May 2014

Regulation: The Burden for Business
Much of the discussion about regulation in 2014 in Australia centres around the banks, and in particular the Big Four.

With Basel III on the horizon, and the local advent of the new Systemically Important Financial Institution status, the focus is on the extent to which the new capital requirements will constrain the banks from delivering special dividends to shareholders, and – perhaps more importantly – lending to a business community which is showing, at last, some new appetite for credit.

Stumping up another $8 billion in capital to satisfy the regulators will have an inevitable impact on the Big Four, and of course the wider economy.

Banks, of course, are not the only ones impacted by regulation in 2014. The new requirement for businesses with over $20 million annual turnover is to move to lodging monthly, rather than quarterly, Business Activity Statements (BAS).

For a Government whose public pronouncements are all about cutting red tape for business, this might seem a curious development, and hardly a reform.

So how is business feeling about the increased frequency of BAS reporting? Is it a simple process, like spitting out another invoice, or will it have a significant impact on cash flow and all important sentiment?

In March, East & Partners conducted objective research on monthly BAS reporting through our Business Banking Index research program.

A total of 445 Australian businesses were interviewed: 234 corporate businesses turning over between $20 and $725 million a year, and 211 Institutional businesses turning over $725 million or more.
The response was overwhelmingly negative, with a total of 63.6 percent declaring monthly reporting would have a negative effect on their business.

Only 4.3 percent said it would have a positive effect, 28.5 percent said No Effect, while 3.6 percent had No View/Opinion.

The sentiment was significantly more negative among larger businesses, with 70.6 percent of Institutional businesses and 57.3 percent of Corporates responding negatively to monthly reporting.

All this adds to a situation where regulation, from two directions, could stifle business growth. Regulation could constrain banks, and limit their appetite and ability to lend, while business sentiment itself is more uncertain.

In another East research program, our Spotlight series, 1,011 Australian businesses were asked what would get them to invest in their business over 2014.

While 21 percent did not need any additional incentive, and better debt costs and availability are also important, a significant 11.4 percent of businesses cited less government regulation and tax relief as a factor which would encourage greater investment.

Regulation exists to make the world a safer place, both for banks and businesses but ultimately the wider economy.

Given the acknowledged stability of Australia’s banking system already, it is worth questioning whether the wave of new regulations are not a safety net for a vulnerable system, but a brake on an economy which wants to grow more if only it was not constrained by the regulatory burden.
% of Businesses Affected by Monthly BAS Tax Reporting
(N: 234)
(N: 211)
(N: 445)
No Effect 32.5 24.2 28.5
Positive Effect 4.7 3.8 4.3
Negative Effect 57.3 70.6 63.6
No View / Opinion 5.6 1.4 3.6
TOTAL 100.0 100.0 100.0

Source: Business Banking Index – March 2014

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