AUSTRALIA is leading the world in the decline of small business start-ups, spelling bad news for the future prosperity of the nation in the face of an ageing population, a new book has warned.

Between 2003 and 2014, Australia’s small business entry rate declined by 40 per cent, a substantially larger decline than the US, UK and Canada, according to the book Demographics and Entrepreneurship, a joint publication by Liberal-aligned think tank, the Institute of Public Affairs, and Canada’s Fraser Institute.

The book, subtitled Mitigating the Effects of an Aging Population, is a collection of 10 essays making the case for governments to cut red tape, reduce taxes and create an entrepreneurship-friendly environment to combat stagnant productivity.

“Entrepreneurs drive innovation and technological advancement that is key to our prosperity, and higher living standards,” IPA research fellow Matthew Lesh said in a statement. “If we don’t take steps now, as our population ages, the decline in business start-ups will only get worse in the years ahead.”

Small business start-ups as a percentage of all small businesses fell sharply from 27.59 per cent to 12.58 per cent between 2003 and 2014, while productivity growth was 49 per cent slower in 2011-15 compared with 1991-95, consistent with a slowdown in business start-up rates.

The book argued a contributing factor for the decline in entrepreneurship is an ageing population, with the percentage of the population in the prime entrepreneurial age of 25-49 years old hitting its peak at 38 per cent in 1995.

That fell to 34.9 per cent in 2015, and is projected to drop to 30.4 per cent by 2065.

The IPA has called for cuts to red tape, which it estimates costs the Australian economy $176 billion a year, as well as personal and corporate income taxes and the elimination of capital gains taxes.

“Red tape and high taxes are crippling Australia’s entrepreneurial spirit,” Mr Lesh said. “We must take steps to encourage entrepreneurial risk-taking to spur innovation, technological advancement and ultimately create more opportunities and prosperity for all.”

The book is a collaboration between the IPA, the Fraser Institute, the Centre for Strategic and International Studies in the US and the Adam Smith Institute’s The Entrepreneur Network in the UK.

“While many start-ups are not sources of important innovations, the minority that are can be a major force for economic change as recently exemplified by companies such as Google, Facebook, and Tesla,” contributing editors Steven Globerman and Jason Clemens wrote.

“Since relatively few start-ups become successful industry leaders, it is desirable to reduce barriers to entrepreneurship, so that more, rather than fewer, start-ups compete to become the next Microsoft.

“Perhaps the single most important institutional factor influencing entrepreneurial activity is the tax structure facing would-be entrepreneurs. Higher marginal tax rates discourage risk taking, other things constant.”

frank.chung@news.com.au