This week’s article, ‘New Inflation Indicator’, by Keith Weiner highlights and codifies a problem that I outlined in an article some years ago. I have republished an updated version below. The ‘inflation’ that is supposedly caused by too much ‘printing’ is, in fact, caused by too much regulation. As Dr. Weiner interestingly notes, the dollar is still buying just as much, the problem is that more and more (unnecessary) ingredients have been forced into the recipe for doing business. That is why prices have risen.
We are in election mode in Australia and already one of the two dismal contenders is blaming low wage rises on the fact that greedy businesses are not sharing the profits. No, we have no money; interfering governments have wasted it all.
The Economic Impact of Government on One Small Business – Update
I have spent my life in business, creating products for which there is a demand. I make it, they buy it.
I have worked the business for 51 years (though I have had a lot of ‘time out’). I was 22 when I began. Back in 1968, I was the main producer, I dealt with the customers, I paid the wages, I worked out the staff roster and I did all the bookwork. Once a year I sat down with a calculator and worked out the yearly gross and the yearly expenses and hence the yearly tax. That was it, no accountant was necessary.
I did the weekly wages and accounts on a Monday morning. It took no more than 3 hours, including doing the banking. That was the total of the office work, including paying my suppliers and my staff, and the tax on the wages. My office consisted of a fold down piece of timber that I had built in my storeroom. When I was finished, the ‘desk’ was folded back up against the wall again so that it was out of the way of real production. The once a year tax calculation took me about 5 hours. I did that on the kitchen table at home. I still have the same number of employees today that I had in 1968.
Over the succeeding decades, the amount of government regulation became more and more burdensome. Every single little piece of regulation that did not seem to really amount to anything, when totalled up amounted to a whole lot. The change was so incremental and gradual that I did not really notice it at first.
Fast forward to 2019. I have an office manager who works around 15 hours a week. The restaurant manager has to spend about 10 hours a week on other administration and the business has an accountant. I fly down to meet with my him at least once a year to discuss ‘tax matters’. We also have phone conversations on the same subject.
Complying with government regulations costs my business in terms of labour in the region of $40,000 per year. On top of that are the accountant’s fees. But that is just the start.
The old fold-down piece of timber vanished over thirty years ago to be replaced by a fully equipped office. Not because we had room to spare and felt like lounging around on our butts, but because the ever increasing complexity of the regulations required files and filing cabinets, with drawers and phones and faxes and copiers, and then eventually a computer. Of course that required a desk and an ergonomic computer chair for the office manager. Then I had to buy a radio and an air-conditioner. Then we had to hire a carpenter to put in more shelving etc., etc.
We also had to buy expensive software to run the incredibly complex software programs through which the wages now have to be run. 48 years after I started in business, I no longer have a clue how to pay my own staff their wages, with all the attendant ‘on costs’ – worker’s compensation insurance, superannuation, holiday pay, maternity leave, long service leave etc.
It cost around $25,000 to build that office back in the early ‘80s. It has been a constant source of cash drain ever since. Computers need to be upgraded every couple of years, new software need to be purchased, computers need to be repaired, carpet needs to be replaced. On and on it goes. Obviously, that office space is also no longer available for real production. We have now run out of storage space for all the paperwork that we have to keep for a minimum of ten years and have to find more space.
To cut a long story short, I calculate the total extra cost that I pay for government regulation, that I didn’t have to pay in 1968, at around $2,400, each and every week. That does not include employee perks such as mandatory employer superannuation contributions, mandatory minimum shifts etc., etc. All of it is an utter waste of money. Why are my staff not getting decent wage rises? Because the money to pay for it has been frittered away on regulation compliance.
The ‘office work’ which used to be a Monday morning non-event, has now become the hub of the business. The time spent complying, or trying to figure out how to comply, with government regulations, and minimise the associated costs is, of necessity, subtracted from the time spent improving the operation of the business.
This is not just a problem of more and more managers, bookkeepers and accountants working at non-productive jobs in terms of goods that are needed and wanted. The real problem is that all these regulatory costs have to be passed on to customers.
All the talk is of the tax burden, but that is inconsequential compared to the burden of regulation. It is the latter, largely unnoticed, that has brought Australia to breaking point.
But it gets worse, much worse. As my costs have skyrocketed, so have the costs to my suppliers and all other businesses. They too have had to raise their prices through the roof and this too I have had to add to my prices. Each business has to pay the increased costs imposed on not only their own business, but on all their suppliers, direct and indirect. This includes raw materials, transport, insurance, security, banking, electricity, gas, water, uniforms, phone, equipment, repairs, software, hardware upgrades, rent – everything. All these have had a similar measure of increased cost due to government regulation and all have had to raise their prices accordingly.
It is impossible to quantify with accuracy the increased costs to my business due to this external factor. Bear in mind that none of the aforementioned includes the money spent on maternity leave, superannuation and worker’s compensation insurance etc.
Probably the best measure to hand of the overall increase in costs to my business due to government meddling is the price of my basic food product. 51 years ago it was 35c, now it is $11.90.
The kicker is that I make less profit from $11.90 in terms of purchasing power than I did from 35c. Just as my staff can buy far less with the huge dollar amounts that they earn now compared to 51 years ago.
Layered heavily over all the above increases in my business costs are the taxes and constant threat from a judicial system that seemingly judges me guilty before my mouth is opened, just because I am an employer. Yes, I have personal experience with that.
I’m pretty fit for my age and have enjoyed my business and have forged lifelong friendships with some of my former employees, but I just can’t be bothered anymore. Why tolerate ever-increasing hassle for ever-less profit?
Is it any wonder that the Australian economy is in trouble?