A new book by Canada’s Fraser Institute in collaboration with the Institute of Public Affairs has found that Australia has had biggest decline in entrepreneurship among similar countries. Australia’s small business entry rate declined by 40 per cent between 2003-05 and 2012-14, a substantially larger decline than the United States, United Kingdom, and Canada.
The collection of essays by leading scholars, Demographics and Entrepreneurship: Mitigating the Effects of an Aging Population, explores how in the face of falling entrepreneurship, an aging population, and stagnant productivity, governments must take action to encourage business start-ups by cutting red tape, reducing taxes, and creating an entrepreneurship-friendly environment.
“Entrepreneurs drive innovation and technological advancement that is key to our prosperity, and higher living standards. If we don’t take steps now, as our population ages, the decline in business start-ups will only get worse in the years ahead,” said IPA research fellow Matthew Lesh.
In Australia, small business start-ups—as a percentage of all small businesses—fell sharply from 27.59 per cent in 2003-05 to 12.58 per cent in 2014, a decline of 40 per cent. Australia’s ratio of small business entries to small business exits has declined from 300 to 133, a 125 per cent reduction, and also the highest of studied countries. Australia’s productivity growth is 49 per cent slower in 2011 to 2015 compared to 1991 to 1995 – this is consistent with a slowdown in business start-up rates.
A contributing factor for the decline in entrepreneurship is an aging population. Crucially, the percentage of Australia’s population between 25 and 49 years old—the prime age for entrepreneurialism, according to research—hit its peak at 38 per cent in 1995. By 2015, that percentage had fallen to 34.9 per cent, and by 2065, it’s expected to drop further to 30.4 per cent.
While governments can do little to stem the tide of demographics, they can improve the incentives for possible entrepreneurs and improve the environment within which entrepreneurs operate. Australia must take steps cut red tape, which IPA research has found is costing the Australian economy $176 billion a year. We must also reduce personal and corporate income taxes, as well as reduce or eliminate capital gains taxes, to increase rewards for effort.
“Red tape and high taxes are crippling Australia’s entrepreneurial spirit. We must take steps to encourage entrepreneurial risk-taking to spur innovation, technological advancement and ultimately create more opportunities and prosperity for all,” Lesh said.
The book is a collaboration between the Institute of Public Affairs, Canada’s Fraser Institute, the Centre for Strategic and International Studies (CSIS) in the U.S., the Adam Smith Institute’s The Entrepreneur Network in Britain.