The decline of small business: how red tape is undermining opportunity, prosperity, and community

Small business Entrepreneurship Australia
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Red tape is harming small business in Australia.

Australian small business has declined in the last decade. Small businesses are employing a smaller proportion of Australians than in the past and are more likely to shut down over time.

This report finds that:

  • Over the last decade, the number of Australians employed by small businesses decreased by 330,000 (-7 per cent).
  • The proportion of Australians employed by a small businesses shrunk by 17 per cent, from a majority (53 per cent) to a minority (44 per cent) between 2007 and 2016.
  • The average number of employees per an Australian business has increased by 14 per cent, meaning that there are fewer smaller businesses.
  • A small business was almost twice as likely as a large business to shut down between 2013 and 2017.
  • 3,915 large companies (0.5 per cent of all businesses) employ 32 per cent of Australians and receive 42 per cent of all business income.

Red tape is a major impediment to small business. Red tape has increased at the same time as small business has declined. The Commonwealth passed 61,615 pages of legislation, an average of 6,162 pages per year, between 2007 and 2016. This figure captures all legislative activity, including the creation of new law, and the amendment and repeal of existing law. Red tape is a barrier to entry for new businesses, reducing competition in the market.

Red tape is also advantageous to larger firms relative to smaller firms, because larger firms can absorb compliance costs across over a higher volume of output.

Small businesses are the lifeblood of local communities. They strengthen communal bonds, provide opportunities for social mobility, and are essential for competition which leads to innovation, pushes down prices, increases incomes, and creates jobs.

The IPA recommends cutting red tape and adopting a ‘permissionless innovation’ agenda to reinvigorate entrepreneurship and small businesses.

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