Better regulation considers needs of small business as well as consumers

In recent years, the 850,000 small businesses of NSW have faced a period of unprecedented instability, from the upheaval of a global pandemic to a slower than expected return to normal with weakening consumer demand, rising inflation and higher interest rates. In more recent times, it has been the pressures of new regulation that is fast emerging as a top concern for many small businesses. 

Regular surveys conducted by the NSW Small Business Commission show that concerns about ‘red tape’ have increased by more than any other factor, including business costs and cash flow challenges.  

Only 7 per cent of small businesses responding to our survey said they felt regulation was designed around the needs of small businesses, and only 13 per cent indicated they were confident regulation achieved outcomes of net benefit to the community.  

This is a very real problem—small businesses should be more confident about the merits of the regulation they are expected to comply with. That’s why in my recent report, Rightsizing Regulation, the Commission makes nine recommendations to improve regulatory policymaking and ensure regulation is designed with small businesses in mind. This includes improvements to consultation, but also Small Business Impact Statements to assess how proposed regulation might affect small businesses. This analysis would drive cultural change, ensure small business needs are considered, and is consistent with best-practice approaches implemented in other jurisdictions such as the UK, EU and Canada. 

Small businesses want to operate in an ethical and responsible manner. They are happy to comply with requirements that serve the interests of the community. For example, we recently surveyed small business attitudes to circular economy initiatives. The majority of small businesses said they had adopted sustainable practices because they felt it was the right thing to do rather than because they were compelled by a regulation or some other requirement.  

But at the same time small business operators feel weighed down and are understandably frustrated when required to comply with rules and requirements that either don’t make sense or impose an unreasonable impost on their ability to get on with the job of running a small business. 

While larger firms possess the resources and systems to more easily navigate a complex regulatory landscape, our small business operators are at risk of being crowded out if running a business becomes all too hard. Already in sectors such as early childhood education we are seeing a consolidation of businesses into larger firms which possess the resourcing necessary to navigate an incredibly prescriptive and complex regulatory environment. 

The consequences of poorly designed regulation include the very real human costs of reduced amenity in regional and remote communities, people losing their livelihoods and reduced economic opportunity. The recommendations in Rightsizing regulation support smarter regulation by tailoring requirements, streamlining processes and exempting small business when they are not a major contributor to a problem requiring regulatory intervention. 

Innovation and productivity growth, both essential to supporting our living standards, are harmed by excessive and poorly designed regulation. Small businesses are often our most innovative and agile firms, and we depend on their fresh thinking and creativity. Without a healthy small business ecosystem we won’t have the competitive dynamics required for a healthy economy that serves the interests of our community. Prices will continue to rise and investment will stall if we continue to weigh business down with excessive and poorly designed regulation. 

Better regulation is developed in collaboration with small business. It is mindful of the need to balance the cost benefit equation and should safeguard the interests of both consumers and small business. 

The mental load, stress and cost of complying with ever evolving and increasingly complex requirements can make or break a small business. If we become complacent, we risk implementing layer upon layer of poorly designed regulation which will act as a handbrake on small business.