Thursday, 11 June 2020
Payment Times Reporting Bill 2020, Payment Times Reporting (Consequential Amendments) Bill 2020; Second Reading
Whether it's in the building industry or in the broader economy, some larger businesses have for many years exploited the vulnerabilities of those small businesses below them in the contractual chain. These are often mum-and-dad businesses. These small business owners work damn hard to provide for their families and in some cases struggle to keep their heads above water. These small family businesses are not asking for handouts. They just want to be paid the money they are owed for the work they were engaged to do—the work they did in fact perform. The statistics around payment times are very sobering. More than a third of small business invoices are paid after 30 days. These invoices take an average of 63 days to be paid. If all large businesses in Australia paid small businesses in 30 days, $7 billion in working capital would be transferred from large to small businesses, creating a net benefit to the economy of some $313 million each year. Only 80 out of 3,000 large businesses in Australia have signed up to the Business Council of Australia's voluntary supplier payment code in the three years since it began. It is simply not good enough that less than 0.3 per cent of large businesses have acknowledged this is a problem that needs to be addressed.
The Payment Times Reporting Bill 2020 requires large businesses and government enterprises with an annual income over $100 million to publish information on how and when they pay small businesses—that is, businesses with a turnover of under $10 million. From 1 January 2021, twice annually, around 3,000 large business will be required to produce a payment times report, including: the shortest and longest standard payment periods offered; the proportion of small business invoices paid in less than 21 days; those paid in between 21 and 30 days, between 31 and 60 days, and more than 60 days; the proportion of all procurement from small business suppliers; and, finally, their use of supply chain financing practices, which often force small businesses to accept a reduced amount if they want to be paid in a reasonable time. The provisions of the bill place a requirement on businesses that are incorporated, or have a physical presence in Australia, or are foreign businesses that carry on an enterprise in Australia that meets the income threshold, plus Commonwealth corporate entities and Commonwealth companies that meet the income threshold. Information from these reports will be made publicly available on a payment-times reports register for searching by small businesses or members of the public.
The new requirements will be supported by a payment-times-reporting small business identification tool to assist corporates in identifying their small business suppliers. The bill establishes a payment-times-reporting regulator to monitor and enforce compliance. The regulator will have powers to obtain and publish information, to investigate and to enforce civil penalties, as well as direct an entity to undertake an audit of their payment practices. Significant penalties will be in place to ensure that large businesses comply with the scheme. Failure to report has a maximum penalty of 60 penalty units for an individual or 300 penalty units for a body corporate. Providing misleading information has a maximum penalty of 350 penalty units for an individual and 0.6 per cent of the total annual income for a body corporate.
Not only will this register shine a very bright light on the shadows of large businesses with poor payment practices, and thereby incentivise them to clean up their act, but small businesses, mum and dad family businesses, will be able to assess the payment performance of a larger business when deciding whether to do business with them. Information is key to small businesses when pricing in the prospect of late payment, and this bill will do just that. Recently, businesses like Rio Tinto and Telstra rapidly abandoned poor payment practices, once they were subject to public exposure. Their payment policies were quickly shortened so suppliers were paid within just 20 days.
Many people might be wondering what the federal government is doing in this regard. The federal government is leading the way, and leading by example, in relation to responsible payment times. Since July 2019, Commonwealth agencies have paid invoices for contracts up to $1 million within 20 calendar days, or they will pay interest on those late payments. This captures 95 per cent of procurement contracts entered into by the Commonwealth. In addition, from 1 January 2020 government agencies capable of e-invoicing have been paying e-invoices valued at up to $1 million within five days. If they don't, they pay interest. Commonwealth agencies will be progressively coming on board with e-invoicing capability throughout 2020. The Commonwealth is also developing a procurement policy where large businesses who tender for government contracts will be required to match the Commonwealth's 20-day payment policy. This is a game changer. The federal government is leading by example and I have no doubt that businesses, particularly those that deal with the federal government, will come on board. I commend the bill to the House.
Labor welcomes the debate on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. We do so because we have long advocated for better payment practices to small business suppliers. We welcome these bills as a step in the right direction. From the outset, I emphasise that Labor supports the intent of this legislation as a first step in improving the payment practices of large businesses to their small business suppliers. As my colleagues and I, and indeed our fantastic candidate for Eden-Monaro, Kristy McBain, are all too aware, cash flow and prompt payment times are critical for small businesses.
Imagine you've kicked off your own small business, manufacturing a product, and you score a contract with a mining giant to supply a critical part. You think you've hit the big time. You really think you've struck it lucky. But then that mining giant tells you that it will pay you what it owes in 60 days, and then maybe 90 days, but maybe that can be sped up if you can cut them some slack and trim down the invoice to a more palatable amount. You're out of pocket for the product, the labour and the materials, but they're a much bigger organisation than you. What can you do? You can't get your big first major client offside, but you also can't afford not to be paid. You cop the wait.
Imagine, perhaps, that you're a sole trader, a photographer taking shots for some of the nation's biggest retail chains. You spend hours—days, in fact—preparing, shooting, editing and re-editing the images. You've perhaps said no to smaller jobs in order to get this big one done. Then these retailers tell you that they'll pay you in 90 days or so, and then they say: 'Actually, can we make that 120? Surely you understand COVID is rough and we don't have the cash flow to pay your invoice at the moment.' You feel like you're propping up their ASX listed business at the expense of your own microbusiness, helping keep their heads above water while drowning yourself. But once again you don't have a choice. You don't want to say anything for fear of losing future work from them. You bite your tongue. After all, what they are doing isn't illegal. You're the little guy. You'll just have to wait it out.
The practices of reverse factoring, or pushing out payment times for suppliers, aren't illegal, but perhaps they should be. Small businesses are at the mercy of large ones. Over the last 50 years, there's been a lot of focus on protecting consumers from business but not enough on protecting small, vulnerable businesses from the power imbalance of dealing with large businesses. Small businesses don't have access to the capital and financial options larger companies do. Because of that, their cash flow is easily disrupted, and the experience of COVID-19 has certainly been an additional example of that.
The Payment Times Reporting Bill before us today introduces a new payment-times reporting scheme that requires approximately 3,000 large businesses and government enterprises with an annual turnover of $1 million or more to publicly report biannually on their payment terms and practices for small business suppliers, the objective being the improvement of payment outcomes for small businesses through improved transparency. The government argues that this transparency will help small businesses to make better informed decisions about their potential customers. But, if you're a new manufacturer approaching a mining company who wants your product, are you really going to say no? What choice does a small business really have in who its customers are? If you're a photographer who is looking for some steady work, are you going to turn down a retail chain? Of course not. To put the onus on the small business to decide who their clients will be to achieve a fairness outcome for them is backwards. As I said, small businesses are at the mercy of larger ones, a cog in a supply chain, and are awaiting payment like everyone else.
The bill before us is, unfortunately, purely about reporting. As was noted by the New Zealand Ministry of Business, Innovation and Employment in its discussion paper on improving business-to-business payment practices:
… it is very hard to establish whether disclosure regimes have any effect.
The government's legislation does not mandate maximum payment times to small business, nor does it provide for penalties or remedies on invoices that are paid late or with payment times greater than 30 days. The Australian Small Business and Family Enterprise Ombudsman welcomed the reporting framework as a step in the right direction. However, they note that the belief that small businesses can simply shop around for large business customers is deluded. This legislation, as identified by the regulation impact statement, is nothing more than a ticking-the-box exercise on a Liberal election commitment and an opportunity for that headline-grabbing 'backing small business' slogan. This bill differs little from the Business Council of Australia's current voluntary and unenforceable supplier payment code, a non-binding pledge to pay small businesses within 30 days of invoice. In fact, similar business reporting frameworks were drawn up back in the time of the Gillard government. So once again we see that this Liberal government is rocketing along with reform, just as in so many other areas!
The Small Business and Family Enterprise Ombudsman, Kate Carnell, for example, welcomes the transparency this legislation will bring; however, she also notes that the payment times reporting framework is:
… one piece of the puzzle but it won't solve the problem of late payment times on its own.
Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.
The EU already requires this, and countries like New Zealand are moving harder and faster to a 20-day payment turnaround. We should be looking to follow in their footsteps. When it comes to supply chain financing, there has been significant conversation about that this year, particularly in the case of reverse factoring, in which contracted payment times are extended, sometimes to 120 days or more from the date of invoicing. In such instances, a large business will push out contracted payment times to smaller suppliers and offer a third-party financier who will pay the invoice earlier on their behalf but at a discount, meaning the small business effectively pays a fee to be paid on time.
Rightfully, supply chain financing has attracted international regulatory scrutiny for obscuring the true debt position of firms using it. The Australian Competition and Consumer Commission have confirmed they are reviewing arrangements of some large firms' use of reverse factoring for breaching the Australian Consumer Law relating to unfair contract terms, misleading and deceptive conduct and/or unconscionable conduct. The Australian Securities and Investments Commission have also confirmed that they are investigating such arrangements in relation to auditing and financial reporting requirements.
While this bill is a step in the right direction, it's not there yet. We have concerns about its efficacy and many shortcomings, and that's why it should be referred to the Senate Economics Legislation Committee for inquiry and review. It is Labor's belief that this review should focus on things like the objects clause, making it explicit that it's around motivating large businesses to pay their suppliers in less than 30 days. It should also look at the efficacy of the reporting regime and require reporting to parliament. It should look at the mechanisms to legislatively require large businesses to make payments to small businesses within a prescribed period of time. The EU has done this. Other countries have done this as well, and New Zealand is heading in that direction too. An inquiry can also look into the set-up and proper resourcing of the proposed new regulator under the bill and whether the elements of the proposed extensive use of delegated legislation via minister's rules is appropriate or it should instead be incorporated into the legislation itself.
As I said before, we welcome this legislation. It does represent a step in the right direction. But, as it is now, it falls short, and we look forward to the outcomes of a future inquiry about how yet again we can improve the legislation coming from this government.
It's always a pleasure to rise in this place and speak on pieces of legislation that this government is looking to put in place to assist small to medium businesses, because they're the engine room of our economy. According to the Australian Small Business and Family Enterprise Ombudsman, small business and family enterprises account for almost 98 per cent of businesses, 35 per cent of Australia's gross domestic profit and 44 per cent of Australia's workforce. In my electorate of Forde, we have over 17,000 small and family businesses, and these are the lifeblood of our community and our local economy—businesses such as RAMS Auto Care in Beenleigh; Merino Country in Shailer Park, a terrific local business that uses 100 per cent Aussie merino wool in its products; the GCI Group in Yatala; and many others.
But, as has been pointed out by a number of speakers already in the debate on the Payment Times Reporting Bill 2020, for small business cash flow is vital. It's the cash flow that allows businesses to pay their suppliers, pay their staff and invest in making their businesses even better. When large businesses are tardy in paying their bills, it causes difficulty for small businesses. The Prime Minister has been very clear on what large businesses need to do, especially in the current environment where we are seeing the effects of COVID-19. They need to, among other things, ensure they pay their bills on time or, preferably, ahead of time.
This bill seeks to implement the government's commitment to require large businesses and government enterprises to report on their small business payment terms and times. Research shows that, in 2017-18, payments from large to small businesses were worth $281 billion, with some $77 billion of these payments paid later than 30 days. When payments were late, the average length of time for a small business to be paid was 63 days. For small businesses this means that they have to carry higher overdrafts, a greater risk for their business, in terms of loss of cash flow.
Delays like this are killers for small business. They hurt cash flow. They harm their ability to hire, invest and grow. We want and need our small businesses to grow and reach their potential. Delays like this often force small businesses to seek alternative, expensive forms of financing in order to sustain their operations. They also affect the ability of small businesses to pay their suppliers. So not only is it the initial small business that is affected. Delays create a ripple effect across our local communities and across the economy. If all large businesses paid their bills to small businesses within 30 days, it would have an overall net benefit to the national economy of some $313 million per year, or around $2.6 billion over 10 years. Now that is a significant benefit and one worthy of pursuit.
It's important that the Commonwealth, as a model business, leads the way in this area. As the Commonwealth government, we have contracts worth around $16.7 billion with small and medium businesses, and it's vital to ensure that we adopt best-practice payment practices. The Commonwealth has already adopted a range of measures to improve payment times, and there would be no point in introducing this legislation if the Commonwealth didn't already show the way.
It's important to note that this legislation doesn't mandate payment times, but this bill does require big business to report on how quickly they say they will pay, as well as when they actually pay their small business suppliers. This will show if big businesses are living up to their payment rhetoric. And that is part of the problem. Often, we hear the rhetoric from big business but the reality is very different. I'm sure many members in this place over the years have had discussions with small business owners in their electorates about the difficulty of getting payments out of large business in a timely manner.
These times will be reported on the Payment Times Reports Register for all to see and judge. People may ask: 'It's fine to have payment times reported on a public register, but what if large businesses breach their stated times?' This bill introduces the Payment Times Reporting Regulator to administer the legislation, monitor compliance and take enforcement action if and when necessary. This regulator will have the ability to impose penalties. This way, we will create cultural change in large businesses to ensure best practice is adopted across our economy.
We've already seen some of the benefits of the approach in the bill shining a light on this bad payment behaviour. Recently, businesses such as Rio Tinto and Telstra rapidly abandoned payment practices which negatively impacted on small business once they were subject to public exposure. As a result of the community concern, their payment policies were shortened to ensure suppliers were paid within 20 days. Locally, I'm pleased to say Teys abattoirs, one of the largest employers, if not the largest employer, in my electorate of Forde, seeks to pay farmers within seven days. So we've seen big business can react quickly to community expectations, and, in the instance I've just mentioned of Telstra and Rio Tinto, we know that this legislation has already had a positive impact. But—and it's important to outline, as I just have in relation to Teys—there are good corporate citizens out there who do do the right thing by their small business suppliers.
The coalition doesn't believe in creating more red tape for business. Hence, there are no mandated time frames for payment. Of course, if the government said payment times must be 30 days, business may well slow payments to 30 days and not pay early, even if they're able to. That would be counterproductive for small business—and the government believes this is not in the national interest—hence the reporting regime coupled with a strong regulator to ensure compliance.
With 17,000 small businesses in Forde, there are some stand-out examples of suppliers to larger businesses. As I mentioned, GCI Group is an innovative company in Yatala that takes advantage of cutting-edge technology to deliver metal fabrication and laser cutting services to some of the biggest companies in Australia, from JJ Richards to Downer Group and Tridiam. Gail, who is the sales manager at GCI Group, tells me that having more awareness and transparency around payment times will greatly assist GCI, especially when it comes to planning and scheduling jobs for clients. I had the pleasure of joining the Prime Minister last year when we visited GCI to see how a small business in Forde is leading the future of manufacturing in Australia. Another prime example is ATP Science in Loganholme, who already supply some of the largest health and nutrition companies in Australia and are seeking to stock their products in major supermarkets. ATP Science have a similar story—having certainty and prompt payment times allows them to plan and invest back into their business to hopefully grow and hire more locals. I'm pleased to say that that's exactly what they're doing with the new factory that they're currently building. These businesses will definitely benefit from this bill and the cultural change that it seeks to engender.
As a coalition government, we believe in small business. We know it's the backbone of our economy. Many of my colleagues on the government benches have run or worked in small business; it's in our DNA. I know the minister is especially passionate about small and family businesses. When she visits my electorate and chats with small business owners and those who work in business, her passion is on full display. You can see that the businesspeople appreciate that we're a government that has their back and gets their concerns.
There are many things that we have been doing throughout this coronavirus pandemic to support small business. In addition to legislation such as this, we can look at a no more perfect example than the JobKeeper program the government initiated as part of our COVID response plan. This program, designed to keep employees in touch with their employers, was taken up by small business and sole traders across the electorate of Forde. We want to see business thrive and prosper. It's through our small to medium businesses striving and prospering that we see the economic development and the jobs. Also, importantly, many of the small to medium businesses are leading innovation in our country. It is why it's critical that we support these businesses to ensure that they get paid on time. As I said at the outset, good cash flow helps these businesses with the things I've outlined above. A predictable cash flow helps business to employ, grow and survive. I know the small to medium businesses across the electorate of Forde, and across the electorates represented in this place, will be keen for the passage of this bill and the cultural change it seeks to drive for the future of all businesses in this country. I wholeheartedly commend this bill, in its unamended form, to the House.
The Payment Times Reporting Bill 2020 does two really sensible things to support Australian small business: first, it provides greater transparency of payment terms in a bid to improve them for small businesses in the future; second, it helps businesses anticipate cash flow when engaging with larger businesses and government. The bill acknowledges a simple reality that every small-business owner in Australia already knows—small businesses often operate with thin margins and a tight cash flow and therefore are extremely vulnerable when expected revenues fail to arrive. I commend this bill to the House and I will vote in favour. However, I feel compelled to point out a deep inconsistency in the government putting forward this bill after such long delays in providing financial support to people and small businesses after the 'black summer' bushfires we just went through.
Those of us on the ground in bushfire zones knew by the last week of December that we were in the middle of a nightmare bushfire season. By the first week of January, the national parks had all shut, the tourist trade was well and truly dead and huge swathes of my electorate of Indi were on fire, like many places across the country. On 20 January, the Prime Minister announced $50,000 grants to businesses that had been directly hit by fire and $500,000 loans for businesses that had suffered asset or revenue loss. This was very welcome. But there was nothing here for businesses that had lost all their revenue but hadn't been directly touched by flames.
Many businesses in Indi, in places like Bright, Mansfield and the alpine resorts, take a huge portion of their annual income in January, some up to 60 or 70 per cent. This was wiped out. But, after the greatest natural disaster in the country's history, there was nothing for them. It wasn't until 11 March that the government came to the table with support for these businesses, announcing a new $10,000 small business support grant for businesses that had suffered a significant loss of income. The date of 11 March was already some 10 weeks after many of these businesses had lost all of their income. This was welcome; I welcomed it. But it was only made available to businesses in the Towong and Alpine shires in my electorate. The shires of Indigo, Wangaratta and Mansfield, which were jammed right between the burnt areas and devastated by the loss of tourist trade from the fires, were excluded. Some properties in the King Valley, in the rural city of Wangaratta, had even been directly impacted by fire. But still, because of their postcode, they missed out.
This omission was compounded by a refusal to explain why the decision was made. What were the rules? To this day, the government has not explained on what evidence it made the decision to exclude Indigo, Wangaratta and Mansfield. Anyone who'd visited the region would know that excluding these towns was madness. That day, 11 March, I started lobbying the Commonwealth and state governments to fix this oversight. In April, I conducted a survey of small businesses in Indi to understand the impact of our double crises of bushfires and COVID. The results were stark. They showed bushfire affected regions were particularly struggling. On average, businesses had lost 70 per cent of their revenue. A third of businesses had lost all of their revenue. I sent these results to the Treasurer. In fact, I took them there personally, once again imploring him to provide the promise to support small businesses in bushfire recovery.
But it was not until last week, 2 June, that the government finally came to the table and extended the $10,000 grants to all bushfire affected areas in Indi. Again, this was really welcome news. But for many, it was six months too late. The mayor of Indigo shire told me last week that, in the days before this grant was extended, several businesses in Beechworth had shut up shop forever. Two days before the announcement, I visited businesses on the Mansfield high street to hear how the fires had impacted them. Businesses like the Mansfield Hotel had lost their entire summer trade, and this was before they were shut down with COVID.
So this bill appearing before us today puzzles me a little bit. The government clearly understands that small businesses are vulnerable even to small delays in cash flow. And yet the government itself forced businesses to wait for over six months before they could even apply to access support after the bushfires.
I see my role as an Independent to be neither an uncritical cheerleader nor an unrepentant critic of the government. I see my job as being able to celebrate good work where it's done, and there has been plenty of good work done. But I see my job as being able to call out where more work is needed for my constituents. And I fear that the concern for supporting small businesses that is so evident in this bill has not so far been demonstrated adequately in the bushfire recovery.
But the campaign that we began on 11 March, when most of Indi's small businesses were excluded from bushfire support, is now won. These businesses can now apply for this much needed funding. So now we must turn to the next step in supporting small businesses through the challenging months ahead. In the coming weeks and months, I expect the government to provide a bit of payment transparency on three already announced schemes to support small businesses in bushfire affected areas.
On 19 January, the government announced $76 million for tourism for bushfire areas. That will be six months ago next week and there is still little clarity on how that money will be spent. I checked the National Bushfire Recovery Agency website this morning, and I found that just seven per cent of this money has been spent. Moreover, the NBRA website refers to a domestic tourism campaign called Live from Aus, but when I checked the link to Live from Aus I found that the campaign is almost totally unrelated to the bushfires. The campaign features ads, for instance, about brekky bowls with a chef from Bondi Beach, golf courses in the Melbourne bayside suburbs and underwater Great Barrier Reef tours. As far as I know, neither Bondi Beach nor Melbourne's bayside suburbs were hit by bushfires, and whilst we all know that the reef is boiling I truly doubt it was ever on fire. These are all worthy causes, and obviously coronavirus has hit tourism. A tourism push for all of these places is completely worthy, and we should be investing in tourism for all parts of Australia. I've been assured by the NBRA when I have asked them about this specifically: they said, 'No, we're not funding tourism campaigns outside bushfire areas,' but, as I said, I'm looking for transparency, and right now on the NBRA website this is where it takes you—Live from Aus.
When he launched the bushfire tourism scheme the Prime Minister said it would 'tap into the Australian desire to contribute to the bushfire recovery effort by encouraging Aussies to holiday in Australia and provide support to affected communities and regions'. From that perspective, I would expect that all the money put aside for bushfire recovery in tourism should be going to those regions. This bill talks about transparency with payment times, but what about some transparency for getting money to tourism businesses in bushfire regions? I'd really like to see that. I'd like to see the NBRA absolutely trumpeting a domestic tourism campaign focused on bushfire affected communities, places like those in my electorate, places like Beechworth and Mansfield, not Bondi and Brighton.
With the 93 per cent of funding still sitting there, we need a tourism campaign focused on Bega, on Eden, on Batemans Bay, on Mallacoota and of course on the many beautiful towns in Indi that I am so fond of and represent. Part of this money should be going to local tourism bodies to ensure that local ideas can get a guernsey. Tourism North East has developed a pitch for a $750,000 digital commerce platform that would build the resilience of local tourism businesses across Indi by helping them to connect with their customers. This is exactly the type of long-term investment we should be using this tourism money for.
But tourism based small businesses aren't the only ones still waiting for money to materialise. In February I took a proposal to the government to support forestry businesses in the north-east. On 11 May the government announced some money, but they have since provided zero details about how it's going to be spent and where it's going to go. We need transparency; we need detail. On the same day, 11 May, the government announced $448 million for local economic recovery plans, or LERPs, as they're called, for bushfire affected areas. But again there is no detail about which places will get how much funding. It does appear that, yet again, places like Mansfield may miss out on this funding, despite being extremely hard hit by the loss of tourism trade. Again, we're in June now. We need transparency; we need to get on with it.
This bill aims to provide transparency on how quickly government agencies pay small businesses for their services. As I said, I commend the bill, I support it and I will vote for it. But if this test were applied to the bushfire funding I fear that the government would not be receiving a very high mark. So while I commend this bill to the House, I implore the government to get serious about getting bushfire money out the door and to where it's really needed.
Before I go into the details of what is a very important piece of legislation for the House today, the Payment Times Reporting Bill 2020, I want to start, if I may, by taking a moment to thank all of the hardworking small businesses in my electorate of Ryan. I know I speak for local residents when I say that we were amazed at the way our own local small businesses managed to continue to serve the community throughout the COVID pandemic, when they had been dealt the most difficult of hands. In some cases, they had to entirely close their shopfronts and go virtual. Still, these local businesses adapted and found a way. Our local gyms kept us motivated via online sessions. Our cafes converted to drive-throughs and takeaways. Our healthcare providers used telehealth consultations and provided over-the-phone advice and comfort. I am always amazed, though not surprised, by the fact that our small businesses manage to adapt to whatever circumstances they find themselves in, even ones as difficult as the global pandemic, which came on so quickly. I want to speak directly to those small-business owners in Ryan and say: 'Thank you so much for the way you have risen to the challenge of dealing with the COVID-19 pandemic and still found a way, despite all the difficulties, to serve our local community, who are so much in need. We are very much looking forward, as a government, to continuing to have a laser-like focus on creating jobs and getting you and the economy back on track.'
I grew up in a small-business family, as I'm sure many in this chamber did. My parents were running a local pharmacy, and so, from a young age, I learnt that running a business is not a nine-to-five job; you don't just get to clock off and go home. It pervades every part of family life. The lines between work and home are always continuously blurred. So, too, are the concerns, and this is an important point. When stress comes upon small-business owners—mums and dads—it comes upon the whole family, and children often bear that stress as well.
When you sit down and talk with small-business operators and ask them about their concerns, there's always a constant for them, and that is cash flow. Small businesses, if they are successful, monitor and manage cash flow constantly. It's the thing that keeps small-business owners up at night, I find, more than anything else. I certainly have very vivid memories of, after the family dinner was finished and the dishes cleared away, mum and dad spending many, many hours on the accounts at night as we kids were heading off to bed. That's what kept the small business functioning and going.
Small businesses are the most affected when it comes to longer payment terms and late payments, and this has a flow-on effect right across the economy. Small businesses that are continually chasing outstanding payments from suppliers are under significantly increased stress; the whole business is. They're under increased stress to pay employees on time, and they find it difficult to invest back in their business, because they can't get a handle on their cash flow. When they are paid on time, when they're not constantly chasing those payments, they are able to plan for the future. They are able to invest, to hire a new person, to aim to grow their small business. More than a third of small-business invoices are paid after 30 days. I'll say that again: more than a third of small-business invoices are paid after a 30-day period. And those invoices that are paid after 30 days take, on average, 63 days to be paid. How can a small business effectively manage their cash flow—particularly when it's a mum-and-dad family operation—when for 63 days after the point of sale they can't count on the cash appearing in their account? This has a very significant impact, with significant stress on the whole family and missed opportunities for small-business operators to plan and grow and invest in their business.
The commitment in the bill before us today is something that has not just been introduced as the result of a pandemic, though you could argue—and I'm sure that many on our side of the chamber would—that the recent events of COVID-19 have made the importance of this bill even more stark. But it wasn't COVID that brought this on; it was a longstanding commitment that this side of politics made in 2018 as part of our package of ongoing support for and recognition of Australian small businesses.
The Morrison government is a government that delivers on its commitments, and this legislation fulfils that pledge we made to require large businesses and government enterprises with a total income of over $100 million to publish information on how and when they pay small businesses. A culture of longer payment terms is one that the Australian economy simply cannot withstand. We certainly cannot withstand it in the current environment, as small businesses are desperately trying to get back on their feet. This bill will ensure that Australian small businesses will not suffer the flow-on effects of slow invoice payments.
Large businesses, particularly in the current COVID conditions, are the stewards to the supply chain and they need to be aware of the role that they are playing as we look to our recovery phase. The Prime Minister has directly spoken several times to large businesses during COVID, asking them about the need to step up by keeping connections with their employees—keeping their employees in jobs wherever possible by having increased flexibility and supporting small businesses. Payment terms is a fantastic example of how large businesses can support small businesses and support the entire supply chain.
Many have done that. Many large businesses have risen to the challenge. Many have gone above and beyond expectations. Unfortunately, some are still taking longer to pay their bills, and this is cascading through the entire economy. In normal economic conditions, late payments are a constant challenge. In the current economic conditions, late payments could lead to the small business no longer being able to operate. It could literally be the death knell of these small businesses.
The bill we debate today, in its unamended form, will see a requirement for large businesses to submit a payment times report showing the shortest and longest standard payment periods offered; showing the proportion of small business invoices paid between less than 21 days, 21 to 30 days, 31 to 60 days and more than 60 days; as well as showing the proportion of all goods and services procured by the business that was from small business. This increased level of transparency will not only give small business operators a clearer understanding of the customers that they are seeking to engage with but will mean that large businesses that may have been previously dragging their feet in their payments or practising unfair payment terms will seek to do better. We'll ensure that small businesses have reliable information to review when making decisions about who they do business with, providing a level of choice that doesn't currently exist. This information will be available not just for small business but to any member of the public.
Community expectation, now more than ever, is that we all have a part to play in our economy and our recovery. We have some very savvy and switched-on consumers. They want to see everybody in our economy pull their weight to help small business, to help all Australians, get back to work and back into business. I know that Australian customers of a business that is outed as having bad or unethical practices that hurt their suppliers, that they take too long to pay, would be suitably disappointed. In most cases, that customer, that savvy consumer, when provided with that information and that choice, is going to be very quick to seek an alternative company to give their patronage to. Conversely, I know Australians will be seeking to give their business to companies that are doing the right thing by small business, who are paying on time and therefore helping to protect and restore Aussie jobs at a time when we need it most.
We have already seen the benefits of the approach in the bill in shining a light on bad payment behaviour. Recently, businesses such as Rio Tinto and Telstra rapidly abandoned payment practices which negatively impacted on small businesses once they were subjected to the kind of public exposure that would become routine in this bill. As a result of the community concern, their payment policies were shortened to ensure suppliers were paid within 20 days. When big business reacts so quickly to community expectations, as they have in this instance, we know that they will be equally influenced by the payment times reporting scheme contained in this bill.
This is real and lasting reform that shines a light on bad behaviour in order to stop it and, importantly, prevent it. It is helping our economy with transparency, not taxes. We're not burdening the economy further with restrictions and red tape; we're opening the door for businesses to do the right thing—as, frankly, they should be—and to do it in a transparent way so that they are rewarded by consumers for doing the right thing.
The Morrison coalition government is a consultative one, and the legislation before us today in its unamended form is the result of extensive work with industry and representatives from both large and small business. They have a crucial part to play in this process, and they're architects of this solution. I want to particularly pay tribute to Minister Cash for the fantastic work that she and her team have done in undertaking this consultation and bringing this important bill before us.
Of course, it isn't just large businesses that our SMEs deal with; it's government too. So we have also made sure—and all credit to Minister Cash for ensuring this—that we are always doing the right thing by them. Since July 2019, our Commonwealth agencies have paid invoices for contracts of up to $1 million within 20 calendar days or else, quite rightly, paid interest on any late payments. In addition, from the start of this year, e-invoices have been paid within five days and, if they aren't, we pay interest, making it easier to do business with the government.
In talking about this bill, I can't help reflecting on the fact that, as the son of a small-business owner, I know how important this is to small businesses—to make sure that they have security with their suppliers, knowing that they can manage their cash flow and that they can make investment decisions to grow and expand their business and to do what small business does best for our country, which is to create jobs. I'm very pleased to see this government strongly support small business, as I do personally, and I commend the unamended bill to the House.
I rise today to speak on the Payment Times Reporting Bill 2020. I support this legislation both as the member for Warringah, representing 17,000 small businesses whose lives will be improved by the passage of this bill, and as an advocate for transparency and accountability.
Firstly, of course, I would like to thank our local businesses. 2020 has been a challenging year for so many, first with tourism disruption from the bushfires and the smoke that blanketed the Warringah electorate, and then during this coronavirus crisis, where so many businesses have been affected, from those who have had to completely shut down, like cinemas, gyms, restaurants and some retailers, to others who have had to completely adapt their business model. If there's one thing I've seen when out and about in the community—when it's been possible to do that—it has been the resilience of so many of our small businesses and their desire to work so hard to rebuild after this difficult period.
The small businesses in the electorate have told me that they've suffered at the hands of payment terms offered by large businesses. For many, landing a large business as a client is the dream. They imagine income security, regular payments and freedom to innovate to create a more efficient business model. In reality, sadly, sometimes their experiences with large businesses can include not being paid within the contracted period and large businesses using 90-day payment terms or using bankruptcy as a means of not paying debts. Slow payment and nonpayment of small business is a real issue. Cash flow is king for small businesses, and the growth of small businesses is dependent on cash and capital. So, if their largest client is not paying, it can completely constrain their growth and innovation, as more effort is spent chasing payments rather than running their business or searching for improvements and new clients. It puts in jeopardy their ability to employ and to keep growing. Business owners' personal mental health is another casualty due to the stress and impact on personal lives and viability of local small businesses.
The benefits for small business and the economy have been estimated by the AlphaBeta consultancy. They estimated that a normalised 30-day payment time would have a net benefit of over $500 million per year to small business and over $300 million per year to the Australian economy. That is substantial, and certainly something to encourage the government to do more to assist small businesses.
Transparency and accountability are very important to me. I'm an advocate on many fronts for more transparency and accountability throughout our society, throughout government and, in particular, for the operation of business. I support this legislation in strengthening the reporting requirements and empowering small businesses with greater information and choice. It enables individuals to make informed decisions, so improving the transparency, accountability and integrity of large businesses is a win for small-business owners. It will empower small-business owners with the ability to make an informed decision about whether their business can cope with the payment terms offered by that large client. They will be able to plan for slow payments if that is what they are told to expect. One would hope that this transparency will lead, though, to an overall improvement in the payment terms offered by large businesses, as quality small businesses may choose not to engage and take business elsewhere. Further, the transparency and pressure of peers will work to improve payment terms offered. This is where the market will hopefully work its best and encourage competition and encourage better efficiency.
There is, of course, room for improvement, and I encourage the government to push this legislation further to include a maximum payment term for businesses. The Small Business and Family Enterprise Ombudsman, and various small business lobby groups, have called for the establishment of a statutory maximum period of, for example, 20 to 30 days. Rather than relying on normalising a 30-day payment time, legislating the payment time would more effectively achieve benefits to the economy and small businesses alike. I hope that there will be further consideration of how this measure and other measures to further assist small businesses can come about. So, whilst this bill is not perfect, it's a vast improvement to the status quo, and I commend the Payment Times Reporting Scheme and support the government with this legislation.
I rise to speak on the Payment Times Reporting Bill 2020 and the cognate bill and to support the amendment moved by the member for Gorton. The Payment Times Reporting (Consequential Amendments) Bill 2020 introduces a new payment times reporting scheme, which requires approximately 3,000 large businesses and government enterprises with annual turnover of $100 million and above to publicly report biannually on their payment terms and practices for their small business suppliers. Some business entities, such as large cooperatives, are exempt from reporting, as are charities and not-for-profits. Entities that fail to maintain payment records or provide false or misleading information in a report may contravene a civil penalty provision. Reporting entities will be given an 18-month penalty-free transition from the implementation date to familiarise themselves with the scheme and transition effectively.
As previous speakers have said, Labor supports the intent of the bill as a first step in improving payment practices of large businesses to their smaller suppliers of goods and services. The bill does not mandate maximum payment times to small businesses and fails to provide penalties on invoices that are paid late or with payment times exceeding 30 days. As every small business in my electorate of Dobell will tell you, cash flow and on-time payment are critical for small businesses. The objective of this scheme is to improve payment outcomes for small businesses by creating transparency around the payment practices of larger businesses. With greater transparency, small businesses will be able to make better choices about their customers.
Concern has been expressed about the detail that is being left to delegated legislation—that is, the minister's rules. Stakeholders want legislative certainty on the design of the scheme, particularly some of the more controversial provisions. The Small Business and Family Enterprise Ombudsman believes the framework is unlikely to significantly change the behaviour of most firms. Kate Carnell said that the Payment Times Reporting Framework is 'one piece of the puzzle, but it won't solve the problem of late payment times on its own'. Further, she said:
Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.
It's not just Labor raising concerns about supply chain finance solutions. Kate Carnell has launched a review of supply chain finance, saying:
… it is totally unacceptable for big businesses to use supply chain financing arrangements as a replacement for reasonable payment terms being offered, 30 days or less from invoice.
She went on to say:
Third-party financing must not replace reasonable payment terms being offered 30 days or less from invoice and paying to those terms. It is not acceptable for large businesses to use small suppliers to optimise their cash flow.
The Australian Accounting Standards Board is looking into the tiger trap of reverse factoring and will be discussing it further with international accounting standards boards and other relevant regulators. Supply chain financing has attracted international regulatory scrutiny for hiding the true debt positions of firms using it and creating systemic economic risks. Labor is part of an international chorus of voices concerned about supply chain financing arrangements, including rating agencies and international audit firms. The definition of 'supply chain financing' and the reporting requirements are contained in delegated legislation, in the minister's rules. The draft rules only require large entities to report on whether they use supply chain financing, the details of those arrangements and the proportion of invoices paid under such arrangements. The legislation references supply chain finance in passing. Small businesses have no guarantee that a minister may not simply remove the requirement to report on the use of such arrangements.
Labor will refer this bill to the Senate economics legislation committee for a brief inquiry. There are several concerns that need to be examined. A brief inquiry should not stop this from being properly debated and ready to go from the intended starting date of 1 January 2010. As I've said, Labor will support this bill as a first step in improving payment practices. The review should consider that the bill does not have a clear target on where average payment times should fall to and whether this should be a feature of the regime. The Payment Times Reporting Scheme is a transparency initiative to support self-regulation. Self-regulatory regimes are usually 'poor' to 'questionable' unless backed by a genuine threat of heavy-handed regulation.
Labor has concerns that a self-regulatory payment regime will not result in faster average payment times. The Senate committee should explore incentives for larger businesses to improve their payment practices. The procurement linked payment times policy does not have any incentives for large firms who do not seek government contracts. Comparable jurisdictions have implemented or are considering legislated payment times. New Zealand is consulting on legislated 20-day payment times with interest charges for payments over 20 days.
Another concern is that the bill does not require the regulator to publish average or median payment times or representative invoice sizes. The committee should explore whether the regulator must be required to release this data publicly. The committee should explore stakeholder suggestions that the reporting requirements and the definition of supply chain financing in the draft regulations are set in the legislation.
The bill intends to legislate the following brackets for reporting entities to provide information on payments made less than 21 days after the invoice is issued, between 21 and 30 days, between 31 and 60 days and more than 60 days. However, large firms, particularly those using supply chain financing, use contracted payment times of 120 days or more. The top bracket of 60 or more days allows these very long payment times to be hidden. For these reasons it is incumbent on the Senate to review this bill for its efficacy and any shortcomings.
I will turn now to my local economy and how it's been hit by COVID-19. The coast's economy is built on the shoulders of industries typical of coastal regions across Australia, like tourism, hospitality, retail, food manufacturing and construction. We're a proud and hardworking community. There are 9,803 small and family businesses in my community, employing 35,000 local people. There are 2,500 small and family construction businesses; 11,000 tradies; 1,061 small architectural, engineering, accounting and photography firms; and 896 small rental, hiring and real estate agent services. These businesses rely on on-time payments. When a payment is late these businesses are put at risk, a person's livelihood is put at risk.
It's been a tough year across Australia and a particularly tough year on the coast. We faced bushfires and floods before COVID-19 and COVID-19 has had a devastating impact on our local economy. When non-essential services were shut down, the coast felt it hard. On 28 May the Grattan Institute released its 'Job losses caused by COVID-19, electorate by electorate' report. Dobell saw a sharp loss of 5.7 per cent. This was devastating for a region already facing above-average unemployment—in particular, youth unemployment—and underemployment before this crisis hit. Many people have fallen through the cracks of COVID-19 support and are not receiving the help that they need. As I said, I come from a proud and hardworking community. When people are doing it tough, we pull together. I'm proud of the way we've worked together, but there comes a time when proud people need help.
Labor has been calling on the government for weeks to develop a comprehensive housing stimulus plan. As I mentioned, there are 11,000 tradies on the north end of the Central Coast and 2,500 small and family businesses working in the housing and construction sector. We need proper stimulus to kickstart the economy and get these businesses and families back on their feet. Labor has recommended five things that the government could do: construct more social housing; repair and maintain existing social housing; construct more affordable rental accommodation for frontline workers; and provide expansion of the First Home Loan Deposit Scheme for new builds and grants to first home buyers who build their first home. The government's recently announced HomeBuilder package barely ticks one of those boxes. The package was announced with no option to apply, and, as of 10 June, there have been no applications for this grant. The government expects Australians to spend $150,000 on renovations without providing any certainty of whether they'll qualify for the grant. The tradies in Dobell deserve better. The small-business owners in Dobell deserve better. The small-business owners in our community deserve better.
I raise this matter because, during COVID-19, this is legislation that is meant to help and support small businesses. What's the government doing to properly support small businesses across Australia and communities like mine that have been so hard hit by COVID-19? Sadly, we know the link between financial distress and mental anguish and the consequences that can come from that. It'll be a long and bumpy road to recovery in communities like mine, and the government needs to do so much more. The tradies and small businesses in my community deserve better than a housing package that's expected to be taken up by just 7,000 people. Housing construction is due to fall, and the Morrison government has produced a scheme that's difficult to understand and even harder to access. The government must consider investing in social housing so that the tradies and small construction businesses of Dobell aren't lost to our community.
During the COVID-19 crisis, we've heard some shocking examples of large companies telling smaller suppliers that their payment terms are being blown out to 120 days from the date of invoicing. Tradies like my brother Eddie, a plumber on the Central Coast, deserve better than this. Prompt payments are far more important to the cash flow of small businesses than for larger businesses. Small businesses rely far more on payments and bank finance. Without payments, small businesses will suffer. Our community will suffer. The local economy on the Central Coast deserves better. The small businesses on the coast have been through a lot this year, as I mentioned: bushfires, floods, and now COVID-19. They should not have to wait 120 days or more to be paid for their work.
Small businesses are the lifeblood of Australia. They are the foothold of our community. They are run by mums and dads, sisters, brothers and friends—the people who make up our community. The COVID-19 pandemic has impacted small businesses across Australia. They have felt it hard. They deserve a fair go and to be paid on time for their work. As I said, Labor supports these bills as a first step towards helping small businesses, but we are still concerned about supply chain finance and the impact it will have on small businesses. I urge the minister to act on supply chain financing and help small businesses to be paid on time.
As other speakers on this side of the House have indicated, we support the bills that are before us, the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020, but we have concerns—hence why the Payment Times Reporting Bill 2020 going to be referred off to a Senate inquiry. We support it as a first step, but I would add that it's actually a really weak step, and I'll outline why in a moment.
For a long time, we have been advocates for better payment practices for small-business suppliers. Just as with wage theft, big businesses who misuse their relationship with small businesses and pay them late do so deliberately. It's become part of their business model. It's an insidious practice that is hurting so many. We see, time and time again, big business taking the little guys for a ride. What was hoped for with these bills was tough legislation, making sure that we had a big stick to actually go after the big guys who are treating so many little guys appallingly. We do not have a big stick. We have a very weak step towards reform that is necessary, particularly in a time like COVID-19 and a recovery.
Talking to local businesses in my area, it is all about cash flow. Businesses have not reopened because of cash flow—businesses not being able to get the numbers that they require to balance the books, businesses that didn't apply for JobKeeper because of cash flow. For businesses, as many people would know if they consulted in their electorate, cash flow is king. It is what allows them to keep trading. It is what is necessary. It ensures that they have the money to pay wages, pay super, pay the rent. After COVID-19, it is something that we need to be acutely aware of. Every piece of legislation that comes before this parliament should have that lens upon it. That is why I say this is a weak step.
This legislation is talking about self-regulation. That's not a big stick. That's not a tough cop. That is not someone who's really going to back in small business. Self-regulation is just window-dressing. It's the suggestion that the big guys are going to do the right thing. Come on! After how many decades, when will the conservatives finally accept that self-regulation is about saying you're doing something when you're not doing anything at all? Self-regulation of an industry that is already behaving badly will not deliver the cultural reform that's required. We do support this bill, because it is a first, little step, but I hope that, between now and when this bill passes, the government listens to the concerns of industry, small businesses and Labor and actually make some real changes to this bill so it can deliver real reform and relief to our small businesses.
Prompt payments to small businesses are far more important to cash flow than to larger businesses. Larger businesses have many different ways to increase capital, whether it be through raising equity, whether it be through bond markets, whether it be through not paying their workers super, which quite often happens. Even wage theft has become part of a model for big businesses in raising capital.
I see those opposite shaking their heads and asking, 'How can this be related?' Well, it is. It has been demonstrated. It has been talked about. The Fair Work Ombudsman talks about how big business these days are using wage theft as a model, deliberately underpaying their workers as a model, and using the capital in other ways. That's why we have been consistently saying there needs to be reform in that space. Maybe in this pandemic we will see the government finally move on wage theft and we'll see a bill come forward, but let's hope it's not more window-dressing like the bill we have before us. Let's hope it's not a self-regulation model like the bill we have before us.
What we are seeing in Australia is large businesses using small businesses as their piggy banks to boost their own working capital position. Even more insidious, what we are seeing is these big businesses going to third-party financiers and saying to little businesses, 'If you want to be paid on time, pay a fee.' Can you believe that? It's hard to believe that that's even legal. It's hard to believe that, when you have reform in front of you, the government hasn't even attempted to crack down on this insidious behaviour that has crept into corporate culture.
I was shocked when I had a small business raise this with me, a construction business in my electorate, someone who supplies building materials into the construction industry. They informed me that they had the option to sign up to this recovery of their invoices and that for a small fee—or what they thought was a big fee; they paid it—they could actually get paid on time. They could sign up to a new payment model. My first question was: how is this legal? After several letters back and forth and after several conversations with people in the tax office, with people in the department, with legal experts, with local lawyers and with even the Fair Work Ombudsman's office, it turned out that it was true. You can actually do that. For companies who deliberately don't pay businesses on time, there is a window that has opened up for this opportunity. What an evil business model. They go out there and prey on small businesses that are desperate to have their invoices paid. Let's just remember that these are businesses who've done the work. They've supplied the goods or supplied the service. They just want to be paid for that, and to get what they're owed they're being asked to pay a fee through these third-party financiers. Can you imagine asking workers to pay a third party—'We're going to take some of your wages so that we can process it.' Can you imagine if that were to be the case? Wait a minute—it is happening in some places. That's what's happening in some places when it comes to JobKeeper. So the government might want to address that one pretty quickly, that we do actually have some employers deducting a fee for processing JobKeeper. Not all employers are bad employers. Not all businesses are bad businesses. But when you have this toxic corporate culture creeping in, the government needs to act. That is where we need the regulation. Not self-regulation, but decent regulation that has real penalties and that stops this culture in its tracks.
This bill, the Payment Times Reporting Bill, introduces a new payment times reporting scheme which requires about 3,000 large businesses and government enterprises with a turnover of over $100 million to publicly report biannually their payment terms and practices for their small-business suppliers. It's a bit like a name and shame. You need to demonstrate that you're doing the right thing. And we all know how successful these schemes have not been in the past. So I'm surprised that the government has said, 'This is our big reform.'
The government argues that, by providing access to this information on large businesses who pay on time, small businesses will be able to make more-informed decisions about their potential customers. We now live in a world where the small business can choose its customers! We now live in a world where, in the building and construction industry, where you have some really major players, the little supplier in my electorate can rock up to Lendlease and say, 'We're not going to do that hospital work worth $50,000 because you're on the government's list.' That's not how business works. What the small supplier in my electorate wants is to do that government job. They want to do that work for Lendlease, and they want to be paid in a quick time frame. They've got their employees to pay. They've got their own suppliers to pay. The government has this weird idea that the small business will be able to shop around for better customers. The absurdity of suggesting that shows just how out of touch they are with how business works, how our economy works and what is happening.
It's not just on the worker side. I always thought, being from Labor, that they just didn't understand how things work from the worker perspective, that they actually believed that a worker had the power to sit down and negotiate an individual contract with their employer. There are people in the government today who believe that that can happen, that that's a genuine, fair relationship. I didn't realise that the government believed that small businesses had the ability to do the same. It is not that way in reality.
The government also contends that greater transparency on the payment practices and performances will create pressure and a culture for change to improve payment times. Again, we've not seen that at all from the Fair Work Ombudsman—this idea of shifting culture. You ask the Fair Work Ombudsman—and this has come up several times; this is in relation to wage theft—'How do you get cultural change that is lasting?' And they've always gone along the way of: go after a few, make it public, embarrass them, get some big names, and that will drive cultural change. That has not happened. In fact, it rarely happens. It rarely happens when it comes to workers, and it will not happen when it comes to forcing big companies. It will not see them change their culture when it comes to big companies paying little companies on time. The only way that you can do that is to have tough penalties, to have it mandatory, and not to have this soft self-regulation approach. I argue that the penalties in this bill are light and they will probably take a long time to prove. Desperate to be paid on time, a lot of small businesses may not even go down the path of reporting that they believe that their particular customer has not reported properly. The system itself looks like it is going to create a lot of bureaucracy and not deliver the genuine justice that so many small businesses are seeking.
I mentioned earlier the alarming practice of charging fees if small-business suppliers want to be paid on time. I was even more alarmed to learn that there is actually a term for it: supply chain financing. It's been recognised in several forums as being an issue—it's almost got a hashtag and trending. You would think that this government would act if it's coming up time and time again. You'd think that they'd actually do something to help out small businesses. They don't miss a beat when they're talking about how many small businesses are in their electorates or how many small businesses there are in Australia. They say that they're the great friend of small businesses. Yet with this critical bill they've failed to deliver a genuine reform that would have helped small businesses. Instead, they've dressed it up and called it self-regulation.
I was talking about this bill to a couple of the businesses in my electorate who have been hurt by supply chain financing, and I asked them what they thought about self-regulation. They laughed and said: 'You've got to be kidding! That's just a cop-out.' That is what one business, a concreter, said to me. It is still waiting to be paid for several jobs. Now when they go to do work they check the risk factor: 'Do we think this company will pay? Do we think this company will pay on time?' It's a question that they genuinely ask. They actually think, 'Will I actually go for this job?' They decide based on whether they think the company will pay, which is outrageous in the first place, and on whether they think it will pay on time. That is something this bill could address if it actually had some teeth in it.
To understand supply chain financing properly—and I know that people on my side have tried to point this out to people in the government—is it fair to ask a small business to pay, say, a $1,000 fee to be paid on time? Sometimes it's $9,000; sometimes it's a percentage. One of the businesses in my electorate was charged 1.5 per cent. That's a lot if you're owed $50,000 or $60,000 in supplies. These supply chain financing arrangements seem to be popping up in lots of different industries. They're popping up in the cleaning industry, in the building supplies industry, in the manufacturing industry—small guys who just want their fair share of the pie and, just like every other worker, to be paid on time. These are businesses that are quite often family operations, started by somebody in a family who then employs the rest of the family. They may or may not have employees, but they are desperate to keep the business going. As I said, cash flow is king, particularly at this time.
This bill has weaknesses, and I call upon the government to really take on board some of the suggestions that are being put forward. Look at some of the better practices overseas. Look at what New Zealand is doing. It is legislating a 20-day payment time. They are looking at it; we should too.
There were many times in my 25 years in business that I felt like a bank. Small businesses often feel like a bank, a lender to big business, but I have to say the thing we do wrong is we don't charge interest. That's the big difference and the price that small business pays, depending on the clients that they choose—I will come to the issue of whether you choose your clients or they choose you. Being paid within 30 days, even by government agencies, was an absolute miracle; 60 days or 90 days was something you came to think of as acceptable. Sometimes at this time of year, in June, I'd be chasing payments, hoping to get the money in the door before the end of the financial year. Small-business owners are multiskilled but often that means you do last the things you like least. So, when I did get around to following up on a long overdue invoice, I might be told, 'Oh, it's just missed the processing date,' or, 'Oh, it's with accounts,' and all sorts of time-buying excuses. Sometimes there was human error and sometimes the error was mine, but when you're looking in your MYOB or your Xero at what is in your account there, versus what's actually in your bank account, looking at what's owed to you, versus the cash you have in the bank, it is absolutely no comfort when the rent is due or the BAS payment, or the repayment on your truck or the salaries are due. That is the dilemma you face. Every small-business owner understands that cash is king. You can have all the turnover you like, you can have all the revenue in the world, but without that money landing in your bank account you can't survive, let alone grow. Unlike big business, small business doesn't have a lot of other ways to increase working capital. We don't use the bond market. We can't raise equity. It's really about what is in the bank.
My experience of a quarter of a century as a small-business operator is the lens through which I'm looking at this legislation. I look at it with the eyes of the people who operate earthmoving equipment, the consultants, the caterers and the construction framers, all those who in good faith spend time tendering for or pitching for work from big business, who deliver that work and then—well, then they wait. They don't like to complain and they don't like to be difficult, because they want more work from those same businesses. They patiently wait, sometimes to their own financial detriment. So I do support the Payment Times Reporting Bill. We will be supporting it as a step in the right direction, but I have to say that I think it's a baby step.
It's worth understanding exactly what this bill is about. The bill requires around 3,000 large businesses and government enterprises with annual turnovers of $100 million and above to publicly report twice a year on their payment terms and practices for their small business suppliers. By 'small business' they are talking about businesses that turn over less than $10 million a year. That is what the legislation is about—not requiring certain payment terms and not enforcing limits on how long businesses can take to pay small business, but asking them to report on what they do, and there are financial penalties if they fail to report. That's why I call it a baby step. It's obviously a good thing to have information and reporting, but without anything else I question the effectiveness of it as a way of encouraging big companies to do better by small businesses.
The government believes that greater transparency will create pressure for cultural change to improve payment times. Certainly, work on a similar reporting framework was begun with Julia Gillard as Prime Minister. COSBOA's Peter Strong has reminded us of that, and there is some validity to that argument. But the Morrison government also has a view that the information will help small businesses make more informed decisions about their potential clients and help them to choose their potential clients. I don't know what world the Liberals live in when they think that small businesses have the power to go out and choose their clients. They claim to be the only people in this place who understand small business, because someone on this side of the House, on the Labor side of the House, could not possibly understand small business! Yet, many of us have spent decades working as small-business owners. They need to revisit that self-belief, because what this legislation shows is a real lack of understanding of small business. It is an enormous missed opportunity to do something tangible to help small businesses. My small businesses are going to laugh when I say, 'Well, the government's tried to help small business by putting in a reporting mechanism.' They are not going to see it as being of any use to them. I think it's going to be some time before we get to a point where it's actually even going to be a useful piece of data. Most small businesses will tell you that in a lot of cases you don't have the luxury of shopping around for a client. You have to be really well established, with a strong pipeline of work and long-term loyal clients, to spurn someone on the basis that they may take a long time to pay your invoices. So many of them take a really long time. Some of the biggest companies or government agencies I've worked for, and loved working for, have been the worst payers.
The belief that small business can pick and choose clients is the sort of thing that doesn't understand the power imbalance that large businesses have over their smaller suppliers and contractors because of their size and their status. The Small Business and Family Enterprise Ombudsman, Kate Carnell, echoes this view in saying:
We support the Payment Times Reporting Framework as one piece of the puzzle, but it won't solve the problem of late payment times on its own.
Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.
I agree. In my experience, the best way to get a big company to do the right thing is to make it a rule.
I do note that the Business Council of Australia already has a voluntary but unenforceable supplier payment code, which is a non-binding pledge to pay small businesses within 30 days of invoice. I also note the concern that the BCA has—that one of the unintended consequences of this legislation might be to encourage large businesses with best practice payment times of, say, 21 days or less to extend their payment times to 30 days. I think this is the sort of thing that needs to be considered by a Senate committee, along with questions about what it means in terms of red tape for large enterprises. I'd agree with the BCA that a one-size-fits-all policy for every industry may not be the way to go, as it doesn't take into account industry-specific circumstances. I recognise we need a piece of legislation that works for both parties, but this was the chance to start to even the playing field for small business, and that chance, I think, has been lost.
We also have the right to ask the question put by the Australian Small Business and Family Enterprise Ombudsman about the government's planned resourcing for the scheme—that it may not be enough. The regulator can be as little as one public servant, without support staff. I don't think you can talk about any payment terms for small business without mentioning supply chain financing and reverse factoring. This is where small businesses essentially pay to have their invoices paid in a timely way. It is not fair to ask small businesses to pay a fee so they can be paid on time. I'm pleased that the shadow small-business minister, the member for Gorton, has taken action on this with the ACCC, who have confirmed they are reviewing the arrangement of some large firms' use of reverse factoring. Third-party financing must not replace reasonable payment terms being offered by large businesses. As the ombudsman says, it's not acceptable for large business to use small suppliers to optimise its cash flow.
So I end where I started—with small business being the financiers of large business. I welcome this one small step for transparency, but I'd prefer to see one giant leap for fairness for small business.
I rise tonight to speak on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. Before speaking about some of the elements of these bills, I would like to make some broad observations about the importance of small business, of SMEs, to our economy. As everybody in this chamber would know, there are thousands of SMEs in each of our electorates. As everybody in this chamber would know, they are the backbone of the economy. These are many of the most innovative and dynamic businesses in our economy, and they are going to be absolutely instrumental to Australia coming out of the recession that it has just entered.
Of course, small businesses operate in every single sector of our economy. Every day, so many of us in this place are talking to owners of small businesses that are struggling: the restaurants whose business has collapsed; the TCF manufacturers in my electorate who have come under huge strain, some of them supporting many, many families; the services microbusinesses, many of which are the entire income of a household; and the tradies in the construction business. They reach into every single segment of our economy. And, of course, this COVID recession is having a devastating impact on so many of them.
For me, one aspect that this debate has highlighted is that, when we talk about the 120 days that small businesses have to wait for payment that is rightly theirs, we forget how long that period actually is. It's a number on a piece of paper, but think about what 120 days is. It's four months. Four months from today takes us back to the pre-COVID environment. Four months takes us back to a period which seems like an eternity ago. In that time our whole economy and society—businesses, workplaces and households—have been turned upside down. For me, this debate has reinforced what an eternity it is for small businesses in my electorate to have to wait for payments that they should have received earlier, and often these payments are being withheld by businesses that are in a much better position to deal with a lack of funds in their pockets. So the first point I'd like to make is not just the importance of small business to the Fraser electorate—and to all the electorates in this place—but the fact that, at this time when SMEs are doing it particularly tough, the problems that this bill aims to address are so much more difficult and damaging than they ordinarily would be.
The second critically important issue is that we need to reflect on the systemic issues that have motivated these reforms, which these reforms do go some way towards dealing with but nowhere near far enough. One of the underlying issues, which earlier speakers from this side have addressed, is the inherent inequality in the relationship between SMEs and their customers. The member for Bendigo and the member for Macquarie spoke powerfully and from personal experience about the fact that we are not talking about an abstract relationship where two equals are bargaining on commercial terms. What we are talking about, often, is a relationship where one side, in effect, has very little choice. The contributions from the member for Bendigo and the member for Macquarie powerfully set out why these reforms are so important but also why they need to go so much further. A regime which is based upon large businesses reporting twice a year will be nowhere near enough to deal with the fundamental challenges of that very unequal relationship. As the member for Macquarie pointed out, moral suasion in and of itself is nowhere near enough of a regulatory mechanism to deal with a practice which, like a cancerous growth, has spread throughout our commercial sector, because it has proved to be so advantageous to large companies. We need something far more powerful, far stronger, than moral suasion, naming and shaming, putting somebody's name on a register that may or nay not get much attention, hoping that will change a fundamental commercial relationship which has become standard operating practice for many large companies. Supply chain financing and reverse factoring have spread for very good reason, and this bill will do nothing to address that fundamental problem.
As so many speakers on my side have said, this bill is a step forward but it's nowhere near enough. We will support it because it is a step forward, but we want to see a more systemic inquiry by the Senate economics committee to see what more should be done in this space. Because this bill reflects a number of systemic challenges that small businesses face in their working capital and systemic problems arising from the inequality in bargaining positions, we need a systemic and holistic policy response, which this bill definitely is not. That's why we need the Senate economics committee to examine what more needs to be done and what other jurisdictions are doing.
This bill will require approximately 3,000 large businesses and government enterprises with an annual turnover of more than $100 million to publicly report biannually on their payment terms and practices for small-business suppliers. It is the second of three tranches of measures the government has committed to. The first tranche was to have the government pay its small-business suppliers within 20 days of invoicing if using standard invoices or within five days if using an approved e-invoicing system. That measure was implemented administratively. The third tranche, which was announced by the Prime Minister in November 2018, was to link government procurement with payment times. This third and final tranche, as I said, is a small step forward from the other two tranches of this package but goes nowhere near enough to deal with the fundamental policy challenges that our small-business sector is facing.
Prompt business payments to small businesses are critically important, as earlier speakers on this side have shown—people who have actually operated small businesses. This is a critical issue for small business, because, unlike large businesses, which often have a variety of means to increase working capital, including bond markets and equity raisings, small businesses rely more on cash payments and bank finance, which can often be far more restricted and difficult to obtain. Increasingly, despite this inequality in options, we see small businesses as the piggy bank—as so many speakers have alluded to—of larger businesses. What this reflects is not the fact that that is appropriate; rather, it reflects the inequality in the bargaining position.
Small businesses will undoubtedly welcome the improved transparency of this measure. But I suspect they will almost all say it doesn't go far enough and will be highly sceptical of the extent to which it will change behaviour in a systemic way. This is reflected in comments from Kate Carnell, the small-business ombudsman, who said:
We support the Payment Times Reporting Framework as one piece of the puzzle, but it won't solve the problem of late payment times on its own.
Indeed, that mechanism she suggested is exactly what we see in New Zealand—a jurisdiction that we should look at closely to see what is needed in order to achieve lasting and meaningful change in this sector.
Labor is particularly concerned by the coupling of unconscionably long contracted payment times—sometimes 120 days or more—with the practice of supply chain financing or reverse factoring. It is troubling that this transparency initiative that we are considering here this evening provides no means to differentiate between a firm that pays in 61 days and one that pays in 120 days or more. As I've said, 120 days is a number, but, when one thinks about how long that actually is for a precarious small business desperate for cash flow, it's four months. In that long period of time, the world can be upended, and a small business and a household can be totally turned on its head. It isn't just Labor raising concerns with these aspects of the current bill and the proposed solution. It is stakeholders across the board who are concerned with this practice and with the need to adopt a far stronger approach.
I also want to make some references to some recent analytical work that supports the position that is being put forward by the speakers on this side. AlphaBeta, an economic consulting firm, recently undertook some analysis in relation to these practices. What they found is that this practice is extremely widespread. AlphaBeta calculated, for the first time, the economic cost of big businesses paying Australia's small and medium businesses late. They analysed more than 10 million invoices issued by more than 150,000 small and medium businesses. The results are a damning indictment of the practice of reverse factoring and supply chain financing. They provide a real, compelling argument for doing more in this space. Late payments by big businesses are sucking $7 billion from Australian small and medium businesses. This is costing the wider economy over $2½ billion in net economic benefits over 10 years, largely because SMEs pay more for their financing than larger businesses. This goes back to the point raised earlier, that it is highly inappropriate for small and medium businesses to be the piggy banks of large businesses with so many additional financing options.
There are some other points that are worth drawing out of this study. Each year, Australian SMEs extend an estimated $216 billion in trade credit to larger businesses, and, as the member for Macquarie just alluded to, quite often small businesses feel like banks. AlphaBeta found that 53 per cent of trade credit payments are paid late, by an average of 23 days. The scale of this problem is staggering. If these late payments were paid on time, it would be equivalent to $7 billion in working capital being transferred from large businesses to small and medium businesses.
Of course there are many examples we could point to and earlier speakers on this side have pointed to. There's the Carillion collapse, which was a very significant example of the problems in this space. There's the behaviour of Telstra and Rio Tinto, and I'd like to draw attention to the fact that it was attention brought to that problem by the shadow minister, the member for Gorton, and also by the media, that caused some of those practices to be cut short.
This problem is very widespread. The behaviour of many large businesses in Australia; the practices that were being implemented or that were being considered by Rio Tinto and by Telstra; the practices that we see reflected in the data that came out in the recent AlphaBeta study—they show that this practice is now entrenched. And, as I indicated earlier, that's for good reason: it makes good business sense for large businesses. So it requires far more than this very softly-softly approach.
The Business Council of Australia's voluntary payments code, which was launched in 2017 as a way of driving big business towards a public commitment on 30-day payment terms for small business, has failed to deliver change. Small-business ombudsman Kate Carnell recently said that the small number of businesses that signed up to the code was disappointing and that firmer action is needed. This is a good reflection of the fact that we need to seriously consider the mechanism that we use, and that biannual reporting on its own is highly unlikely to be enough to change what have become systemic, entrenched practices.
Labor supports the intent of this bill, but it does not support how far it goes. It does not support the execution. Labor believes that we need a thoroughgoing inquiry by the Senate committee to look at what is occurring in other jurisdictions, as a guide, a signpost, to what we should be doing here. This is self-regulation when what is needed is effective regulation. New Zealand is one good example of a jurisdiction which has looked at a 20-day payment time through legislation. The small-business ombudsman, Kate Carnell, has explicitly said that a 30-day maximum would be appropriate here.
So what we have here is—and I feel like I've said this on so many pieces of legislation over the last few months—a small step in the right direction, a piece of legislation that we can support but that, in some ways, we support reluctantly, because we should be discussing a far more substantive piece of reform for such a systemic and problematic issue in our business environment. This is an issue that needs a far more serious policy response, particularly at a time when we've just headed back into recession and when small business deserves so much more.
I begin my remarks on the Payment Times Reporting Bill 2020 and related bill with some statistics from a McCrindle report. There are 2.3 million businesses in Australia, of which two million—that is, nearly 98 per cent—are regarded as small businesses that employ fewer than 20 people. Three in five Australian businesses—62 per cent, that is—are non-employing businesses, which means that they are probably subcontractors and sole traders and the like.
As others have already said, small business is the backbone of the Australian economy, adding around $380 billion annually to Australia's GDP and employing six million people, or nearly half of the Australian workforce. But small business can be extremely risky. New small businesses are particularly vulnerable, with only 54 per cent of new businesses surviving more than four years. Of more than two million small businesses operating in Australia four years ago, 36 per cent, more than one in three, no longer exist. Yet more and more people are being forced into small business as subcontractors, sole operators or gig workers because that's the only way they can get work.
Small business operators are not only exiting the system for reasons which are quite normal and by their own decisions. They are being driven out for many reasons. They are being driven out not just because of business inexperience but sometimes by greedy landlords, particularly some of the major retail shopping centre owners who are ruthless in their treatment of tenants; by slick-talking franchise owners who con them into taking up a franchise which is simply not sustainable; and, at times, by straight-out crooked business operators who intentionally don't pay their bills, become bankrupt and then shift their assets into a new entity and start all over again. And then there are individuals who simply don't pay for goods or services. They just plainly refuse to do so and say to the small business operator, 'Take me to court.' Most small business operators know that it will probably cost them more to take those people to court than to get the money that's owed to them. We then have large business operators who squeeze small businesses out of the market—we have seen that time and time again—because they simply don't want the competition.
The fact is that there are multiple reasons why businesses fail, and all too often it is for reasons outside of the small business operator's control. Then of course there's the issue that this legislation attempts to deal with—the long time delays in big business and sometimes government entities paying their accounts. I say upfront that, whilst I support the intent, I have very real reservations about how effective this legislation will be. For too long big business has used small business as a source of cash flow. Delaying payment, even when funds are available, creates income for big business. No sector understands this better than the banking sector. It was actually used very effectively for years and years. And, might I say, we often see even members of the legal profession delaying payments out of trust accounts for as long as they possibly can. Other large business entities have been just as exploitative at times by delaying payments by months and months.
Even more heartless, some large entities are telling subcontractors and other small business operators to whom they owe money that they will pay on time if the account is discounted. I recently had someone approach me on this very issue. After having carried out some work, if they wanted to get paid on time or within a reasonable time, they had to discount their account. That is simply unacceptable.
Another practice is the supply chain financing that others have spoken about, where small businesses are offered a third-party financier to pay the invoice on time but incur a fee for doing so. In other words, they have to pay to get paid, and others have quite properly ridiculed that notion. It is becoming a growing trend for business to adopt that practice. The member for Gorton spoke at length about supply chain financing in his own remarks. The supply chain finance review position paper from the Australian Small Business and Family Enterprise Ombudsman stated:
Late payments by large business to small business account for 53% of invoices.
I repeat: 53 per cent. The report goes on to say:
This means that $115 billion worth of payments to small business are late and stops $7 billion of working capital being available to small businesses every year.
That highlights the extent of this problem. It is not thousands of dollars or millions of dollars; it runs into billions of dollars.
The report also states that nearly 40 per cent of small businesses report significant cash flow pressure due to late payments. So late payments are a very serious issue for small business. Again, if they weren't we wouldn't have this legislation before us. Then there are always the shifty business operators or consumers who, after goods or services are provided, raise deceitful claims about the work not being as requested or being in some way faulty. For many small businesses, contesting that becomes more expensive than retrieving the money they are trying to get. Many small businesses become easy targets for those who want to unfairly take advantage of them.
The reality is that most small-business operators are very, very good at what they do, at their own specific profession, but they are not business managers per se, nor do they have the expertise or the resources or the money to engage other professionals to help them when these kinds of problems arise. In many cases, that's partly why they exit the small business they are in. These are people who work long hours, who put their money and their homes on the line. Quite often they would have mortgaged their homes in order to get a loan of some sort to establish their business. These are people who make family sacrifices, who don't sit back waiting for a handout. These are people who have a go. These are the people who, over the past four months, have borne the brunt of the COVID-19 shutdowns. They will continue in many cases to wear the fallout of COVID-19. We know that for many small businesses it won't be a matter of weeks; perhaps it will be months or even years before they are able to get back on their feet again. In some cases, we know that they may never get back on their feet again. They have been hit the hardest.
Whichever way we turn, it has been small business that has made the largest sacrifices with respect to the COVID-19 pandemic. Not only has their income been slashed; for many, lifelong investments, work and sacrifice are now seriously at risk. Yet when they turn to government for help it is rarely there. Again, we've heard from other speakers about that. In particular, we've heard about those small businesses that were devastated by the summer fires, many of whom, even before COVID-19 hit, had been left high and dry, and they are still waiting for government assistance which was promised but which it seems is very slow in being delivered. That delay may well also be the death knell for them, and perhaps they will never be able to re-establish. I hope that is not the case, because I know that most small-business people are in business not only to survive but because they have a passion for the industry sector they are a part of.
With respect to this legislation in particular, much of the detail will be contained in delegated legislation. It is becoming a trend of this government to do that. They don't put all of the specifics in it the primary legislation but refer matters to delegated legislation, regulations and the like. We still have not seen that and are unlikely to see it. Even when it does come up, you have to have a very thorough scrutiny process in order not to miss some of the things that, were they in the legislation, we might not agree to. The other concern is that it seems to me that, if we can't have things locked into legislation, it doesn't provide certainty for the small businesses that we're trying to protect, because they don't really know what they're going to get out of this. The payment term reporting brackets—less than 21 days, between 21 and 30 days, between 31 and 60 days, and then more than 60 days—are also too wide. They give too much latitude to business operators who want to pay late. The time frame should be much more restricted than that. In any case, what's even worse is that there are no penalties or remedies with respect to late payments. This is all about self-regulation. Self-regulation does work if you have industry sectors that are what I would call ethical sectors that want to do the right thing. But if industry sectors already want to do the right thing then they don't need to be self-regulated, because they are already doing it. So, effectively, we are trying to ask those industry sectors that really don't want to play fair to self-regulate—and I suspect that this legislation simply won't do that.
As with all pieces of legislation, and all pieces of regulation, it's always the case that those who don't want to be fair will find a way of not doing so. They will find loopholes in the legislation, or in the regulations, which will allow them to continue to do exactly what they are already doing. Nor does this legislation deal with late payments to small businesses by other small businesses or individuals, which represents a substantial part of the late payment problem. I speak to small businesses regularly. In recent months I have spoken with several operators of small businesses who were owed substantial amounts of money. Sometimes they might have put a particular facility in a property; in one case it was a security system which was worth several thousand dollars. The person who owed the money was not a big business. Yet to chase that money became an additional burden on the supply of that service. Again, this legislation doesn't deal with the money owed by smaller businesses to other small businesses, which, as I say, is often an even larger problem for small business. Indeed, many small businesses never deal with big entities at all; they simply deal with others in the community.
So, while the legislation is well intended, I doubt it will have the hoped-for effect. That is why this legislation should be referred to a Senate committee, where perhaps some of the issues that have been raised in the course of this debate will be further scrutinised and where perhaps some of the recommendations relating to fixed-time payments would be legislated and included in this bill rather than being left as part of the self-regulation system that the bill proposes. With those comments, as we have said on the side of the House, we support the intent but we would like to think that this legislation would go much further.
I want to take the opportunity at the beginning of my contribution to this debate on the Payment Times Reporting Bill 2020 and a cognate bill to acknowledge that it is important that we have bills before this House with the best interests of small business in mind. My area, like I'm sure those of every member in this place, is profoundly reliant on our small-business operators for the employment base in my community. Recognising that, in the current context, as other speakers have said, small businesses have been at the forefront of dealing with the COVID-19 pandemic, I want to acknowledge that that is certainly the case for small businesses in my area.
Many small businesses have had to close because, due to the nature of their business, they were not able to continue. Some have had to massively adjust the way they participate in the local economy in order to comply with the health requirements. It was a huge stress and pressure on many businesses across a whole lot of sectors—and many of them are family businesses. In our area, there have been some amazing initiatives to support our local small businesses, as well as some amazing actions by our local small businesses to support others in the community who are struggling. I want to take a few minutes to give a bit of an acknowledgement about that in the context of this debate about small businesses. Firstly, I want to give a shout out to Toria Hope Kota, a community member who had the great idea of creating a Facebook page which she called Illawarra Menus. She invited businesses who had changed their business model to takeaway or home delivery to participate on that page so that local community members knew what their new offering was and were able to access it. It was a tremendous success. Many businesses adapted and innovated and used this platform to get the word out to the community. A few examples, if you have a look at the post—it's very easy to find if you look up Illawarra Menus—are Samaras Restaurant, His Boy Elroy, m2 kitchen, Attaboy Restaurant, the Arthouse Cafe, D'Amato's Family Restaurant, Coniston Bakery and Crown Bakery & Cafe. There are a whole range of our local small businesses having innovative responses to this very difficult situation, and they continue to do so. They've been very active. Pubs and clubs like the Cabbage Tree Hotel at Fairy Meadow, Ryans Hotel at Thirroul, the Fraternity Club bowling club, Bellambi Pub and the Wollongong Tennis Club all reopened for takeaways and deliveries and found ways not only to keep their businesses going but to utilise and keep engaged their staff so as to minimise the impact on unemployment. I want to give a big shout-out to Toria and all the local businesses that make that work so effectively.
I also want to acknowledge the Illawarra Mercury, our local paper, who went out of their way to tell the stories of what was happening in our small business community. They in fact had a 'back in business' campaign supporting small businesses. I acknowledge that our print media themselves are going through fairly tough times, and so it was a great thing to see the local paper getting behind local businesses. I particularly want to single out—and I'm sure the other journalists won't be offended at my doing this—Greg Ellis. Greg is an absolute champion for small and medium businesses in our area. It doesn't matter what event I go to for a small or medium business in the local area; Greg will be there with his camera in hand getting the story and putting it into the paper. I know he's enormously appreciated by so many across our community. Thanks, Greg, for all the work that you do.
Like many others, I took the opportunity to engage with my community on platforms such as Zoom and Facebook and so forth. I want to acknowledge the Corrimal Chamber of Commerce and the Illawarra Women in Business, both of whom I did Zoom sessions with, talking about the issues facing local small businesses. I know my colleague the member for Whitlam did the same, having these conversations with our Regional Development Australia Illawarra branch and doing those sorts of connections to talk about and explain some of the initiatives the government had introduced to get feedback on what was happening quickly. I thank Paul Boltwood from Corrimal Chamber of Commerce, Glenda Papac from Illawarra Women in Business and Deb Murphy from the RDA for facilitating those opportunities. I also want to acknowledge the amazing work done by the Illawarra Business Chamber, our peak business chamber, and Adam Zarth and the team in supporting our small businesses at the time.
As I indicated, it wasn't just about supporting our small businesses. Many of our small businesses spent time supporting others in the community, as is so often the case when we have difficult times. We also saw it during the bushfires earlier this year, with so many small businesses making donations and having campaigns to help people affected by this bushfires. I have a few examples. The Rotary Club of Corrimal, with the Indian association, got massive support from small and large businesses in our area with donations to put together care packs for international students. Obviously we have Wollongong university in our area and many international students, particularly students from India where, with the nature of banking restrictions in India, they weren't able to get support from their families and were really struggling. It was a great initiative supported by our businesses locally. Wollongong's Lower East Cafe partnered with Wollongong Emergency Family Housing, and they've been producing 40 meals a day for homeless people, a really great initiative. Centro CBD restaurant in Wollongong have provided over 1,000 meals for the frontline workers at Wollongong Hospital. So, whilst their own businesses were shut, they were turning their resources and skills to helping others. It is just an amazing story.
So, as you can see, Deputy Speaker, I am very passionate in my support for our local small businesses. For that reason, I wanted to speak on this bill, because it addresses an issue that is a serious one for many small businesses. Labor welcomes the bill, obviously, as a step in the right direction. We absolutely support the intent of the bill as a first step in improving the practices of large businesses on payment to their smaller suppliers of goods and services. Prompt payment is so important to small business. It is obviously far more important for their cash flow than it is for larger businesses. A large business may have a variety of ways that they can work around the cash flow, but for a small business the day-to-day survival and success of their business really depends on that cash flow. Unfortunately, we are increasingly seeing large businesses use small businesses as a piggy bank to boost their own working capital provision, and that is clearly vastly unjust for those small businesses.
So this bill introduces a new payment times reporting scheme, which requires about 3,000 large businesses and government enterprises with annual turnover of $100 million and above to publicly report biannually on their payment terms and practices for their small business suppliers. Small businesses are defined in this bill as having less than $10 million in turnover, and the bill will create an identification tool to help with that process. The objective of the scheme is to improve payment outcomes for small businesses by creating transparency around that, and the government argues that, with access to information on large business payment performance being provided, the small businesses will be able to make a more informed decision about their potential customers. The government also contends that greater transparency on payment practice and performance will put cultural change pressure in place. Payment time reports will including aggregated data on the reporting entity's payment terms and practices, identify the entity and provide other relevant information. They will be published by a regulator on a central public register known as the Payment Times Reports Register, and the regulator will oversee the scheme. The scheme is intended to begin its first biannual reporting period on 1 January 2021, and entities that fail to maintain their records or that provide false or misleading information in a report will be subject to civil penalty provisions.
This is part of a three-tranche scheme of measures, and I acknowledge that. I also want to make the point that the Labor Party believes that, while this is a step in the right direction, there are concerns about how effective it will be in practice. In order to tease out those issues and give them consideration so that advice can come back to government on ways in which the intentions of the bill can be ensured, we are seeking to have the matter considered by a Senate committee. I think that's a good process. It quite often provides good feedback to government, and I would hope that the government is open to the inquiry and to the feedback and any recommendations on improvements to this bill. I say that because I believe it is very important for the viability of small businesses. So many of us, in our constituency work, regularly deal with small businesses who are having issues with not getting paid on time and not having the cash flow they need ensured when they've done work for large businesses and need to see that payment come through. So I support the bill and I support the amendments and proposals of Labor to see it improved. I hope the government takes them on board.
It's such a great pleasure to follow my good friend the member for Cunningham in talking about local small businesses. We work together as a team, and through the crisis we've been working with our local organisations. Electorates are lines on the map, but the people who live locally—they might live in one electorate and work in another—want to see that their local members are working together as a unified team for the local interests. We've been doing that over the last few months.
Given the Payment Reporting Times Bill 2020 addresses small business, I'd like to start by saying a few things about the small businesses and small business organisations in the Illawarra and Southern Highlands. They are very well led. The Illawarra Business Chamber's young, dynamic chief executive officer, Adam Zarth, has been a great local voice for small businesses throughout the Illawarra in local and national forums. Good on you, Adam; great job, well done. Deb Murphy at RDA Illawarra has done a good job bringing together a disparate group of organisations and businesses, trying to put together a constructive and positive plan for how we grow our way out of the current economic problems in the Illawarra.
Our local tourism-facing businesses have had it pretty tough over the last two and a half months, but Mark Sleigh at Destination Wollongong, through his regular communication with businesses, the overwhelming majority of whom are small businesses, has done a good job presenting a positive, optimistic view of the future and some practical tips about how we get through the immediate. Well done, Mark. Steve Rosa at Destination Southern Highlands, up in the Southern Highlands part of my electorate, like Mark down in the Illawarra, has done a fantastic job. He is always positive and a great bloke to get on the end of the line. If you're feeling down in the dumps it's always worth having a yarn to Steve about the positive and optimistic future for business in the Southern Highlands. While I'm thinking about Steve Rosa, I've got to say: it's Pie Time in the Southern Highlands! If you're looking for something to do on the weekend, get out to one of the two or three dozen bakeries and pie shops in the Southern Highlands of New South Wales. Get your laughing gear around a pie from any of the shops. I'm not going to pick a favourite—that would be reckless!—but I can say they are all good and it's worth the hour's drive south from Sydney to get to the Southern Highlands and get involved in the event. Pie Time in the Southern Highlands: I'll be there, with or without sauce.
I also want to give a shout-out to some of our local media, the Illawarra Mercury and the Southern Highland News. They have gone through a change of ownership, and it has been pretty disruptive for the businesses and the local staff. They had their advertising revenue absolutely smashed, but, by jingo, they've done a good job over the last couple of months telling local stories, promoting local businesses and showing us a way and reminding us how wonderful it is and how important it is to remember that you don't just belong to an economy you belong to a community. They have been a great part of building community. I think Sharon Bird gave a shout-out to Greg Ellis, who is the business editor. Ditto from me, but I also want to give a shout out to Julian O'Brien, the editor at the Illawarra Mercury. He's a great leader of staff and a great leader in the community. You've done a good job, Julian. I love your work.
I also want to say something about supporting local businesses in the Illawarra and Southern Highlands. I've given a shout-out to Pie Time in the Southern Highlands, but I've got to say that I was listening to the news last week, before I came down here, and I was hearing stories about all these Sydneysiders who had driven south to spend a few hours in the wonderful village of Berry in my friend and neighbour's electorate of Gilmore.
There is rarely a thing that you would find the member for Gilmore and I differing on, but I have to say that when I saw footage of people lining up for 20 or 30 or 40 metres outside of a doughnut van and outside of every pie shop in Berry, and I was hearing stories of people waiting an hour or so to get a seat in a restaurant, I couldn't help thinking to myself that they had had to drive through my electorate, and there are some wonderful beaches and there are some fantastic restaurants, cafes and pie shops there. You can get decent doughnuts or a decent pie in half a dozen places around the Illawarra—you have had to drive past them. Yes, I hear the member for Blaxland asking about fish and chips. It is a wonderful place to take your family. The beach that I go for a run on in the morning, Warilla Beach, is a local secret. I am letting you in on the secret. Don't drive all the way to Berry. Drop off in the Illawarra, pull into Shellharbour, pull into Warilla or any of them. Pull into Windang, my local cafe. They dropped a T-shirt off. They have done a great COVID-19 issue of their T-shirt—the Dang! Cafe; I love their work. There are so many great businesses that you can drop into. You don't have to drive that extra hour into my friend's electorate. You can stop in at Shellharbour. So, all of you Sydneysiders who are looking at a place to have a day out on the weekend, think of Shellharbour, think of the Illawarra and think of my electorate. There is plenty going on there.
Now, I want to say something about the bill before the House, before somebody pulls me up—I am being very, very relevant, but maybe not always relevant to the matter before the House! The first rule in politics and the first rule in government is 'do no harm'. When I turn my attention to the bill before the House, it has great intentions—an important objective of ensuring that small businesses who are particularly doing it tough get paid for the work that they do and the goods that they deliver. I don't think there is a person in the House who wouldn't share that objective. If you are a small business, you are doing it tough, and you probably don't have access to the vast amounts of overflow capital of large businesses. Large businesses have a whole swathe of mechanisms available to them to smooth their cash flow. If you are a small business, you don't. If you deliver some goods and you are told you are going to get paid in 30 days, then by God you should get paid in 30 days. It is just not reasonable for these large businesses to be using small businesses effectively as their piggy bank to help them smooth their cash flow. It is simply not reasonable. So, the objective of the bill is good.
If I have a criticism it is that it actually doesn't go far enough, and it is not just my criticism. Kate Carnell often speaks a lot of sense in relation to small-business matters. I know she's from the other side of politics, but on small-business matters she speaks a lot of sense. She had this to say about the bill:
… the Payment Times Reporting Framework as one piece of the puzzle, but it won't solve the problem of late payment times on its own. Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.
I think Kate Carnell makes a bit of sense. Legislation requiring prompt payment within 30 days is what is going to drive change here. It is for this reason that Labor is supporting the bill in the House but referring it to a Senate committee so that we can interrogate how the bill might be improved. When I read through the details of the bill, I was almost nostalgic for the days that the Treasurer used to come in here in his earlier and more junior roles and celebrate 'red tape day'. I was almost nostalgic for the day when the Treasurer, then the Assistant Treasurer, would stand at the dispatch box and celebrate the removal of commas from legislation as a great achievement in red tape removal. I look at this bill and I can't help thinking that there is a lot of red tape for not much regulatory grunt. So we've got a criticism. We'd like to see a little bit more grunt for the regulatory package, and it is just not there. I am in unison with Kate Carnell, the small-business ombudsman, on this critical point.
There are couple of other things I want to say. I've got to make this point: a bill which has the word 'transparency' within its title and seeks to use sunlight and transparency as the regulatory force to make large businesses, businesses with income over $100 million, pay small businesses, businesses with income under $10 million, on time, and uses transparency as the tool to deliver that, could probably deliver a bit of transparency in itself. This is a very serious point. Too often in this portfolio we are seeing legislation which is very, very thin indeed, where all the force and all of the work sits in delegated legislation—whether that be rules made by the minister, or regulations, or, in some instances, extensive powers delegated to the regulator themselves. I have heard and I can see some reasons why, for flexibility, you might want to do that from time to time. But parliament has a role in these important matters.
Too often we are seeing legislation which is very, very thin indeed, with all the regulatory force being delegated to people outside of this place. It means the executive and the regulators lack accountability in this place. It's not good enough to say, 'Well, an instrument that they have made is reviewable in the other place.' It might be a disallowable instrument. So let this be a warning to the drafters of legislation such as this: too often in this portfolio, bills are being presented within this place which are said to do big, large, powerful things, but those big, large, powerful things are not contained within the legislation; they are delegated elsewhere.
I know I am not the only person who has this concern. I have read concerns from New South Wales senator Concetta Fierravanti-Wells, who oversees the committee in the other place. She has made similar statements and raised similar concerns. If this place is to be a legislative forum, if this place is to be the place where laws are made, then the detail needs to be within the bill. Let this be a warning to the drafters. There may be an occasion where Labor in this place and the other place agrees with the objective of the bill but rejects it because the legislation is very thin indeed. These bills come very, very close to that mark.
Can I finish on a couple of points about doing what you ask other people to do. These bills are about ensuring that big entities pay small entities their bill on time when a service is delivered or goods are provided—a very worthy cause, indeed. I'd like to ensure that the government is doing the same thing itself. Too often I have heard stories from people who are either clients of or service providers for the National Disability Insurance Scheme that they have not had their bills paid on time. The consequences can be devastating. I have in mind the example of Bruce Mumford, a constituent of mine from the Southern Highlands. I spoke about his case earlier this year in parliament. Bruce nearly lost his bed. This is a guy who has multiple and significant disabilities. He requires a wheelchair for his mobility and a special bed to sleep in at night. His bed was literally being wheeled out the door with no replacement because the bill had not been paid on time.
This is not an isolated example with the NDIS. If government is sending a message to big businesses that bills must be paid on time, we want to ensure it takes some of its own medicine. Too often in the NDIA, this is not happening. When you look at the size of the people—the size of the organisations and the employees—who are providing services to the NDIA, these are small businesses and sometimes not-for-profit entities. They live from one pay cheque to another. If the bill isn't paid on time, the consequence for that small organisation or that small service provider and the people they are providing a service to can be devastating. We'll be voting for this bill in this House. We're sending a warning to the government about the way they draft their legislation— (Time expired)
I thank all members for their contributions to the debate on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. As a former small-business owner myself, I understand the need to be paid on time. There's nothing more frustrating than carrying out a service or providing a product and having to wait for your money for a long period of time when those small and family businesses have done a brilliant job and they're being held up.
Long payment times have significant and negative impacts on small businesses and produce adverse flow-on effects throughout the economy. The government has already set a new benchmark for payment times to small business suppliers. Since July 2019, government agencies are paying invoices for contracts of up to $1 million within 20 calendar days and, in addition, we have reduced government payment times to five days for small family businesses that use e-invoicing. These bills will establish increased transparency about payment times and provide a strong incentive for businesses to improve their payment performance, leading to faster and fairer payments for small businesses. Reporting on payment times and practices such as supply chain financing will allow small businesses and the public to better identify and engage with companies that pay on time.
Whilst I thank all members for their contributions, the opposition did say that this bill will not have benefits to small businesses, but we have already seen that the approach of this bill can shine a light on bad payment behaviour. Larger businesses, such as Rio Tinto and Telstra, rapidly abandoned payment practices which negatively impacted on small businesses once they were subject to public exposure. As a result of community concern, their payment policies were quickly revised to ensure suppliers were paid within 20 days. That's a great result, and we need to see that happen more and more. When big business reacts so quickly to meet community expectation, we know that they will be equally influenced by this reporting scheme.
In addition, whilst a legislated payment time may seem attractive, experience demonstrates that it will not provide the promised benefits for small businesses. In fact, if you legislate a payment time, all larger businesses may always wait until the end of that payment time instead of some of them paying early. That's important to note.
The Morrison government's approach is not about quick fixes but about delivering long-lasting benefits for small businesses and the broader economy. The Morrison government went to the Australian people with a plan to help small businesses and family businesses get paid on time, which included this payment times reporting scheme.
I should also note that the government has done a lot to help small and family businesses during this COVID-19 moment. I was speaking in my own electorate to Mike Kilgus from M J Kilgus Constructions just the other day, who employs 12 staff on his books. He understands the importance of being paid on time. He has been really, really happy with the federal government, the Morrison government's packages, in supporting him through this time as a small and family business owner. He has received a $50,000 cashback for his business via his BAS in the January to March quarter, and this has enabled him to buy $10,000 worth of tools for his employees in the last fortnight alone. Mike—Kilgus Constructions—also has five apprentices and has received half their wages back from the Morrison government in the first quarter of this time. He has also received $750 each week for each of the 12 staff via JobKeeper, so he's really happy with the support that his small and family business has received.
Let's face it: those opposite didn't have a great plan going into the last election for small and family business. The only thing they offered small businesses was more taxes. One that comes to mind was their very unfair tax on family trusts that said that a couple that split their income and that own a business are not entitled to an $18,300 tax-free threshold. That is Labor's policy still, as it stands today. I would just put out there that the Morrison government is supporting small and family businesses and we believe that this legislation will help. We call on all large businesses to make sure they continue to pay small and family businesses on time.
This legislation has been developed following extensive consultations with industry associations and representatives from small and large business since early last year. Their feedback has directly informed the design and operation of the scheme. The Payment Times Reporting Bill strikes the right balance of providing transparency for small businesses without creating an unnecessary regulatory burden for businesses both large and small. The government is acting decisively and responsibly to support small and family business and the economy as a whole to overcome the challenges posed by COVID-19. With the impact of COVID-19, it is even more important that large businesses, as stewards of their supply chains, pay small businesses promptly. These reforms highlight the government's ongoing commitment to supporting small businesses, ensuring that they continue to play a critical role in driving Australia's economic growth.
Once again, I thank all members for their engagement here today and their contributions and I commend these bills to the House.
The original question was this bill be now read a second time. To this the honourable member for Gorton has moved as an amendment that all words after 'that' be omitted with the view to substituting other words. The immediate question is that the words proposed to be omitted stand part of the question.