Small businesses are increasingly the engines of innovation and the Reserve Bank of Australia says they are central to faster productivity growth and higher living standards
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Addressing a small business conference in Sydney, RBA assistant governor Brad Jones said small-to-medium-sized businesses were more innovative than their larger counterparts and "more likely to be throwing the kitchen sink at it".
The nation's small-and-medium-sized businesses were 25 per cent more likely to be investing in research and development than bigger firms, and nearly twice as likely to have produced an innovation that was "new to (the) world".
"In some respects, they appear to be taking over the 'innovation baton' from large firms," Dr Jones said.
But he said access to finance was holding smaller firms back as they typically faced higher borrowing costs due to being considered more risky ventures.
Housing affordability was also a factor as residential property plays an outsized role in collateralising the loans of small businesses.
"Access to innovation-based debt financing is not straightforward, particularly for younger entrepreneurs struggling to get onto the housing ladder," Dr Jones said in his speech.
The senior central bank official said the nation should be "under no illusions that financing constraints for many SMEs remain substantial".
"With that in mind, it will be in our collective interest for the financial system and policy settings to interact in ways that support the next generation of innovative Australian entrepreneurs," he said.
Small business innovation was described as "a feedstock for productivity", which drives national living standards and has been performing weakly in recent years.
The RBA official also said larger firms needed to "play their part" in the productivity challenges facing the country, even if they did follow the United States model of innovating by acquiring smaller firms rather than doing their own research in-house.
"If we do follow the pattern in the United States...then it will place even further importance on our SME sector as an engine of innovation in Australia."
His speech followed an address from the prime minister at the event hinting at more support for small businesses in the federal budget.
"Helping Australian families and small family businesses with their energy bills was a key priority in last year's budget," Anthony Albanese said on Thursday.
"And as we put together next month's budget, small businesses and families will again be front and centre in our thinking."
No specific policy measures were outlined but the prime minister talked up the benefits of rooftop solar and batteries as a "smart investment that delivers an important return to businesses on tight margins".
"One in three small businesses with solar is a great start - and I'm confident that with the right investments and support and the continuing advances in technology, that number will continue to rise," he said .
The federal budget will be handed down on May 14.
Australian Associated Press
