Thank you so much for inviting me along today.
Thank you to MasterCard for sponsoring today's event. In particular, I'd like to pay tribute to Peter Strong who's been a tireless champion of small business, indefatigable, I would say. He's done that not only in Australia but globally. In fact, you may not know but Peter was instrumental in setting up the first business incubator for women in China. So not only did he recognise the enormous role that women play as small business entrepreneurs, but he also saw the opportunities that abound for small business in China.
And China is a huge market. Over 5,600 Australian small businesses are currently engaged directly in business in China. Another 4,800 are trading with China through Hong Kong. And another 3,000 have a physical presence in China. I don't expect that number to double in the years ahead. As a result of our Free Trade Agreements, I expect that to increase tenfold or more. And when you consider the huge markets that China and India represent, you realise that we have only touched the sides of the iceberg of opportunity for small business.
By 2030, China and India alone will be home to over 2 billion middle-class consumers, this being my favourite graph. There are more people living inside that circle than there are outside that circle [graph]. And that growth is going to represent in our time zone, the massive opportunity for small businesses here in Australia.
Our world is changing. We know that the population of the western world is ageing considerably. We know that economic activity is shifting to Asia quickly. Innovation now occurs in the matter of weeks, not years. Arguably, over time, innovation will happen within days. Small and large corporations are multinational, and capital is more mobile than ever. Consumers are better informed and more empowered than ever before. We are living in a new era of frenetic global disruption.
Global disruption — the new black
Today, global disruption is the new black. Business models are being turned on their heads and consumers now march to the beat of innovation. Disruptors improve the daily life of consumers, and challenge the conventional role of government. They challenge the way governments regulate industries, issue licences and raise taxes. But more than that, they have the ability to transform the way our economies operate, where jobs are created and how we live our lives. At the heart of all of this is small business. Today's small business start-ups and entrepreneurs are tomorrow's global disrupters.
Small business is nimble. My dad always said to me, small fish are sweet. I never quite knew what that meant, but I believed him. You react quickly as a small business and exploit new technologies as soon as they emerge. You have the ability to be one step in front of everyone else.
It's an amazing transformation we've seen in our world. Look recently, at the emergence of Alibaba. A company founded in a communist country, in a one bedroom apartment, 16 years ago. It listed on the New York Stock Exchange for $200 billion. Its mission statement is to facilitate the growth of small and medium sized enterprises in China. It's the biggest stock market listing in history. It's a great story actually of energy and ingenuity. It's also a lesson in the fading power of geography. The Finance Minister of China told me that they don't pay tax in China. Imagine how transformative that is, and how frustrating it is as well.
It does show you that you can start a business anywhere. Silicon Valley doesn't have a monopoly on innovation. It can, and has, happened in Australia. It can even happen a few hundred metres from my electorate office, where 3P Learning started an online education business called Mathletics and now has more than 4.8 million students in over 18,000 schools around the world. And how foolish I looked, when I talked about Mathletics to this fellow, and he said, yes I started it, and we're a few hundred metres from your electorate office. I see the role of Government as one that facilitates new ideas and new markets. We're a facilitator. We have to create the right environment for small business to invest and grow with confidence. In short, we want, and we need Australian small businesses to 'have a go'.
Small business package
In May, on Budget night, I announced the biggest small business initiative in our nation's history. It was a $5.5 billion package to help small businesses in Australia invest more, grow more, and employ more. There were universal small business tax cuts to put more money back into the business. Of course, the centrepiece was that all small businesses can now immediately deduct assets up to $20,000 up until the end of June 2017. I could almost hear the cheering from the small business sector as I stood in the chamber on Budget night, led by Peter Strong I must say. And I certainly heard it afterwards when I caught up with small business owners all over the country.
There was Sav and his family who run 'Briki' coffee shop in sunny Brisbane. I visited early in the morning. He gave me a shot of Ouzo before I did the doorstop outside. They want to expand their business next door, and with more money in their hands they can take that next step. They're dreaming big. And then there was George who owns Kalymnos Pastries in Adelaide. He can now buy new equipment to bake even more of his famous cakes. To Sav, to George, many more small business owners across Australia, the Budget felt like a game-changing moment. That's great, it was meant to be.
Start-ups and entrepreneurs
Of course, there were other changes for small business, too. We are exempting small business from Fringe Benefits Tax on work-related portable electronic devices. I mean how ridiculous that you have a mobile phone and, if you have a second device such as a tablet, your employer would have to pay FBT on that. So we've abolished all of that, because the world is changing and we've got to keep up.
The business registration process has been streamlined; obstacles to crowd-sourced equity funding have been removed; and new start-ups can now immediately deduct the costs of setting up their business. And you know what these initiatives come from? The efforts of a Small Business Minister not only sitting in Cabinet, Bruce Billson, an outstanding advocate, indefatigable, in many ways, but also having him in the Treasury portfolio, right there at the heart of the Tax Office, ASIC, APRA even, and of course, the ACCC as well.
And we've improved the taxation of employee share schemes to give employees 'skin in the game' and to support entrepreneurship. This was such a reckless piece of change initiated by the previous government. We have reversed it, and done more. An employee with a say, and a stake in the place they work will be happier, more productive, and more likely to stay. For employers, it's a way to attract top end talent, and if cash is lacking as it does in a lot of start-up businesses, you're able to supplement salaries with equity. But you shouldn't have to pay tax on those shares before you've realised the game. And that was a mistake the previous government made. So together, these measures show we're delivering for small business owners. I want to emphasis to you, this is the beginning of the story, it's not the end. There's still much work to be done and we're very aware of that.
Free Trade Agreements
But it's not just about what we have delivered through the Budget. It's what we've done in the background that matters, day in and day out. Our new Free Trade Agreements with Japan, Korea and China, represent fresh small business opportunities with 3 out of our 4 largest trading partners. In the case of China, in 1972 they represented just 1 per cent of our trade. Today, our trade with China is 30 times larger. They are our biggest trading partner. And these relationships are getting stronger. In the case of China, we expect merchandise trade to grow from around 30 to 40 per cent in ten years. That opens up many opportunities – not only with traditional trade in goods, but in the ever growing services industry.
Services represent 70 per cent of the Australian economy, but just 17 per cent of our exports. Mining and resources are 10 per cent of our economy but 55 per cent of our exports. So if we can lift services sector exports, in health, in education, in tourism, in financial services, which is as large a part of GDP as mining and resources, if we can lift our exports into Asia in particular taking advantage of that same time zone, then our prosperity into the future is massive and assured.
As I said before, 2 billion people are emerging into the middle-class as consumers, in the next 15 years in Asia. And they're looking for what we can provide. Excellent quality healthcare, excellent educational services, excellent quality aged care, excellent architectural services, financial services, building and construction services and so on. This is our era of opportunity. And the real rewards of any free trade agreement flow to those businesses and innovators who will jump on the chance to take up these new market opportunities.
Again I urge you to 'have a go'. And to help you in that respect, when we came to office we increased funding for the Export Market Development Grants program by an additional $50 million. That's new money to help small businesses pay for its marketing and promotion expenses, and gain access to the world markets. Of course, you've got to continue to fight for your opportunities, either within the Australian political framework, or more generally in the marketplace. I want you to know the Coalition is prepared to fight for you, but we will need your help.
For example, I read today that the CFMEU is engaging in a very active campaign to undermine the Free Trade Agreement with China. This is a militant union, that even people like Graham Richardson are saying should be thrown out of the Labor Party. Yet the CFMEU is using its muscle within the Labor Party to help to stymie one of the greatest business opportunities ever presented to the Australian economy, and that is a Free Trade Agreement with China. And now this militant union, which is being identified daily as a reckless union before the Royal Commission, is now using its political muscle in the Labor Party to undermine future growth in the Australian economy. So now is the time to speak up. Now is the time to be active.
The Government has an important role to play in helping to continue the path for reform. We want every bit of energy, every bit of ingenuity of every Australian to be recognised and rewarded. That's why tax reform matters. Back in March, I started a conversation with the Australian people and stated my desire, and the Government's desire, for lower, simpler and fairer taxes.
Our tax system was designed for the 1950s economy, not for the 2050s economy. So of course, without tax reform, small business won't have the same opportunity it needs. Our tax system wasn't designed to deal with multinational trade, increasing global competition for investment, the internet or the digital economy. But we can fix it; we actually have to fix it. It can't be a patch-up job, but reform must be based on sound principles. And that is how we will get there.
That's why we have announced six key principles. First, tax reform must promote a stronger economy, building jobs, growth and opportunity. Second, any reform must be fit for purpose for the modern digital economy. Third, tax changes must encourage workforce participation and ensure families control their own money. Fourth, any reforms must support the principle that you're not taxed until you receive the economic gain. Fifth, reform must encourage innovation and opportunity, and reward for effort. Sixth, as best as possible, the revenue-raising capacity of each tier of government should be aligned to responsibilities of funding and service delivery.
There are things that are unsaid in those principles, because we are effectively focussed on building for a stronger economy. It's not focussed on raising more and more money for the Government. Because we believe for example, that when it comes to revenue raising, our job is to meet our bills not to squeeze you as hard as possible in order to spend more money at our discretion. So the principles that we have laid down are focussed on ensuring that the economy is strong, and that you have a better opportunity to grow your business.
A better way
The initial discussion paper that we released on taxation, has largely come to an end, and we're now moving to the options stage. We received more than 800 submissions which, collectively, reveal our hopes, our frustrations, and our understanding of the need for change. It's a picture of Australia today, and how we can be better prepared for the future. There are many ways that we can simplify the taxation system to the benefit of small business.
One area, of course involves the States. And one area in that regard is payroll tax. How many times I've heard of businesses relocating across the border, particularly in transport and logistics, in order to minimise their tax, is extraordinary. That's not about a more productive economy, it's about trying to be competitive as a result of changes in the tax system. Now the fact is, that might have been more viable some years ago, but business is more global and regional, rather than essentially local, and we need to find ways to simplify the taxation system and ensure that people aren't trying to do what they can in certain circumstances, to only get a temporary advantage of taxation initiatives of the States.
Beyond a shared understanding of the need for change, there were several common areas of interest for reform. This included a strong view that the corporate tax rate is unsustainable. And I know this is an important issue for a number of you, although, most small businesses are unincorporated. That's one of the reasons why it was absolutely essential that when we announce our tax cuts for small business, we applied it to unincorporated businesses as well as incorporated businesses. Because you can't deliver a tax cut for one structure of organisation, but not for everyone.
And of course, as we know, whether they're small or large businesses, global firms are becoming more mobile every day. Our tax policies alone, won't determine how much of the global talent pool is attracted to Australia, but our tax rates shouldn't be set at levels that push talent away. For instance, in Australia, 12 companies pay one-third of all company tax. That is, out of 800,000 Australian companies only 12 pay one-third of all company tax. That's a huge structural risk for Australia.
It's easy for companies to move their domicile or to increase their global footprint beyond our borders. Doing so could reduce our tax take and may increase the risk to our Budget. We need a broader view on the future of corporate tax, not just a focus on what the headline tax rate is. These are all things the Government will consider in the next stage of the tax reform process.
But I want to say to you, there is no silver bullet. Whether it be in corporate tax, or be it in personal income tax. Only ten per cent of Australian workers pay half of all personal income tax in Australia, ten per cent. Personal income tax is by far the largest tax that is collected in Australia, around $170 billion, half of that comes from ten per cent of the workforce. So these structural challenges weigh heavily on our mind as we consider the tax reform process.
Good reform, long-lasting reform, must be taken in incremental steps. We've come some way. We abolished the Carbon Tax, we abolished the Mining Tax. There were 96 announced but unlegislated taxation initiatives that we inherited when we first came to Government. We've cleared the decks. We're now considering some of the next steps to improve integrity and equity.
We need to ensure that there is an even playing field between small business and the large multinational enterprises, to ensure that everyone pays their fair share of tax. We're committed to improving the tax system by ensuring the GST applies to digital products and services imported by Australian consumers.
We are obviously also focussed on the impact of GST on digital products and services, provided by Australians in competition with international providers. Under new arrangements, anomalies will be removed and Australia's taxation system will take another step into the future. Our application of GST to imported digital products is potentially going to go further following discussions with the State Treasurers in mid-August.
We've now found a way to ensure that those providing goods from overseas, into Australia, do not get any advantage out of the tax free threshold. This is hugely important for small business. How do I say to a book seller in Lane Cove, that they have obligations to pay tax, but Amazon selling the same book from overseas doesn't. It's unsustainable. It's been hard to plug but it's got to come to an end.
It is also the case that multinationals have to pay their fair share of tax in Australia. And on Budget night I announced an initiative where 30 companies in particular are not able to engage in behaviour that ensures they don't pay their fair share of tax. Lower, simpler and fairer taxes, but that has to apply to everyone.
The Ground Level
Finally, when it comes to how government can help, there are the real and on-the-ground changes that make you a more successful business owner. That could be anything from putting more money in your back pocket with a tax cut; to cutting red tape; to making it easier for you to attract top talent. Small businesses are run by real people. We listen. The Government has to listen.
We have abolished 50,000 pages of regulation and red tape which was costing our economy nearly two and a half billion dollars a year. We've had dedicated sitting days of Parliament, for the first time, just to repeal legislation. Red-tape was costing, and is costing small business too much. It costs you money through lost productivity and lost time when you should have had the opportunity to be focussing on your business.
I just want to digress for a moment and point out, that one of the emergency legislative initiatives in the Greek Parliament, is actually specifically about red tape. Currently it takes 1,600 days in court in Greece to resolve a contract dispute, 1,600 days. In the EU the average is 600. In Australia, it's 400; still too long here, but that illustrates how the cost of red tape regulation and congested courts has a real impact on an economy. So we're endeavouring at every point, to do what we can to strengthen small business.
I want to say to you that I've never been more positive about the future of small business then I am today. Our world is changing, and we need Australians to embrace the new age of digital disruption to help to lift our nation.
Small businesses are going to be the innovators. They are tomorrow's global disruptors. I know what small business is capable of doing. I know the passion that exists in small business, the capacity for hard work. I saw it growing up in a family business where my parents, in fact all my family, worked one way or another, in the business, often seven days a week to try and get it off the ground.
And I knew that, and saw it vividly when I was Small Business Minister in the Howard Government. Nothing in my subsequent experience has erased the lessons that I learned. That's why I joined the Coalition. It was, and continues to be, in my view, the only fair dinkum voice for small business in Australia.
So you can be confident, as we continue in this exciting time of change, that we will be there for you. The Budget was the first step, there are many steps to follow. We share a common goal. We all want Australia to be the best place in the world to run a business and raise a family. And, together, we're going to get there.
Thank you very much.