Regulatory barriers to business dynamism

I, the Hon Jim Chalmers MP, Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998, hereby request that the Productivity Commission (“the Commission”) undertake an inquiry into regulatory barriers to business dynamism in Australia, and identify options for reducing these barriers where appropriate, in order to promote innovation, productivity growth and Australia’s international competitiveness.

Background

A productive economy relies on regulatory settings that support the constant renewal of business activity. Productivity growth occurs when innovative businesses can enter the market easily, efficient businesses can expand, and unsuccessful businesses can exit quickly. 

Young firms are crucial to a dynamic and resilient economy. They tend to be innovative, growth-oriented, and can disrupt established industries. As they expand, they often experience rapid productivity growth. However, where regulations impose unnecessary barriers to young firms’ entry, early-stage growth or restructuring, the economy loses those potential productivity gains.

Dynamism also relies on entrepreneurs taking risks. It is important that entrepreneurs can rely on regulations that enable smooth entry into the market and an orderly, efficient, and inexpensive recovery if their ventures face acute financial risk or are ultimately unsuccessful. Appropriate regulation can encourage these firms to enter the market, prevent their premature failure, preserve their innovations, and support more efficient use of capital across the economy. 

If a firm does fail, predictable and fair regulatory settings ensure that the interests of investors, employees, suppliers, and customers are appropriately protected. This encourages entrepreneurs to invest and innovate, driving productivity growth and promoting Australia’s international competitiveness. However, when regulatory settings make exit processes slow or costly, inefficient businesses can remain in the market or exit in an unnecessarily drawn-out way. This can hamper the movement of labour and capital to young, growing firms, or to more mature firms that could use those resources more productively.

Scope of the inquiry

The Commission is to investigate regulatory barriers to business dynamism and recommend actionable reform options that increase productivity, the entry of new firms and the expansion of existing firms. In particular, the Commission should: 

1. Identify and evaluate key processes and barriers to business entry, expansion and exit, including but not limited to:
   1. regulatory and administrative burdens, including access to capital markets, business registration and industry-specific licensing;
   2. the design, operation and integrity of corporate and personal insolvency frameworks, encompassing consideration of:
      • – whether there are net benefits of greater harmonisation, particularly for small business owners who may need to navigate both systems simultaneously; and 
      • – whether they support the efficient allocation of resources across the economy in a manner that preserves system integrity and deters corporate misconduct.
2. Examine the economic impacts of these processes and barriers, including effects on productivity, innovation, investment, and employment. Where possible, the Commission should support its analysis with economic modelling. 

In undertaking the inquiry, the Commission should conduct a review of the operation of Schedules 1, 3 and 4 of the Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020. 

For the avoidance of doubt, the tax, workplace relations, and mergers frameworks are not intended to be the focus of this inquiry.

Process

The Commission should undertake appropriate public consultation, including holding hearings, inviting submissions and releasing an interim report to the public. The Commission should engage relevant stakeholders and experts, including Commonwealth, state and territory governments, relevant statutory agencies, industry stakeholders and interested members of the public.

The Commission should also have regard to previous inquiries where relevant, and matters not already canvassed by the Commission’s five pillar inquiries.

The Commission should deliver a final report within 12 months of receipt of these Terms of Reference, preceded by an interim report. The final report for this inquiry should include advice on reform implementation, including implementation feasibility and risks, and areas where more evidence is needed to inform future evaluations. 

The Hon Jim Chalmers MP
Treasurer

[Received 12 May 2026]