Reducing barriers to business dynamism

Government can make the economy more dynamic through reforms that make it easier for businesses to start, grow and exit, according to a new interim report from the Productivity Commission.

The report Unlocking business dynamism: removing barriers to entry, growth and exit finds Australia’s economy has become less dynamic in recent decades, contributing to the productivity challenge.

‘A productive economy is constantly renewing itself through businesses starting, growing, adapting and closing where necessary – by these measures Australia’s economy has become increasingly stagnant,’ said Commissioner Alison Roberts. 

The report finds that the rates of businesses starting and closing and the rate of people moving jobs have declined in recent decades. At the same time, parts of the economy have become more dominated by established players and the share of people working in young firms has fallen.

‘Making it easier to start and grow businesses is critical to job creation. In Australia, firms less than 5 years old account for 62% of new jobs,’ said Commissioner Stephen King.

‘We want skills and resources to easily move to the places where they will create the most value,’ said Commissioner King.

The inquiry highlights common barriers across the business lifecycle. The terms of reference from the government exclude consideration of tax settings, workplace relations and merger frameworks. It complements the PC’s forthcoming inquiry into opportunities to improve  non-financial business reporting.

‘This inquiry is focused on points of friction that slow businesses down and the practical, targeted reforms that government can make to address them,’ said Commissioner King.

Creating a clearer path through regulation

The report recommends changes that would make it easier for business to understand and act on their regulatory responsibilities. This builds on previous PC work, which recommended government undertake industry-specific reviews to reduce the stock of burdensome regulation.

‘We know that the burden of regulation is growing. In 2025, boards spent 55% of their time on compliance – up from 24% 10 years ago. That’s time that could be spent focusing on strategy and innovation,’ said Commissioner Roberts.

‘Finding ways to safely cut back on regulation is important, but we also need to make our regulatory system easier for businesses to navigate,’ said Commissioner Roberts.

‘Businesses often struggle to work out which rules apply to them, where to find authoritative guidance and how different regulatory requirements fit together,’ said Commissioner Roberts.

‘We think regulatory guidance should be easier to find and navigate, provided at the points where businesses need it and designed so that emerging tools such as AI and business software can use it effectively,’ said Commissioner Roberts.

The report proposes a continued focus on ‘tell-us-once’ approaches so businesses do not have to repeatedly provide governments with information they already hold. It also proposes reforms that would allow consenting businesses to share data more easily with lenders, helping them make faster and better-informed credit assessments.

Building the capability of Australia’s managers

The report finds that management capability in Australian firms lags that of more productive countries like the US. One study finds that improving management capability to US levels could raise Australian productivity by 9.8%.

‘Australian firms are good at identifying opportunities but less effective at changing and evolving. We can see that in the fact that Australian businesses are lagging other countries in adopting AI,’ said Commissioner King.

The report says the government should adopt a systematic approach to improving management capability policy. This would involve collecting evidence on barriers to management improvement, evaluating existing government support programs and targeting support via programs that are proven to work. 

Making it easier to adapt, restructure and close a business

The report finds that improving Australia’s insolvency system would help avoid unnecessary costs and delays when changing or closing a business.

‘Earlier information and more accessible restructuring pathways can give viable businesses a better chance to recover and help ensure resources are redeployed more quickly when a business cannot continue,’ said Commissioner Roberts.

The report proposes that the purpose, objectives and principles of Australia’s insolvency system be explicitly set out in legislation, with a focus on preserving and productively redeploying economic value, encouraging timely intervention, supporting market and economic integrity, and ensuring processes are proportionate, efficient and accessible. 

It also proposes a minimal asset procedure to provide a faster fresh start for people with simple financial affairs and an Official Liquidator as a pathway of last resort for eligible insolvent companies unable to fund an orderly exit. 

Improve access to finance for viable businesses

The report finds some commercially viable businesses are struggling to obtain funding, particularly young firms, firms with limited collateral and businesses led by women or Aboriginal and Torres Strait Islander people.

‘Current lending processes are too ‘one-size-fits-all’ and are holding back a lot of businesses that could otherwise be successful,’ said Commissioner King.

The report recommends changes to the Consumer Data Right that would make credit assessments faster and says the government should investigate a credit guarantee scheme to improve access to financing.

Submissions open

‘No single reform will restore our economic dynamism. But government can help by removing avoidable barriers throughout the business lifecycle that chip away at growth,’ said Commissioner Roberts.

The PC is seeking feedback on the interim report’s reform directions and information requests. Consultation, public hearings and further analysis will inform the final report, which is due in May 2027.

Preliminaries: Cover, Copyright and publication detail, Opportunity for comment, Terms of reference, Disclosure of interests, Acknowledgements and Contents

Overview

Reform directions, findings and information requests

1. Make regulation work better for businesses
   • 1.1 Regulation can hold back business dynamism
   • 1.2 More needs to be done to address industry-specific regulatory challenges
   • 1.3 Businesses should only provide information once
   • 1.4 Businesses need a clearer path through regulation to ensure their obligations are met
2. Address barriers to business finance
   • 2.1 Access to finance enables business dynamism
   • 2.2 Better access to trusted data can expand access to finance
   • 2.3 Prudential settings appropriately balance lending and financial stability
   • 2.4 Certain businesses face barriers to accessing debt finance
   • 2.5 Accessing equity through venture capital is essential for many start-ups
   • 2.6 Superannuation as a source of venture capital investment
3. Policies and programs to improve management capability
   • 3.1 Better business management would boost productivity
   • 3.2 Government can foster better management capability
   • 3.3 Build a targeted approach to management-capability support
   • 3.4 Make it easier for businesses to find the right help at the right time
4. Support business transitions
   • 4.1 Business transitions support a dynamic economy
   • 4.2 Potential issues in transferring businesses or regulatory reasons
   • 4.3 Potential issues with solvent company exit pathways
5. Create a clearer foundation for insolvency reform
   • 5.1 Clearly state the purpose, objectives and principles
   • 5.2 Assessing the case for greater harmonisation of insolvency frameworks
6. Make insolvency pathways work better
   • 6.1 Making small business restructuring more efficient
   • 6.2 Making simplified liquidation genuinely simple
   • 6.3 Making bankruptcy less restrictive
7. Support restructuring and value preservation
   • 7.1 Insolvency outcomes matter for business dynamism
   • 7.2 Changes to creditor priority are unlikely to materially improve business dynamism
   • 7.3 The ATO can influence business restructuring and creditor decision-making
   • 7.4 Amend unfair preference provisions to support the flow of credit to business in temporary financial distress
8. Improve system integrity
   • 8.1 Encourage earlier action to prevent financial distress
   • 8.2 Provide an exit route for insolvent companies with no assets
   • 8.3 Make illegal phoenixing laws work better

• A. Public engagement
• References

Printed copies of this report can be purchased from Canprint Communications.