Business

A boost to mid-sized business is a boost for the Australian economy

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We released a report on the contribution of mid-sized business to Australia – highlighting how initiatives and strategies geared to support and grow this segment could have a tangible impact on the Australian economy in just five years.

Mid-sized business is the forgotten child – to the extent that there is no real data on the size or impact of this segment on the Australian economy. ABS data categorises businesses by numbers employed – however, a technology company with 10 people can generate the same kind of revenue as a manufacturing company employing 400. Revenue should be key indicator for size – and mid-sized should range between $50m – $500m.

“As the leading advisors for mid-sized business we support clients every day that are too big to access many of the benefits afforded to small business, and are too small to carry the same tax and regulatory burden as big business,” Greg Keith, CEO of Grant Thornton Australia said.

Political rhetoric from both sides talks about supporting small business – representing approximately 90% of businesses in Australia. We also hear about big business paying their fair share – representing approximately 9% of businesses in Australia.

It is easy to understand then, how mid-sized business, representing less than 1% of Australian businesses has slipped through the cracks. But they shouldn’t. Analysis we commissioned from Professor Neville Norman, Economist at the University of Melbourne and Cambridge University, reveals that this small proportion of business punches well above its weight in terms of sales revenue and share of company tax.

“Access to some tax incentives dry up the bigger your business becomes. This is counterbalanced with increased rigor around regulation and reporting. The same requirements we have for the big multinationals operating in Australia also apply to family-run businesses with operations across two states,” Greg Keith said.

“The positive news is that mid-sized business are more adept at taking advantage on new market opportunities – having the scale to invest more into their business without issues around legacy. With more incentives and investment – an achievable and one-off 10% in revenue growth in one year has exponential potential for both the company and the broader economy,” Greg Keith finished.

Professor Norman’s exercise included a simulation for the impact a 10% boost would have on a “typical” $100m mid-sized business. We have the following corporate and economic effects over the five year period in the exercise:

  • Sales revenue up by 10%
  • Profits up by $15m or 20%
  • Company tax payments increase of $5.3m or 25%
  • Cash-flow of the revenue-boosted company by $35m or 35%

Industry differences cannot be ignored

Of course, the way to achieve this 10% growth will be different depending on your industry, and how they are funded. Our industry leaders have contributed their top three recommendations – for both policy change and business investment – to support sustainable growth for the following sectors: Consumer Products & Retail, Education, Energy & Resources, Financial Services, Food & Beverage, Health & Aged Care, Life Sciences, Manufacturing, Professional Services, Real Estate & Construction, and Technology & Media.

For instance, the Education sector – particularly investment in early childhood education – could have a major impact on the Australian economy.

“Australian mothers with children under the age of five have one of the lowest rates of workforce participation in the developed world – and a simple 6% increase of women in the workforce could contribute an additional $25b to Australia’s GDP (Grattan Institute 2014). We know there is a tension between providing affordable care with balancing the books for our clients in this space. To encourage women back into the workforce we need to improve access to early childhood education – and expanding Government support for universal and quality access to education for 3 and 4 year-olds would go some way towards this,” Stuart McDowall, National Head of Education, Grant Thornton Australia.

The Energy sector – particularly renewable energy – has received a boost in investment and attention from the Labor Party. Once again, the opportunity for mid-sized businesses that develop, build and manage alternative energy solutions is huge.

“There are a couple of hurdles to overcome before we can achieve a resilient and renewable energy future. Policy certainty – across Federal and State is of course, essential. But access to finance, creditworthy off-takers of electricity and our ageing infrastructure (already 40 – 50 years old) put projects already in the pipeline at risk. We would like to see investment in new generation projects married with investment in infrastructure – with approximately 877,500km of transmission and distribution lines across Australia, we can’t expect the private sector to take on this major project on their own,” Jannaya James, National Head of Energy & Resources said.

A perpetual hot topic, the Real Estate & Construction sector is relied upon heavily by the States for tax revenue – considerably more than the OECD average.

“In Australia, the proportion of tax revenue from property as a percentage of GDP was 10.8% in 2016. The OECD average was 5.7%. This impacts not only the buyers but the developers, who have to factor in various taxes and regulatory costs into a price the market will accept. A broader review of our tax system has been in need for years – globally we have a higher proportion of tax coming from property while we have among the lowest levels of consumption taxes in the developed world. Reconfiguring our tax system would release some of the direct tax burden on the property sector assisting affordability while helping to capture a fair value from other goods and services,” Sian Sinclair, National Head of Real Estate & Construction said.

Source: Grant Thornton Australia

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