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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

How Turnbull can realise his innovation dreams

Tuesday, November 03, 2015

Dear Prime Minister,

It’s fantastic that that you’re excited about ‘being alive’ and that you’re encouraging Australian’s to get out and ‘do things’. Yep, it’s people power that makes our society and economy vibrant and strong. If anything, you’re asking us to be entrepreneurs!

But I want to put my piece of caution to you as you drive us down the innovation road.

I don’t know where you stand, but mostly when governments talk about innovation, invariably what results are taxpayer-funded schemes dishing out dollars to pet projects. There’s endless numbers of ‘geniuses’ that want you, Prime Minister, to fund their great idea.

But think about Danielle. She commented recently on a Business Spectator article about why she can’t work, even though she wants to. Danielle explained how the Tax Office has stopped her being self-employed. The ATO says that if she works for just one client, she must be an employee.

Danielle said: “The upshot was as an independent contractor and working mum, I could not manage my three children without the flexibility of contracting, childcare is simply too expensive. Once the tax office forced us under the banner of employees, it was no longer worth working at all. All we hear is unions bleating on about workers being denied their rights when they are casual or contracting but they fail to realise that many workers depend on that flexibility.”

Think of this, Prime Minister. Around 50 per cent of the workforce work in businesses with fewer than 20 employees. There’s a million small business owners employing people and around another million self-employed who don’t employ. You’re no doubt aware that private sector union membership is down to 11 per cent, with fewer than 1 million private sector union members.

The trend is clear and has been for some time. People increasingly want to work for themselves. Employee wage slavery is a dying social ambition. This social movement perfectly matches your call for Australians to be innovators. The ‘guts’ of innovation in an economy comes from the huge numbers of micro and small business people. It’s the ‘crowd’ that makes innovation.

There’s a problem, however. The direct actions of government -- your government -- are stopping innovation at the bulk core of the economy. You see, micro and small business people don’t need fancy financial schemes or handouts.

There are three basic structures people need.

First, there must be trust, integrity and certainty in commercial contracts. You’ve just agreed to improve this markedly in the creation of the unfair contract laws for small business people. Now big business standard form contracts must comply with contract integrity. When implemented, this will engender greater innovation at the core of the economy. You’ll need to ensure this is fully implemented, particularly in the franchise sector.

The second bit is for inexpensive commercial dispute resolution for small business people. Sorry. You’re failing on this one! The Coalition Government just created a federal Small Business Ombudsman that was supposed to offer this service. But the legislation prevents the Ombudsman from undertaking dispute resolution services. The Ombudsman is instead a political public relations stunt. Small business people will continue to be screwed by big business because the ‘little people’ can’t afford the legal expense of defending themselves.

The third area needed for core economy innovation action is integrity in the administration of the tax system. Sorry, big problems here!

Danielle’s story tells much of the situation. The Tax Office keeps declaring self-employed people to be employees and denying them Australian Business Numbers and more. This means they can’t register a business, issue invoices, claim legitimate business deductions or even make superannuation contributions like everyone else. Talk about blowing up small business innovation potential!

Prime Minister, for ordinary people to be innovators, they need to operate in an economy that has structural reliability. Yes, the right sort of regulation is needed. That is the rule of commercial contract law: it must be affordable to the ‘little people’ running businesses. They must know that the tax system treats them as a business, even if they are a business of one!

There’s still a long way to go.

Yes, we love your aspiration about innovation. But the aspiration must have tangible substance. If not, you’ll eventually look like another one of those slick but not-to-be-trusted politicians.

There are two tasks in this context: give the Small Business Ombudsman genuine dispute review powers, and clean up the way the Tax Office treats small/micro business people.

 [First published in Business Spectator, November 2015]


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