak on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. It is a pleasure to follow the member for Hinkler. I actually ran into the previous member for Hinkler at the member for Canning's funeral in Western Australia. He asked me how the current member for Hinkler was going, and I said he was doing a great job. Listening to him speak just then about his experience of small business and his understanding of the contracts, particularly in the retail sector, was interesting. I have listened to some of the other contributions from this side of the chamber. Again, the member for Reid told a great anecdote about Peter, the guy who came to unlock his door when he locked himself out recently. They are the types of experiences on this side of the chamber that show that we get small business.
It was also interesting to hear the Leader of the Opposition tonight, up at the ACCI cocktail party in the Mural Hall here, saying that Labor get small business and explaining some of the areas that Labor did get small business. Then he went on to speak about how the coalition had blocked their small business measures in one of the budgets. But the fact is we had not blocked it. We had spoken against it but we had not blocked it, because they actually had the numbers in this place when they put forward those measures. They had their coalition with the Greens and they had the numbers in this place to get that 1.5 per cent tax cut to small business through. But you know what the flaw was? And, Mr Deputy Speaker Goodenough, I am sure you would, coming from the great state of Western Australia. It was that it was all based on an anti-Western Australian tax, the mining tax, which as you know has now been scrapped by the coalition, as we promised to do when we went to the 2013 election.
I congratulate the Minister for Small Business on bringing this legislation forward. I have spoken to him about it on numerous occasions. I understand that there was some work done in 2009 on contractual arrangements for larger businesses. But the previous, Labor government, during their six years in government, did nothing to help small business, and that belies what they were spruiking—that they are all for small business and understand it.
The minister has worked in a consultative manner, and I know it has been appreciated by many small businesses. In my electorate of Swan, we have about 18,000 small businesses, and I know they understand that this will be a very important piece of legislation for them, once it passes the House.
We are committed to ensuring Australia is the best place to start and grow a small business. That is why the government is extending the consumer unfair contract term protections to small businesses. We made a commitment to the bill, as I said. In the lead-up to the September 2013 federal election, as shadow minister for small business, competition policy and consumer affairs the Hon. Bruce Billson articulated the coalition's commitment, if elected, to extend the consumer unfair contract protections to small business.
Following that election, as Minister for Small Business, Mr Billson outlined the government's plans to extend protections already in place for consumers under the Australian consumer law to the small business sector. He said:
Small businesses often receive standard form contracts from business on a "take it or leave it" basis, and encounter the same disadvantage as individual consumers when it comes to negotiating contracts.
For example, we understand that primary producers are increasingly contracting directly with the large supermarkets and that in many instances, supermarkets insist on standard form contracts.
We agree that many benefits flow from using standard form contracts—they save time and keep costs down. But they can also be used to shield a business from risk unfairly ….
In extending these protections, we recognise though that there may be several issues to work through. A thorough consultation process is going to be essential if we all want to get this reform right.
That was the Minister for Small Business, and he has thoroughly consulted to make sure that we have got it right.
The government took more than 20 small business specific promises to the last election. A key promise was its commitment to extend the unfair contract terms protections available to consumers to small business. With this legislation we have met yet another small business election commitment. Consumers have been protected from the unfair contract terms since 2010; however, the former government, despite its initial interest, decided not to offer those protections for small business, as I previously stated. In many cases small businesses have no more market power or ability to vary take it or leave it standard form contracts than an individual consumer but lack the consumer-style protections that provide for unfair terms to be struck out of such contracts. We knew it was time small businesses, which often face the same vulnerabilities as consumers, also receive protections when offered take it or leave it contracts.
The Treasury Legislation Amendment (Small Business Unfair Contract Terms) Bill will amend the Australian consumer law, which is set out in schedule 2 of the Competition and Consumer Act 2010, and the Australian Securities and Investments Commission Act 2001. This legislation will extend the consumer unfair contract terms protections to cover standard form small business consumer-like contracts that are valued below a prescribed threshold. This is a long sought after and very much welcomed new protection for small business and one that the coalition has long supported.
I would just like to give a bit of background. Mr Deputy Speaker Goodenough, you are from Western Australia and you understand the construction industry where I also originated from before coming to this place. I would like to highlight some of the contractual problems that are currently going on in Western Australia, particularly those related to contracts and subcontracts. There was an article in TheWest Australian on Monday, 27 July. I will read parts of that article to give a bit of background about what is actually happening in Western Australia. The article headlined 'Builder in subbies pay row cleared' says:
WA Treasurer Mike Nahan has cleared building giant John Holland over payment disputes with subcontractors on the $1.2 billion Perth Children's Hospital project.
The Government pledged to mediate mounting contract disputes last month amid reports subcontractors were awaiting payments totalling millions of dollars, including ceiling company managing director Ross McGinn who recently took his own life.
Acrow Ceilings Pty Ltd claimed it was owed $2 million and Yuanda Australia, which worked on the hospital's external facade, reportedly sought $8.6 million. Other subcontractors had similar claims.
Dr Nahan met Mr McGinn's family after his death and officials from the Treasury's Office of Strategic Projects met John Holland representatives in recent weeks. Dr Nahan said yesterday that the Acrow dispute arose when it claimed for work it considered to be over and above its contracted scope of works but which John Holland considered part of the contract.
He said the State had reviewed all payment claims, certificates, details and correspondence provided by Acrow and "this examination has confirmed that the payment process in the subcontract is being followed".
Dr Nahan said subcontractors could seek rapid adjudication of payment disputes under the Construction Contracts Act, but no CCA applications had been lodged by Acrow.
The State had requested from John Holland details of payment to all subcontractors and in each case during the past calendar year due payments had been made "in strict accordance with terms and conditions".
Mr McGinn's son, also named Ross and a director at Acrow, said the company had not lodged a CCA application because it had been awaiting advice from the Government on the outcome of its discussions with John Holland. The company would now consider making an application.
This gets back to the heart of the matter about contracts with major companies and subcontractors not only across the construction industry but across all sectors of the Australian community and Australian business. This has been approached and dealt with by some of the smaller business associations in Western Australia and as far back as 18 December 2009 they had legal advice from a company with regards to some of the actions that should be taken and recommended to change the act in Western Australia. I know we are talking about the federal act but I would like to highlight some of the issues with the Western Australian act. One of the things it states in that particular area is that the Western Australian and Northern Territory acts are dissimilar to the eastern states acts. That advice says:
The main problem with the Constructions Contracts Act is that it does not follow the procedures or fundamental principles embodied in the eastern States' Acts. As you are probably aware, South Australia and Tasmania are going to adopt the New South Wales Act to the extent that it is relevant to them, which will mean that all of the States on the eastern and southern seaboard (ie NSW, Qld, Vic, SA & Tas) have Acts which are essentially similar, whereas WA and NT are completely out of step in respect to the procedures under their Acts.
This highlights yet again the fact that, despite the fact that we have a population of only 20-25 million people, our legislation varies considerably between various parts of the country. There is, in my view, a compelling argument that WA should in effect amend its Act so that it now accords with the procedures of the NSW Act upon which the other States have based their Acts. Presumably, if WA agrees to follow the broad basis of the NSW Act, then NT would follow suit. It may be advantageous in due course to support these differences between the WA/NT legislation with the legislation of the other States by doing a comparison of the procedures, time limits and legal effects of the two sets of legislation in order to highlight not only their differences but also their superiority, in our view, of the eastern States' legislation over the WA legislation.
If the WA Parliament is not prepared to entertain fundamentally changing its Act so that it accords with the NSW Act, then there are still two major items that need to be addressed in the amendments to the Construction Contracts Act in order to make it much more effective.
It goes on to say:
In the eastern States, a claim under the Act can be made up to 12 months after the work has been done. This means that in relation to variations, for instance, variations can be accumulated where they have not been paid in full or at all, until it becomes commercially advantageous to bring a claim consolidating those variations within that claim. This is not possible under the WA Act because a claim must be made within 28 days of a dispute arising. At the latest, a dispute arises under the WA Act when a payment has not been made. Consequently, if a Contractor submits a claim for the variation and that variation is not paid within 28 days of the due date for payment of that variation, then that variation cannot be the subject of an adjudication under the WA Act. It is commercially unviable in many cases to start an adjudication for, for instance, one or two small variations in order to preserve a right to adjudicate those claims. In our view, the time limit for bringing claims should be extended to 12 months to enable consolidation of small variation claims to be included in the one adjudication. This is a serious anomaly in the Construction Contracts Act and needs to be rectified. The NT Act extends this time to 90 days which is still insufficient.
One of the many issues that has been raised in WA—and I am sure it appears across Australia, particularly on construction sites—is that when the subcontractors are offered a contract, a 'take it or leave it' contract, as we are trying to deal with here, they are told: 'Here, sign this. If you don't sign it, you don't get the job.' If they do not sign it, because it does not suit their contract or it is too onerous, the major contractor just moves on to the next subcontractor until they find one who is obviously looking for work and is desperate enough to sign that contract.
But the issue arises when it comes down to defaults on the standards and the specifications of the job. The major contractor will call in an independent so-called expert who will review the work done by the subcontractor. They will say that it is substandard; it does not meet the specifications. They will then get someone else to rectify it and charge an exorbitant price against the bill of the original subcontractor. In that situation, the subcontractor has the right to take legal action; but, in the terms of what the value of that payment may be, the subcontractor will normally have to walk away from that contract. We hope these amendments will make sure that those types of things, particularly in the construction industry, do not continue to happen.
The coalition is committed to small businesses in Australia. Unfair contract terms can come in a variety of forms and can be used to shift risk to another party who may not be well placed to manage it. For example, the contract may permit one party to unilaterally vary terms, limit their obligations, terminate or renew the contract, levy excessive fees on outstanding moneys, as I just mentioned, or affect the availability of redress. So, in designing the legislative amendment, the government consulted extensively with the stakeholders. This transaction value threshold was chosen so that the protections apply when small businesses engage in day-to-day consumer-like transactions, while encouraging them to conduct due diligence on large contracts fundamental to the success of their businesses. The reason we chose the prescribed threshold of $100,000 or $250,000 for a multiyear contract is to say that we are the government that looks after small business in this area, not big business. It is a well thought-out, well consulted piece of legislation, and I commend this legislation to the House.
I rise to speak on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. This bill fulfils one of the coalition's commitments of the 2013 election, particularly the commitment that was made to the huge and vital small business community of Australia. The coalition understands the importance of small businesses. They are the engine room of our economy and have been since 1788. This government is implementing changes to support the viability and continued growth of small businesses. The coalition is reducing the tax rate for small businesses and providing immediate tax deductions for assets purchased by small businesses.
This bill will amend part 2 of the Australian Securities and Investments Commission Act, adding a new class of contract—a small business contract. It will apply at the time a contract is entered into where at least one party to the contract is a business that employs fewer than 20 persons and either the up-front price payable under the contract does not exceed $100,000 or the contract has a duration of more than 12 months and the up-front price payable under the contract does not exceed $250,000.
This bill will provide small business with the same protection as consumer products—and so it should. Small business is the lifeblood of my electorate of Murray. We have retailers, dairy farmers, orchardists, tradespeople, insurance, real estate, doctors, allied health professionals and corner stores—just to name a few. We are an electorate of small business. There are over 15,305 small businesses in my electorate of Murray, of which one-third are related to agriculture.
Unfortunately, farmers are price takers, not price makers in the Australian economy. They face one of the most concentrated food retail sectors in the world. Some 80 per cent of food retailing in the domestic market in Australia is captured by two big enterprises: Coles and Woolworths. The market power of farmers in this situation is small. They need the protection of the law, and I am so pleased that this bill will give them some of the protection that is required. My farmers and other small businesses have little market power to stand up against the contractual arrangements of the large supermarkets. They often cannot afford legal advice to match that of the supermarkets, and they cannot by themselves interpret the pages and pages of terms and conditions in these contracts. They may either take the contract at face value or decline to enter into the contract and lose the business opportunity all together.
As a consideration of this bill, the court will be able to strike out a term of a small business contract that it considers unfair. An unfair term is one which would cause a significant imbalance in the parties' rights and obligations arising under the contract, is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term and would cause detriment, whether financial or otherwise, to a party if it were to be applied or relied upon.
In deciding whether a contract is unfair, a court must take into account the transparency of the term—that is, whether it is expressed in reasonably plain language, is legible, is presented clearly and is readily available to any party affected by the term. The exceptions to the unfair contract term provisions are terms that define the main subject of the contract, set up the up-front price payable under the contract or are required or expressly permitted by a law of the Commonwealth, a state or a territory. The up-front price payable is the amount that is provided for the supply or sale under the contract. It is disclosed as or before the contract is entered into. It does not include any other consideration that is contingent on the occurrence or nonoccurrence of a particular event—and I will come back to that when I discuss some of the recent outcomes of Coles and Woolworths seeking to exercise their market power with their suppliers.
Before I get to that point, there are some very real issues related to unfair and obscure contracts currently being forced on my electorate's small businesses, in particular farmers in the electorate of Murray. In my electorate irrigators have been forced to sign contracts for the so-called $1 billion Goulburn-Murray Water Connections Project. This $1 billion has been provided by the Commonwealth and follows $1 billion supplied by the state government with the idea of shutting down half of the irrigation system in order to take their water and put it into the Commonwealth Environmental Water Holder's bucket. The farmers within the area of the Goulburn-Murray Water irrigation project—which is bigger than Tasmania—are required to accept all the terms, often in a cluster with their neighbours who, for example, share contiguity on a spur or supply channel. They are then often bound by strict confidentiality agreements. They often have very little opportunity to consult a knowledgeable lawyer on these matters and often have to negotiate over four, five, six and up to eight years to settle these contracts. There is very little opportunity or willingness on the part of Goulburn-Murray Water to negotiate changes to the initial contract with an unfortunate irrigator if they happen to have their farm on the spur which has been targeted for shutdown.
The irrigator may appeal to a review committee that has been set up by Goulburn-Murray Water, a fully state owned water authority in Victoria, but they must put up $490 for this appeal to be considered. Even if the independent review committee recommends in their favour, Goulburn-Murray Water does not have to take any notice of the committee's decision. It can be taken simply as advice only. Surprisingly, there have been next to no appeals made despite the scores of desperate and deeply troubled irrigators who make their complaints to my office.
If the irrigator does not accept the terms of the state Goulburn-Murray Water authority's agreement within a 12-month time frame, they can be subject to the compulsory powers of the Victorian Water Act and become compulsory reconnection to a part of the system which no longer serves their needs—for example, an intensive dairy operation. Often they will experience a loss of water access and a higher cost of water application. For example, in the future they may be required to use intensive energy, either diesel or electricity, to deliver their water, when before they could use a system with a highly efficient gravity bed set-up which did not cost them any energy bills at all.
Goulburn-Murray Water is a monopoly supplier of water. It is no longer possible to sue this water authority due to the change to the Victorian Water Act, even though it is widely regarded to be unconscionable behaviour on their part. We do not have to go far back to find examples, therefore, of the misuse of market power in contractual arrangements, including where these involved state agencies. The impacts on small businesses—in this case, farms—can be extraordinarily detrimental not only to the individual farms but to the region depending on their supply of milk to keep local milk manufacturing at an appropriate economy of scale.
In June this year Coles was instructed to refund over $12 million to over 200 suppliers and to also allow suppliers to exit Coles's Active Retail Collaboration program without penalty or have their ARC contribution rebates reviewed. This not only provided a refund to suppliers but also resulted in further substantial ongoing savings for Coles's suppliers. I commend very much the vigour that was brought to this case by the ACCC.
In 2012, the Senate Select Committee on Australia's Food Processing Sector highlighted some of the concerns of small businesses and larger business suppliers in relation to contract terms and conditions, particularly with the large grocery retailers. For example, winemakers had to accept the contracted price offered for their product. Paragraph 3.76 of the Senate committee's report stated:
When concerns about pressure to accept trading terms including additional fees, were raised with the retailers, Woolworths explained that negotiations although tough, were fair …
Mr Ian Dunn of Woolworths Ltd stated—
'I would say that we are tough negotiators… We negotiate fairly in the marketplace on behalf of our customers. If we agree to an increase or a change in trading terms with a supplier, it will be because they see a benefit in doing so.'
Paragraph 3.79 went on to say:
Mr Dunn told the committee that in those cases where a competitor announces a price promotion and Woolworths matches the price in the market, they will ask a supplier if they can contribute to the discount but they do not alter trading terms:
'That would generally involve a telephone call and a discussion with the supplier to say: "I am now selling at a lower margin in the marketplace on this particular product. Are you in a position to help me? I can do this, this and this if you are able to do that, that and that." If it happens, that is fine; if it does not happen, we match the price anyway and we trade as we are.'
I put to you that that is a nonsense statement given that, as I said earlier, Coles and Woolworths own 80 per cent of the retail sector in Australia. If, as a supplier, you find yourself at odds with either Coles or Woolworths and you lose your contract with them, you have nowhere else to go, pretty much. Although ALDI is coming to the marketplace and Costco has helped somewhat with this situation, it remains a fact that 80 per cent of the market power continues in the hands of those two big retailers.
In responding to the committee's concerns about trading terms, Coles explained that its trading terms are complex and involve a variety of terms:
… probably well over 100.
When asked about their top five trading terms, Mr Durkan said:
In as many instances as you could have we would prefer to have net cost prices, so no trading terms at all apply to our cost prices. If I take most of our fresh areas, they are net prices. Where we get into complex terms tends to be in our groceries and more on our branded side than on our private label side. Those terms are so varied and there would be no commonality around them, and in many cases designed by the food manufacturers …
Mr Durkan said that the shape of their trading terms are decided by the food manufacturers and explained that:
Our trading terms are built over many, many, many years. These are not trading terms that have just evolved in the last two, three, four, five years. If we could, Coles would have net trading terms. We would have a net price and we would be done with it. There are variable elements, depending on how much marketing spend the manufacturers wish to make in a year.
One of the saddest things that I have had to do was discuss with Heinz—before they exited the small town of Girgaree and took their tomato sauce factory to New Zealand—how they felt that it was impossible to negotiate with one of the two big supermarket retailers when it demanded that they produce a no-name product in direct competition with their own branded product, which their own research and development had spent years investing to make it a superb product. The market power of these two big supermarkets is extraordinary. This bill will help very much.
Mr Roger Lenne, of Fruit Growers Victoria Limited, detailed the reluctance of Coles to deal directly with the supermarkets despite being a collective. He said:
I have not personally approached them
… … …
Individuals like us would not even get through the door.
… … …
I have had it said to me before … 'We'll buy our food from overseas; from other countries.'
That is if they do not cooperate. We have a very important bill here. Mr John Wilson of Fruit Growers Victoria Ltd suggested that the majors have an aversion to talking to industry associations as it costs them money. He said that:
They have a preference for dealing with a preferred supplier chain so they can play one off against the other.
With this bill, we in Australia will be able to make sure that the huge retailers who have the market power in our domestic market, in particular, will not be able to play the small suppliers off one against another. We will perhaps be able to protect the employment base of our small suppliers and be able to bring our consumers genuine Australian produced home-grown product rather than imported home brand, which is disguised in a can to look like the Australian product, and which has with labelling that can be made to mean anything. So I am so pleased that this bill is coming into force. The same Mr John Wilson, in talking to the Senate inquiry, explained the difficulty of negotiating as a collective:
They will resist and go straight to the Trade Practices Act, which says that it is anticompetitive to deal only with collectives. We make approaches to and work with major packers on the fresh fruit side to try and maintain some sense in the marketplace. But it is very difficult, because all you need is one player who, under financial pressure, succumbs and then you will have a cave-in effect. That has happened recently with the Coles campaign for cheaper permanent prices for produce.
So we have to have a bill like this, which will give our smaller businesses some capacity to fight back and to act collectively, where that is allowed within the law.
Too many of our small businesses—our great employers, the engine of our economy and our nation—have been taken to the wall by the very big players in this country. I commend this bill to the House. It will go some way to increasing the capacity of small businesses to achieve a fair deal when contracting to supply the larger big businesses in town. I commend the bill to the House.
I came to this place, like so many of my colleagues—at least those that find themselves on this side of the chamber—from a small business background. I was privileged to run a small business myself. I grew up in a household with parents who themselves ran small businesses—in the case of my father, a farming enterprise; in the case of my mother, a retail shop for some 40-plus years.
Before I go any further, Mr Speaker, I take this opportunity to congratulate you on your election to the speakership. I was speaking to the children at the Meningie Area School and the Murray Bridge High School, which you visited shortly before your election, as you toured both schools with me in your capacity as chair of the Joint Standing Committee on Electoral Matters. I confirmed for them that it is true that, for one to assume the speakership of this place, one needs to spend time in both those institutions. In any event, I have also had occasion to speak about your election and, indeed, your success to the Hon. Neil Andrew, a former speaker in this place. He wanted me to convey to you his sincere congratulations. He enjoyed a text he received from me outside of the chamber regarding your ruling about this time last week, where you referred to a decision of his which was included within Practice.
I was speaking about the importance of small business to this side of the House. Of course, it is embedded into the DNA of almost every one of my colleagues. Our government is committed to ensuring that Australia is the best place to start and grow a small business. The coalition understands that small business makes a vital contribution to the economy and communities—particularly regional communities, like the one I grew up in and represent. That is why, Mr Speaker, we took to the 2013 election more than 20 policy ideas to support this vital sector of our community. We are on track to fully implement these commitments. Indeed, the passing of this bill into law is a key promise that we made to extend unfair-contract term protections that are available to consumers to those that operate small businesses. With this legislation, we have met yet another of those small business promises that we took to the 2013 election.
As you know, Mr Speaker, for a very long time, consumers have been protected from unfair contract terms. However, the former government, despite its initial interest in this policy area, decided not to offer similar protection to small businesses. That was despite the fact that small businesses and consumers both suffer from inequity of power structures. I look forward to speaking further on this at another time.