Slade Brockman (WA, Liberal Party) Share this | Link to this | Hansard source

I too rise to speak on the Australian Business Growth Fund Bill 2019. This is legislation that authorises the Commonwealth government to participate in the formation of, the acquisition of shares in and the acquisition of debentures of the Australian Business Growth Fund. The bill appropriates $100 million for this purpose.

The Business Growth Fund comes out of some international experience in this area. In particular the UK business growth fund is a model which has shown some significant benefits in the UK economy about directing capital into small- and medium-sized enterprises that were otherwise finding it difficult to attract the capital that they needed to grow rapidly in environments where the ability to quickly scale up is very important, particularly when you are in highly competitive markets such as the technology sector. There's also some experience in Canada, where a company collectively owned by the financial institutions provides long-term capital and business guidance to small and medium sized enterprises.

This concept of patient capital is a very important one, particularly in small and medium sized enterprises. There are very good ideas out there, ideas that have the potential for relatively rapid growth, but they need patient capital to support them as they go through that growth phase. Patient capital is not always available to these businesses. This was a clear gap in the market that the Ombudsman identified and that the government is now responding to.

The government is a huge supporter of small and medium sized enterprises, and none more so in the government than Minister Cash, who is in the chamber. It's important to recognise that what we do for small and medium sized enterprises in this country flows through to the entire economy. Small and medium sized enterprises are the engine room of the economy; they are the engine room of growth; they are the engine room of employment and the jobs of the future.

The Australian Business Growth Fund will be offering growth opportunities to established entrepreneurs and established companies with patient capital and strategic support to assist them to reach their full potential. Businesses seeking support can come from across Australia. I would particularly encourage businesses in regional Australia to look at this fund as it is established and to see how they can utilise this fund. Often businesses in the bush, in regional and remote Australia, have even more challenges to face than those in the metropolitan regions. The choice and availability of capital to grow a business is somewhat limited, so this fund will be particularly attractive to businesses in regional Australia who see the opportunities for growth with the support of some patient capital and business advice.

Established Australian businesses will be eligible 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 investment stake will be between 10 and 40 per cent, allowing business owners to maintain control. That is very important, because the success of small and medium sized businesses comes from the fact that those business owners, the people who actually run and operate the businesses, have skin in the game and have the passion for the product or service that they are developing. So it's very important that we keep those business owners in the controlling interest position whilst providing that patient capital to allow them to achieve their full growth potential.

The initial capacity of the Business Growth Fund would be around 10 investments a year, aiming to increase to around 30 per year if and when additional capacity is made available. Obviously that will come as a result of the Business Growth Fund showing that it can successfully operate in the marketplace. To facilitate sufficient support for the small business market, using international precedent as a guide, the BFG's initial fund size is anticipated to be around $500 million, but it has the potential to grow. It is entirely possible to see that grow to around a billion dollars, but the size will be dependent on the participation of the banking industry and the amount they decide to invest. Obviously that will flow from their analysis of the market opportunity and demand.

Finally, I wish to go through some support for this bill, in particular the support of small business. Again, those on this side are very strong supporters of our small business community and it's good to see that the small business organisations of Australia, COSBOA, are very supportive of this bill. This is a letter that I'm sure many in this place have received from Mark McKenzie, the chair of the Council of Small Business Organisations of Australia. He writes:

I am writing to communicate our strong support for the expedient passing of new legislation for the establishment of the Australian Small Business Growth Fund (ASBGF).

The need for this fund has long been recognised in the small business community, owing to limitations in both the structure and nature of competition within Australia's private equity markets. COSBOA is firmly of the view that these limitations give the whip hand to private equity interests in Australia who currently price business development risk at an unsustainably high level.

The Council of Small Business Organisations of Australia sees, just as the ombudsman does, a gap in the market for this kind of patient capital to invest in the small and medium-sized businesses of Australia to give them the opportunity to grow and to compete on a world stage. We know Australian businesses can do it if they're given the opportunity. The Australian Business Growth Fund Bill 2019 will be a part of this government's overall response to the needs of small business and desire to support the small business community of Australia.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise to speak on the Australian Business Growth Fund Bill 2019. Like most pieces of legislation that come before us in the Senate, we have a policy background and a policy perspective, and we have a political background and a political perspective. I think it's worth talking about the political perspective. This was an election commitment by the coalition going into the last election. Why would they be promising a government led initiative, a funding initiative, a financing initiative in the small and medium enterprise sector? There was a lot of concern from the business community about a drawing up of capital, about a change in risk appetites. Much of this had to do with pressure that came from the royal commission into banking, the changes that we've seen recently with a risk appetite of banks after a tightening of prudential standards by APRA, and some very strong jawboning from the Reserve Bank of Australia more generally about credit conditions in Australia. The irony of this, of course, is that most of this had a very solid basis and had come from the fact that most capital in this country has gone towards property and speculative investment, and not towards small and medium enterprises, or even to business investment in general. There was concern about the royal commission at the last election, concern about the stunning revelations of Hayne and concern that businesses weren't borrowing enough and therefore not investing enough.

By the way, there have been no attempts to fix the structural problems in our economy that have led to this speculative bubble with credit going into real estate—non-productive real estate investments, speculative real estate investment that doesn't do any good for anyone except for those that can afford to buy their second, third and fourth home in this country thanks to the very generous capital gains tax concessions and negative gearing concessions from the government. There has been so attempt to fix those structural problems that have led to this massive boom in unproductive investment which absolutely has taken away business investment in Australia. There's only a set pool of funds that are available in this country. No attempt has been made to change the structural problems in the economy; rather here we have the fig leaf—I must say, very socialist principles—of the government led initiative to try and get businesses to lend more and invest more.

In principle, the Greens don't have a problem with that. We've actually floated the idea of a government owned bank, a people's bank. We've talked about an infrastructure bank in the past. We've talked about the need for government to actively finance and lend to infrastructure projects. Right around the country there's a massive infrastructure gap in Australia. So we don't have a problem with governments playing an active role in markets—in fact, we think it's essential that they do. But it's got to be fair and it's got to be equitable, and it's got to be not for the advantage of the big banks. Unfortunately, when I look at the structure—I did go along to the very brief legislative inquiry. It was one hour last Friday afternoon; it is extraordinary how quickly this has been rushed through the Senate. That brings me to the second point about the policy background and the policy perspective. The political momentum is there for the government to be seen to be helping small business, but that should not put at risk the chances of us looking at this legislation—scrutinising it properly, getting full consultation and bringing in the stakeholders who are going to be impacted by this legislation to help properly design it to make sure we get it right.

One of the most striking trends we have seen in modern finance is the shift in the profile of bank lending. Thirty years ago banks lent twice as much for business as they did for housing. Now, as I mentioned earlier, it's the other way around, with banks lending almost twice as much for housing as they do for business. This shift has been driven by a number of factors, including the advent of mortgage-backed securities, which have turned housing into a liquid asset for banks, and tax incentives for investors that have increased the demand for housing. However, a much overlooked factor is the incentive given to banks to lend to housing by prudential standards. These standards are set by the Basel Committee on Banking Supervision and adopted locally by APRA, one of our key regulators.

Since the Basel I accord in 1988 there has been a lowering of the amount of regulatory capital that a bank must hold against mortgages—even more so for those banks authorised to adopt an internal-risk-based approach, an IRB, to establishing mortgage risk weights. The result of this is the cheapest money in history. Let's put that on the table. Interest rates have never been as low as they are now. The cheapest money in history is going towards more speculation in real estate than towards productive investment in business. Is this legislation before us today the way to fix that? I strongly argue that it's not. Without tackling the problems that we have with speculative investment in real estate, which has totally crowded out business investment in this country, you've got no chance of getting that reallocation towards business investment, towards employment and towards sustainable economic growth.

For small and medium enterprises, SMEs, the effect has been doubly crippling in this country. As well as skewing bank lending towards housing rather than towards business, prudential standards skew bank lending towards businessowners who own housing rather than towards businessowners who don't. In other words, it's not the merit of the business that matters; it's whether they own land. The Productivity Commission explains this and the effect this is having. It said:

Continued reliance on having a home as security for a business loan—in an era when home ownership in the key entrepreneurial period of life is at a low—will increasingly inhibit SME growth. Around one third of major bank SME loans, and often a higher proportion of smaller lender SME loans, are secured by a home.

The Productivity Commission is clear on what the policy response should be:

… the reform that would most significantly improve SME access to finance to be changes to the underlying prudential requirements for SME business lending compared with lending for residential mortgages.

The Productivity Commission also goes on to explain how the existing rules favour those banks with IRB accreditation. I recommend senators read that Productivity Commission report.

In the context of this bill, the Australian Business Growth Fund will provide a concession on the risk weighting of loans to SMEs for participating banks. The major banks and Macquarie Bank are five of the six participating banks—and some, may I say, are reluctantly participating. The major banks and Macquarie also happened to be five of the six banks that are privileged in having the IRB accreditation. It's not the only privilege they have, let me tell you. Many times in this place we've talked about being too big to fail. In other words, those banks that have already been given a competitive advantage through preferential prudential rules will be given a further competitive advantage through even more preferential prudential rules. Instead of providing the structural reform needed in order to direct capital towards more-productive investment, including in the transformation to a low-carbon economy—which I believe is the No. 1 challenge for this country and the biggest opportunity for Australia—the Australian Business Growth Fund will further entrench the market power of the major banks.

The government's rush to establish the ABGF is both very concerning and very telling. The two weeks given to this committee to conduct an inquiry into this bill was ridiculously short. This haste might be explained by the failure of the government to have gathered even the most basic information about the market that the ABGF is seeking to intervene in, let alone establish what the problem is and why the ABGF is the solution. I actually have a copy of the questions I asked the Treasury officials last Friday. I asked them how many SMEs have revenue from $3 million to $100 million in Australia, and no data was given to the committee on the most basic classifications of what is an SME market. I also asked, of these SMEs, how many sought minority investment from the private sector last year. Nobody seems to know. I asked how many did not receive funding. Nobody seems to know. I asked how an Australian Business Growth Fund that cherrypicks the best SMEs will expand access to equity for SMEs that do not receive it today—and so on and so forth. Then I asked some questions about the comparisons with overseas examples, because of course there is the UK Business Growth Fund.

The government has been unable to provide this basic information—the number and size of SMEs seeking access to equity finance, for example. It follows that the government has not been able to identify the actual market failure that the Australian Business Growth Fund would address. Anyone who understands economics knows there's a role for governments to play when markets fail. That is why, for example, it's so critical that we have a real policy on tackling climate change in this country. That is the biggest market failure of all time, yet this government refuses to act on that, because we have a political problem in this country where they're refusing to take any action because it might impact on their donors in the fossil fuel industry.

So, the underlying bias in prudential regulations has not explicitly been identified by the government as a problem, which also explains why it has been only incompletely addressed and addressed only at the expense of competition. Further, Treasury did not invite non-bank and non-superannuation financiers to participate in the round table to discuss the design of the ABGF. As a result, the government has not considered the proposal to instead use the Australian Business Growth Fund to provide underwriting for equity financing from all sources, rather than simply giving the banks a leg up over direct investors. Much has been made by the government of the Australian Small Business and Family Enterprise Ombudsman of the Reserve Bank of Australia and its study into access to finance for SMEs. But, tellingly, while examining the concept of a business growth fund, the RBA did not specifically recommend the establishment of this fund as constructed by the bill.

While we accept that there is a need for the government to help small businesses to get better access to finance, this legislation is not the answer. We believe that the Australian Business Growth Fund is a con. It neither harnesses the power of the market nor makes a constructive government intervention. The ABGF is simply crony capitalism, giving more money, more power and more market concentration to the big banks in Australia. We have no doubt that it will help lower the cost of capital for some SMEs—the cherrypicked SMEs—but it will do so by providing a government subsidy for the major banks. This is not in the long-term interests of SMEs, the investment environment or the wider economy. As a said, we have very strong views in the Greens about government intervention and the need for government intervention in markets, even for direct financing investor means by government. The Australian government took a step forward in this regard with the establishment of the Australian Small Business Securitisation Fund. But we believe that this particular fund would be a step backwards in that regard.

I'd just like to finish by addressing something Senator Brockman raised in relation to a letter from COSBOA. Now, I'm a fan of COSBOA. I've had a lot to do with the small business community over the years and have been very proud that the Greens have done some great work in relation to legislation in this place regarding the small business community.

But let me tell you about that letter. Some of the contents of that letter, which were reported in the Australian Financial Review yesterday—I note that the AFR has retracted and printed a new version—were misleading. COSBOA misled, going by yesterday's uncorrected paper version, and misrepresented the underwriting proposal that we're going to be hearing from Centre Alliance today. The amendment was not proposed by private equity but in fact was by public offers, so mum and dads can invest. We heard from the other stakeholders in relation to this last Friday. The current bill makes the Business Growth Fund a giant private equity fund which, as I mentioned earlier, is prudentially advantaged, taxpayer funded and bank controlled; whereas the amendment that COSBOA wrote to us about would help make this a lot fairer. I was hoping that Senator Patrick would come in and talk to his amendment—I'm not sure if he's still on the speaking list—but I do support at least a process where SMEs and small businesses who can't get access to any finance, be it public, private, debt or equity, can go to a lender of last resort kind of fund. That is exactly the thing we should be looking at, not a process that cherry-picks and is disadvantaging existing finances.

Susan McDonald (Queensland, National Party) Share this | Link to 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.

Gerard Rennick (Queensland, Liberal Party) Share this | Link to this | Hansard source

I'm pleased to have the opportunity to speak in support of this bill, the Australia Business Growth Fund Bill 2019. Just before I do, though, I would like to touch on a couple of comments that Senator Whish-Wilson made before. I actually agree with him when it comes to an infrastructure bank. I think we need an infrastructure bank in this country. I think some of the projects we should spend that money on should be dams—in particular, the Bradfield scheme in North Queensland and also the Clarence River in northern New South Wales. As Senator Whish-Wilson would know, Tasmania's booming because of all the dams that have been built in Tasmania. So, yes, let's bring on some dams, and maybe we can fund some nuclear power stations as well. I know the Greens would support us on that! It's all carbon emissions free, so that's got to be good for the environment.

I'd also like to point out something about a banking royal commission that took place in 1937. One of the recommendations of that banking royal commission was that the government should control the volume of money in the system. Then the retail banks would basically control the distribution of it, with the central bank keeping an eye on that distribution of money. That was all turned upside down and on its head in February 1985 when a bloke by the name of Paul John Keating let all the foreign banks into the country. Basically he gave up the country's sovereignty when it came to monetary policy. Then later their year he brought in capital gains tax and left housing out of it. That has inflated the housing market. Then seven years later he introduced superannuation. There wasn't an election or anything; he just introduced it. So young people who want to pay their mortgage off aren't allowed to do that. No, they have to give their money to someone they've never met and they aren't going to get it back until they're 60, and they're going to be charged fees on their deposits and fees on their home loans. So they're getting shafted from both ends. That's one of the reasons why our banking system's gone topsy-turvy—because it's all against mortgages backed by foreign debt. That's not the way to do quantitative easing in this country. It should be done constructively by investing in capital stock to build infrastructure to provide essential services and income to pay for schools and hospitals. That's the way to do it.

Anyway, I digress. I'll come back to the bill. I'm proud to be part of a Liberal-National government that is committed to putting small and medium Australian business first. We know that small and medium business enterprises are the backbone of our economy, employing more than seven million Australians. The Australian Business Growth Fund is another way that this government is backing small and medium Australian businesses to create jobs, encourage innovation and boost economic growth.

Business growth funds backed by large financial institutions have proven successful in the UK and Canada where such initiatives have bridged the gaps between SMEs and accessing the competitive finance they need to grow. To date there has been no comparable fund to emerge in Australia, which is why the LNP has secured a $100 million funding commitment from each of the big four banks, as well as $20 million each from HSBC and Macquarie Bank to establish the Australian Business Growth Fund. Additionally, the federal government has committed $100 million as an initial investment in the fund, bringing the initial total balance to $540 million. With responsible management, and as the fund matures, it has the potential to increase in value to $1 billion.

Access to capital is a major obstacle for SMEs looking to expand their operations, particularly for those looking to avoid taking on unserviceable debt or relinquishing control of their business. The establishment of the Australian Business Growth Fund will give SMEs the assistance they require to clear this hurdle by providing a source of affordable, long-term equity funding, while allowing them to retain control of their businesses. Currently the equity funding market for SMEs is largely dominated by venture capital and private equity firms seeking quick returns and substantial control over a business.

The Australian Business Growth Fund will work collaboratively with small SMEs to provide patent capital equity with a long-term expectation for business growth. The UK and Canada business growth funds demonstrate demand for such capital from businesses looking to secure a relatively low-risk source of funding. Applicants will be eligible to receive an initial investment of between $5 million and $15 million, with the fund's investment share limited to between 10 and 40 per cent. This ensures owners will maintain a controlling stake while enabling the Australian Business Growth Fund to have meaningful representation and make a contribution to key business decisions.

In addition to equity funding, the Australian Business Growth Fund will also offer strategic advice and other consultative services to the businesses. Management of the fund will operate at arm's length from both the government and the participating financial institutions. It will be based on the model used in the UK and Canada business growth funds where a board and an executive team are responsible for management. The fund will be run in a commercially viable manner and will be restricted from investing in risky business. To be eligible businesses must have a record of revenue growth and profitability in addition to reasonable plans for growth.

The Australian Business Growth Fund is part of the Liberal-National government's plan to improve access to finance for Australian SMEs. Last year we introduced the $2 billion Australian Business Securitisation Fund, making funds available to smaller lenders to offer competitive finance to small and medium businesses. Helping SMEs access the funding they need to grow is part of this government's broader commitment to Australian businesses and the families they support.

Already we have introduced a significant package of taxation reforms, which show that this government is serious when it comes to backing small and medium businesses. For businesses with a turnover less than $50 million we reduced the corporate tax rate to 27½ per cent, the lowest it's been in over 50 years, but we won't stop there with the rate soon to be cut to 25 per cent in 2021-22.

We've expanded and extended the instant asset write-off, because we want to make it easier for small and medium businesses to be able to invest and grow. This means 3.4 million small and medium businesses can claim deductions for every business asset up to $30,000 in value until 30 June 2020, building on the success of this scheme over recent years under this government. Our deregulation taskforce is working to cut red tape, removing burdensome regulations and reducing the cost of doing business so that businesses can invest and hire more staff.

We've created a level playing field for small businesses, by stopping big corporations from abusing their market power to engage in anticompetitive practices or entering into unfair contracts. To show we're serious about giving small business a fair go, we established the Small Business and Family Enterprise Ombudsman to ensure a strong independent voice for disputes involving small business.

The Liberal-National government has a strong track record when it comes to backing small and medium Australian businesses, whether it's by removing red tape, cutting taxes or making finance more accessible. The Australian business community can rest assured that only a Liberal-National government can be trusted to put them first.

The Australian Business Growth Fund Bill introduces a much-needed new source of equity funding for small and medium business to further expand and prosper. We know that when businesses flourish they pay taxes and create jobs, the very jobs that are essential to keeping our economy strong, to provide the services and security that Australians rely on. I commend the bill to the Senate.

Rex Patrick (SA, Centre Alliance) Share this | Link to this | Hansard source

I rise to speak on the Australian Business Growth Fund Bill 2019. The bill is designed to increase investment in Australian small- and medium-sized enterprises by establishing a fund to provide patient capital to SMEs across a range of industries and locations. I must say that the bill's aim is noble, and I don't think I've heard anyone in the chamber saying that they don't want to assist small businesses in making investments. The difficulty comes with the implementation of the bill. I will walk through some of the concerns and reservations that I have in relation to it.

Firstly, if the bill is passed into law, the government will be partnering, using $100 million of taxpayers money, with the big four banks—ANZ, Commonwealth, NAB, Westpac, along with Macquarie Group and HSBC—to establish the $540 million fund. After the royal commission into misconduct in the banking, superannuation and financial services industry, one would have thought that the government would be a little more cautious about who they jump into bed with and, indeed, would want to be very meticulous in laying down very clear rules of engagement. But the memory of the federal government appears to be very short. We recall the abhorrent conduct—facilitating sexual exploitation of children, fees charged to dead people and money laundered for criminals. These are the organisations that we are jumping into bed with, to the tune of $100 million.

During the committee stage I asked the department who they consulted with in the setting up of this proposal. The Treasury has come back with a list of people who were consulted: the Treasurer; the Minister for Employment, Skills, Small and Family Business—these are the people involved in a round table—Westpac, NAB, Commonwealth Bank, HSBC, Macquarie Bank, Australian Super and so forth. But in amongst that list are none of the small banks—none of the co-ops and mutuals. I put it to the chamber that what we should be trying to do is perhaps create more competition in the banking sector. What we're doing here is actually feeding into the bigger banks, making it harder for the smaller, hungrier community based banks to compete. The question that I have, and I will ask this in the committee stage, is: why did we not engage some of those smaller players? Why didn't we give them an opportunity, because the more we grow the smaller banks, the more competition we will have for the bigger banks?

What will happen in this instance is that the government will end up owning 19 per cent of the fund and the banks will own 81 per cent. Indeed, clause 13 of the bill prevents the government from having control over the board. So we're going to pass $100 million of taxpayers money across to the banks, with no control, or very little control, over what happens thereafter.

People have talked about the UK and the Canadian funds. Of course, those funds exist, but the interesting thing is that in the UK and Canada the taxpayer didn't contribute a cent. The banks simply went off and did that. So one has to ask the question: why are we spending $100 million of taxpayers' money in circumstances where we probably could have simply encouraged the banks to set up a regime, as occurred in the UK and Canada?

The other interesting point is that, right now, there is a resolution before the Commonwealth Bank which will be voted on at the AGM which will prevent or prohibit the Commonwealth Bank from engaging in this particular scheme. So there is a risk that one of the partners may not actually be able to be involved, by direction of the shareholders. I asked the department: 'What happens if that $100 million doesn't come?' And they said: 'Well, that's okay. The fund can operate on $440 million.' That begs the question: why do we need to put taxpayers' money in there? There must be lots of it just floating around, except for, perhaps, some of the social services that are required.

The other problem I have is that no governance details—nor, indeed, an investment mandate—have been laid before the Senate. Think about that for a moment. What entity in their right mind would commit to spending $100 million of their own money without having an understanding of the governance arrangements or the investment mandate? I make it very clear that the Senate goes into this blind, and the government could have taken a different approach, just as the banks are. I can absolutely assure you of what's happening with the banks at this point in time: preliminary approval has been given to negotiate and talk. I can guarantee you that final board approval will not be given to committing their $100 million until all the details are on the table. So, in that sense, the government is reckless.

The next concern I have is about competitive neutrality. The government has a policy of competitive neutrality, and it's been in place since 1996. The idea is that governments don't engage in the market in a manner that in some way biases or advantages another player in the market. The economics committee wrote to, and received advice from, the Australian Government Competitive Neutrality Complaints Office, and they confirmed that the growth fund is organised so as to bring it within the complaints jurisdiction of their complaints office. I can almost guarantee you that there will be a complaint raised in respect of this fund, and the government may well find that this fund is in breach of its own policy—a longstanding, bipartisan policy. The difficulty there is that the government may simply choose to ignore the policy, but that will undermine the policy for all future circumstances.

The final point I'll add goes to one of the amendments, and I foreshadow that I will move two amendments in the committee stage. It goes to the fact that this fund is being set up to be only operated by the banks. Consider what that means. Let's say there are 20 companies that are seeking funding, of which 10 are really good—they're almost sure-fire things that deserve investment—and the other ones are a bit questionable but worth a punt to an investor. The difficulty with this arrangement is that the best 10 companies will simply go to this fund, which can offer cheaper money than any other funding entity or organisation. That simply means that the banks will fund these better options and leave, perhaps, the more risky options to the mum-and-dad investors. That's one of the problems with this: we are cutting out the opportunity for there to be mum-and-dad investors, which would not occur if this were an underwriting fund. If we could have this as an underwriting fund where someone wanted $10 million and we invited mums and dads in, they may take up the entire $10 million. They may supply or invest up to that $10 million or they might fall short by $3 million, so only $7 million would be covered off and the underwriting growth fund would cover the difference. That would be a fairer arrangement, and that is what one of my amendments goes to in setting up some underwriting arrangements or having the fund as an underwriter. That's about fairness and allowing mum and dad investors to participate in the market.

I just wanted to rise and state some clear reservations that I have in respect to the implementation. Again, I repeat that the aim of this is very noble, and I don't think anyone in this place has any difficulties in setting up regimes that will help small to medium businesses. It simply comes down to the way in which this is being set up. I ask the Senate to consider the points that I've made.

Jane Hume (Victoria, Liberal Party, Assistant Minister for Superannuation, Financial Services and Financial Technology) Share this | Link to this | Hansard source

Firstly, I'd like to thank those senators who have contributed to this debate. The Australian Business Growth Fund Bill 2019 introduces new legislation that authorises the Commonwealth government to participate in forming and acquiring shares in or debentures of the Australian Business Growth Fund—the BGF—and appropriates $100 million for that purpose. The government recognises the challenges small and medium enterprises face in accessing capital and the lack of a patient capital market for SMEs in Australia.

Through the Australian Business Growth Fund, the government will offer growing, established companies patient capital and strategic support to assist them to reach their growth potential. The government is making a substantial contribution to the BGF, which will have an initial investment capacity of around $500 million, with potential to grow to around $1 billion as it matures. The BGF will make patient equity investments between $5 million and $15 million in small and medium businesses where they can demonstrate three years of revenue growth, profitability and a clear growth vision.

The government wants to take the opportunity to thank the other banks involved in the establishment and investment in the BGF, who are NAB, CBA, Westpac, ANZ and HSBC. The government also wants to take this opportunity to thank stakeholders that have assisted with the development of the BGF. The government has worked together with the banks and stakeholders throughout the design phase and will continue to do so ahead of the BGF making its first investment.

The BGF compliments 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. With this bill, the government is delivering upon its election commitment to invest over $100 million to help establish the Australian Business Growth Fund and its wider promise to support Australian small businesses. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.