Background

On identifying that the cost of doing business in Victoria has to date been limited primarily to anecdotal discussion and ABS data, the Victorian Chamber enlisted the help of the Nous Group to produce the first benchmarking report of its kind in Australia.

The Cost and Ease of Doing Business in Victoria Report presents a comprehensive analysis of the barriers to doing business, featuring evidence and insights across three key sources, drawing on both qualitative and quantitative data.

These include:

• An Australian-first ranking methodology that compares Victoria with other states and territories by aggregating across 23 metrics
• A survey of more than 700 Victorian Chamber of Commerce and Industry (VCCI) members to capture their experience of the costs and barriers to doing business in Victoria
• A thorough review of the literature and publicly available data to further clarify Victoria’s cost environment for businesses and longer-term trends.

The report is part of the Cost and Ease of Doing Business Taskforce which was led by Victorian Chamber Vice President Adrian Kloeden and Regional Chair – Bendigo, Kate Mannix.

Victorian Chamber of Commerce and Industry Chief Executive Paul Guerra said, “The Cost and Ease of Doing Business in Victoria Report is the most comprehensive evaluation of the costs impacting businesses in Victoria that we have ever had, and it will be crucial to help the Victorian Chamber to develop and advocate for business-conducive policies as we head into a double election year.”

Victoria’s ranking

To better understand the playing field for Victorian business, the Chamber partnered with Nous Group who created an Australian-first cost and ease ranking methodology. The ranking system provides a new reference point for doing business in Victoria relative to the other seven states and territories.

Set against six key themes - Skills and Labour, Infrastructure and Connectivity, Entrepreneurship and Growth, Productivity and Stability, Affordability, Government Services and Tax - the ranking reveals that Victoria has some clear advantages and weaknesses when compared with other jurisdictions.

Some key insights from the 23 metrics that underpin the overall ranking are highlighted below:

• Victoria has the most efficient trade infrastructure in the country and ranks first in container throughput and port multifactor productivity.
• Victoria ranks first in skills and labour due to skills availability and access to a highly educated workforce. However, the state also ranks seventh in vocational education and training (VET) skills.
• Victoria ranks second in entrepreneurship and growth due to strong research and development (R&D), business entries and a large consumer market.
• Victoria is third in stability of consumer price index (CPI) measured over the past five years.
• Victoria ranks fifth in house price to income and household disposable income which means affordability is sixth overall.
• Victoria ranks sixth in labour productivity due to low output per worker and hour worked.
• Victoria ranks seventh based on the average number of permits needed to start a business.
• Victorians pay the highest local and state tax relative to GSP, ranking eigth.

What our members said

To further support the rankings and capture the perspectives of the business community, we conducted a survey of 746 VCCI members across 19 industries.

The findings revealed that doing business in Victoria is more complex than it needs to be – not just financially, but in terms of time demands and stress. As listed below, close to 40 per cent of Victorian businesses say time is a bigger cost to doing business than money. This shows that some aspects of government regulation are cumbersome and poorly administered.

Key survey insights from respondents reveal:

• 39 per cent of Victorian businesses said time was a bigger cost to doing business than money.
• 61 per cent of Victorian businesses reported they are getting value for money from the labour costs they pay.
• More than half of businesses with operations elsewhere in Australia or abroad said it is harder to do business in Victoria.
• Four in five Victorian businesses reported difficulty in accessing the labour and skills they require.
• Less than half of businesses feel they get fair value for money from the taxes they pay.
• Only seven per cent of businesses think the government is doing a good job of reducing the cost of doing business in Victoria.
• Only one in five business owners feel supported in their mental health.
• 44 per cent of businesses think government service waiting times are getting worse.
• 85 per cent said regulatory culture was a barrier to doing business.

Further insights

When reviewing the survey results it is important to note that, at the time of writing, Victoria’s economy was still recovering from the cost of COVID-19, having experienced more disruption than businesses in other states and territories over the past two years.

The Federal Government first announced business restrictions in response to COVID-19 in March 2020. Since then, some parts of Victoria endured more than 260 days of stay-at-home orders over the course of six lockdowns.

Specifically, industries such as hospitality and tourism that rely on visitation to the state were hit the hardest. In the six months ending June 2020, total visitors to and within Victoria were 39 per cent lower than during the same period in 2019. Total visitor spend in Victoria over this period was down $7 billion. Restrictions on migration also impacted labour mobility in many industries such as agriculture.

Victorian businesses remain focused on short-term recovery, but the evidence shows there are longer-term challenges and opportunities that need consideration.

For further analysis on these findings, please view a copy of the report here.

Our recommendations

In response to the findings presented in the report, VCCI provided eight practical recommendations for government to address the costs and barriers faced by our members.

The recommendations include:

1. Developing a business concierge to streamline the experience for business at the interface of government and industry.
2. Conducting a ‘root and branch’ review of the Victorian tax system with the aim of optimising state revenue collection to deal with the costs facing Victorian businesses, while also making Victoria the lowest taxing jurisdiction for business in Australia.
3. Fast-tracking government approvals, grants and programs to get business back in business, and to address the backlog of projects delayed due to COVID-19.
4. Continuing to enhance and evolve the culture of the public sector and of local government in engaging with business, so that it has a business enabling and proactive mindset.
5. Creating a permanent forum or working group for a diverse set of industry stakeholders to provide early input into policy design and delivery.
6. Expanding the facilitation role of Invest Victoria to have a greater focus on boosting the success of small business and regional industry.
7. Building on the partnership between VCCI and the Victorian Skills Authority to help address the rising skill mismatch challenge in the state, particularly in vocational education and in regional areas.
8. Seeking out opportunities for government to partner with the private sector in delivering key services where appropriate.

“Some of these policies the Victorian Chamber will put forward and advocate for, are for governments to reduce the administrative burden that businesses face and to innovate the tax system. Doing so will address one of the report’s major findings that time is almost as comparable an impediment to doing business in Victoria as the monetary toll,” Mr Guerra said.

The recommendations will be included in VCCI’s forthcoming 2022–23 budget submissions to both the State and Federal governments. An ongoing consultation process with government and our members will mean VCCI is able to revisit and suggest improvements to these policy options over time to ensure they remain relevant and effective.

The Chamber will also review the rankings each year to see where Victoria has improved and what areas need further attention, so business has the best opportunity to grow and prosper.

View a full copy of the Cost and Ease of Doing Business in Victoria Report.