Susan McDonald (Queensland, National Party) Share this | Hansard source

I rise to speak in support of the Australian Business Growth Fund Bill 2019, which gives effect to the government's 2019 election commitments to increase the availability of patient capital for small and medium enterprises. It has been acknowledged that one of the very real impediments to small business growth in Australia is the shortage of capital. Small businesses are the foundation of Australia's economy. They train apprentices; they innovate; they take risks; and they employ a significant number of Australians. We always strive to support their growth.

This bill is important not only for Australia; it also represents a great opportunity for my home region of North Queensland, with government providing capital and strategic support to businesses to help them achieve their goals. Reports released by the Australian Small Business and Family Enterprise Ombudsman and the Reserve Bank argued that there are not sufficient sources of capital available for high-growth-potential SMEs in Australia. In particular, the ASBFEO's report identified the need to address a critical funding gap for long-term patient capital to enable our up and coming high-growth-potential SMEs to flourish.

Both reports argue that debt finance for SMEs is impeded because there is usually a time lag between investing in a business's future growth and realising sufficient profits to repay the debt. Traditionally equity finance is also not attractive to SMEs because of the loss of management control of the enterprise. It is critical to understand that, for those people who have run a small business or a medium sized business, it is the innovation of the entrepreneur and that direction which is critical to the ongoing success of the business. That is why the management control is so important. It is claimed by the report that as a result many SMEs delay expanding their businesses until the expansion can be funded from retained profits.

This bill complements other coalition government initiatives to support SMEs, including establishing the $2 billion Australian Business Securitisation Fund, which helps small businesses get the funding they need at a better rate; increasing and expanding the instant asset write-off to $30,000 for businesses with a turnover of up to $50 million; providing tax relief for businesses with a turnover of less than $50 million; and reducing the tax rate from 30 per cent to 25 per cent—the lowest rate in 50 years.

Under this bill, established Australian businesses can apply for long-term equity capital investments of between $5 million and $15 million where they can demonstrate three years of revenue growth and profitability and a clear growth vision. The Business Growth Fund investment state will be between 10 and 40 per cent, allowing small business owners to maintain control of their business while allowing for the BGF to promote growth. Similar models in the UK and Canada, where a company collectively owned by financial institutions provides long-term capital and guidance to small and medium businesses, have been tried and tested and have demonstrated successful growth.

Small businesses, as I've said, are the engine room of our economy, employing more than 4.7 million people. In fact, small businesses with fewer than 20 staff make up nearly 98 per cent of the 2.31 million businesses in Australia. Almost 70 per cent of these businesses are family owned. In 2016-17, small business contributed $393 billion to the Australian economy, and that amount is increasing. To provide enough support to the small business market, and using international examples as a guide, the fund's initial fund size is anticipated to be around $500 million, with potential to grow to around $1 billion. Equity funding is also being contributed by the big four banks, which are committing $100 million each. HSBC and Macquarie will commit $20 million. The fund size will be dependent on the number of banks that participate and the amount they invest and will be subject to further analysis of market opportunity and demand.

As reported by the Western Investor news website, the Toronto based Canadian Business Growth Fund, which started in June 2018 with a $545 million war chest, has invested in eight businesses to October 2019. The Canadian fund seeks to invest between $3 million and $20 million in mid-market companies with $5 million or more in annual revenue, a demonstrated growth trajectory and a clear vision for accelerated growth. It is independent but is backed by 13 major lenders in Canada. Western Investor states that the Canadian fund addresses a common problem where companies enjoy some success but then have to sell to bigger entities before they can reach their full potential. As is intended with the Australian fund, Canadian business owners can now expand without having to sell control or go into more debt.

The UK has had a business growth fund for nine years, and just last month it was reported it has invested more than 2.1 billion pounds, or A$4.1 billion, in over 300 companies, making it the most active investor in the UK. As proposed by the Australian bill, the UKBGF is a minority, non-controlling equity partner, with a patient outlook on investments, based on shared, long-term goals with the management team it backs. It invests in growing businesses in the UK and Ireland through its network of 14 offices. Some of the businesses the UK fund has invested in are wood product companies, surveyors, financial technology, digital consultancies, food growers, information technology, pharmaceuticals, restaurants and a coffee shop chain. There are many more business types on the list, which shows the near limitless potential for this country.

One UK example I will highlight is the Mexican street-food chain Barburrito, which has benefited from a 3.25 million pound injection from the UK fund. Having started as a single unit in Manchester in 2005, the business now operates from 21 sites and employs around 350 people thanks to the funding injection. The owners of Barburrito wanted to roll out the award-winning formula to a national customer base but knew they needed additional funding. Morgan Davies, joint MD and founder of Barburrito, stated:

BGF—

the growth fund—

has demonstrated that they not only share our enthusiasm for the sector but can bring valuable advice, expertise and high level contacts to the table.

There are literally dozens of examples available on the UK fund's website of how established businesses have boomed thanks to this collaboration, and there's no reason to think this won't be mirrored in Australia. In fact, just this week, on Tuesday, the managing director of product additive company Titomic, Mr Jeff Lang, called on the Senate to support and pass this legislation. He said:

"If fully realised as outlined, the BGF, could translate into new, value-added industry growth and global export opportunities for Australia … The BGF will allow SME's much needed access to patient investment capital providing certainty for their growth opportunities."

By sponsoring investment and, importantly, sound business acumen and mentoring, the federal government can boost a sector that is so critical to our economy. In North Queensland, I can foresee growth in agribusiness, mining technology, transport and logistics, fintech and Indigenous enterprises. The food sector especially is a part of North Queensland's economy that will benefit, particularly aquaculture, which is undergoing strong growth. Using the Canadian and UK examples, it makes perfect sense for the federal government to sponsor this bill. The framework is already there to draw on. We just need to back our entrepreneurs and our businesspeople so they can employ more people and keep our economy strong.

This is an election commitment, because this is the government, this is the coalition of parties, that believe in business and that understand that it is successful businesses that grow our regions, employ our people and train our young people—unlike those opposite, who just want to tax people into the ground, who just want to shut down industry and who are aren't interested in innovation and only want to be critical of those who have success. This bill will allow for more businesses to grow, to be successful and to innovate, particularly in the area of fintech, where we're seeing real opportunities for Australia, with our great opportunity for food and fibre production, natural resources and mining resources.

This is a country that is only limited by our imagination, and the technology that is coming in now will allow for greater communications for people to work remotely and for business to grow in ways that we've previously never imagined. Our regions especially rely on locally owned businesses, so I commend this bill to the house in the knowledge that they will benefit from it.