Red tape prevented up to 398,000 businesses and 894,400 jobs, paying a total of $26.3 billion in wages, from being created over the past 15 years according to new research released today by the Institute of Public Affairs.
“Australia’s entrepreneurial spirit has been crushed by red tape. Fewer businesses are being created compared to 15 years ago, and red tape is stopping those businesses that are created from growing and employing more Australians,” said Cian Hussey, Research Fellow at the IPA.
The new IPA report, How Red Tape Stops Business and Job Creation combines data from the Australian Bureau of Statistics with RegData Australia to analyse the effect of red tape on business creation. The report finds that up to 398,000 additional businesses could have been created by 2018-19 if regulation was maintained at 2004-05 levels.
The report estimates that these missing business creations prevented 894,400 jobs from being created and $26.3 billion in wages being paid between 2004-05 and 2018-19.
“The decimation of small businesses caused by the COVID-19 induced lockdown measures is part of a long-term trend of declining self-employment, business creation and entrepreneurship,” said Mr Hussey.
From 2013-15 under the Abbott Government there was a 5% cut to regulation, but since then regulation has grown by 10%.
“The top priority of governments must be getting Australians back into jobs. This cannot happen without unleashing the entrepreneurial spirit that is central to the Australian way of life,” said Mr Hussey.
“By stifling business creations, red tape also prevents jobs from being created. This leaves Australians with fewer employment opportunities, and has contributed to wage stagnation in recent years.”
“Business creation provides an egalitarian path to prosperity as there are no wealth or educational barriers to starting a business,” said Mr Hussey.
The report uses RegData, a world leading policy analysis tool developed by academics at the Mercatus Center at George Mason University, Washington D.C. RegData uses words and phrases that imply a legal obligation such as “shall”, “must” and “may not” to measure the regulatory burden using artificial intelligence, machine learning and text analytics.
The report recommends five public policy reforms for the post-COVID-19 recovery to improve Australia’s rate of business creation:
- Cut red tape by implementing a one-in-two-out requirement where two rules are removed for every new rule that is introduced.
- Reduce the corporate tax rate from 30%, which is the equal third highest in the OECD, to below 20%.
- Carve small businesses out of the Fair Work Act 2009.
- Permanently increase the Instant Asset Write-Off from $150,000 to $1 million, and allow all businesses to access the scheme.
- Abolish all government fees and charges incurred in establishing a business.
Download the report.