Calls intensify for reforms to ease compliance and boost innovation
Productivity challenges are increasingly affecting small and medium-sized enterprises (SMEs) across Australia, with new data suggesting rising wage costs and slower business growth as a result.
Early findings from ScotPac’s September SME Growth Index report show that 21% of SMEs attribute higher payroll expenses and limited innovation to productivity barriers. Metropolitan businesses, which account for the majority of the country’s GDP, are particularly impacted, with 24% reporting wage pressures linked to productivity constraints, compared to 14% of regional firms.
The report also highlights other consequences for SMEs, including delays in hiring (16%), reduced ability to adapt quickly (14%), lower profitability (13%), and diminished competitiveness (8% overall, rising to 16% for regional businesses). A smaller proportion (5%) have postponed expansion plans due to these challenges.
Jon Sutton (pictured), chief executive of ScotPac, has urged policymakers to prioritise SME productivity at the current Economic Roundtable in Canberra. Recent Productivity Commission analysis indicates that SMEs contribute over half of Australia’s GDP but lag behind larger companies in productivity by around 50%, a trend consistent with other OECD countries.
The Institute of Public Accountants has identified several obstacles to improving SME productivity, such as regulatory requirements, skills shortages, and slow technology adoption due to cost or uncertainty.
“A strong and productive SME sector is fundamental to a healthy national economy,” Sutton said. “Yet the heavy regulatory burden faced by small and medium-sized businesses is eroding margins, holding back investment, and stifling innovation.
“Closing the productivity gap between SMEs and larger firms is both achievable and essential. It should be a top priority for policymakers this week. Achieving this will require sensible, supportive government settings – cutting red tape, incentivising skills development, and encouraging investment in innovation.
“With the right conditions in place, SMEs can redirect their energy toward growth and performance, strengthening their role as the backbone of Australia’s economy.”
International research from McKinsey & Company suggests that the adoption of artificial intelligence and automation could add up to 3.4 percentage points to annual productivity growth in the United States.
Sutton said the Economic Roundtable should focus on ways to support SME investment that directly boosts productivity, rather than maintaining barriers that restrict innovation.
“The fact that 60% of Australian SMEs plan to invest in their business in the next six months is a significant opportunity,” he said. “Policymakers should act decisively to support and leverage this wave of investment for the national good.”
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