Almost half of our entrepreneurs don't break even. Here's what needs to be done

Government MPs are today descending upon Canberra for an emergency meeting to discuss the cost-of-living crisis.

No doubt voters have been in the ears of local MPs about this crunch issue long before the Christmas period.

The Labor caucus will consider a range of measures including cost relief, energy rebates and tax cuts.

For small businesses, the cost-of-living crisis is not merely a political problem but a harsh reality crippling their ability to stay in business.

Small business owners are feeling the heat of rising energy, rent, insurance and borrowing costs.

Higher living costs have reduced sales revenue as consumers confront the checkout with less discretionary pay.

Data from our latest COSBOA-Square report indicates that almost 70 per cent of consumers cut their spending in the last six months, with the average sales transaction for a small business having reduced by 10 per cent.

The result is an impossibly difficult squeeze for Australian small businesses, with almost half of our entrepreneurs now not breaking even.

So, what should be done and when?

Economists have formed a familiar conga-line to remind government that new measures must not add to inflation.

Targeted relief is the key with a focus on reducing input costs coupled with policies that boost productivity.

There is a clear case for energy relief with 41 per cent of small businesses identifying energy costs as a threat to their enterprise plus the added stress and unpredictability of "bill shock".

Incentives to encourage small business investment in energy efficient and other productivity-enhancing technology must be accelerated.

Whilst the stage three personal income tax cuts have absorbed much of the political noise, reform is also ripe on payroll tax.

As a levy on jobs and salaries, payroll tax is detrimental to wages, jobs and productivity.

There is a compelling case to raise payroll tax thresholds, which currently discourage small businesses from growing. Prime Minister Anthony Albanese has an opportunity to use national cabinet to seek reform amongst states and territories to harmonise an unwieldy business tax system.

Rising insurance premiums across state-based workers compensation schemes are also providing small businesses with headaches around Australia.

Each jurisdiction has its own Workcover system, rules and regulations yet state governments seem to accept their own system is broken, but it is the fault of their predecessors or opponents.

In NSW, some small businesses have reported upwards adjustments of over $20,000 to their annual fees (despite having had no injury claim against them).

Meanwhile in Victoria, premiums paid by businesses under the state-sanctioned system increased from 1.27 per cent to 1.8 per cent in 2023, with union leaders agreeing the system is broken.

If a cost-of-living crisis does not provide political timing for the Commonwealth and major states to put their heads together, when is a more suitable time?

After all, the idea of "competitive federalism" is to have states and territories competing against each other to attract new business and innovation, rather than allow a race to the bottom of policy inertia.

A continuous focus on policymaking is required to address the fundamental drivers of the cost of living and productivity. In other words, you cannot fatten the calf on market day.

The problems we face now are not purely the result of external shocks but arise from years of policy decisions.

According to the intergenerational report, productivity growth forecasts have been lowered from 1.5 per cent to 1.2 per cent over the next 40 years with the next generation set to pay the bill of lower living standards.

To arrest this trend we need to remove red tape, lower compliance costs and ensure a level playing field for small business.

Failure to do so will cripple the small business engine room of our economy, making the vexing problems of improving productivity even harder to solve in the future.

Whilst immediate measures are required from today's caucus, they will vanish and fade if not matched by long-term reforms that ease the cost of doing business and promote small business entrepreneurship into the future.

Let's hope that our policymakers have not only been listening but thinking about plans to support small business and consumers beyond today and this election cycle.