Difficult Trading Conditions Persist for Small Business
The latest Small Business Survey results reveal that difficult business conditions persisted through the June quarter. Similar to previous quarters, sales revenue, selling prices, profits, employment and investment indicators were all recorded firmly in negative territory. In addition, most of the expectations indicators fell.
Business Taxes and Government Charges has been the number one constraint on small business investment for three and a half years demonstrating that tax reform should be a key government priority to lift investment. Federal and State Government Regulations have both become more prominent constraints on investment in the June quarter after dropping out of the top ten in the March quarter. This implies that there is room for governments to ease pressure on businesses by vigorously pursuing their deregulatory agenda.
Despite strong improvement over the past year, the sales revenue index remains in negative territory – a result that has persisted for four and a half years and is by far the longest stretch of negative results on record for small business since the survey began. The small business profits indicator improved for the third consecutive quarter from very low base, while the expectations for profits fell. Small business is not anticipating an improvement in profitability in the near future. Small business employment continued to trend downwards in the June quarter and this is expected to continue in the quarter ahead. Both of the small business investment indexes improved during the current quarter but remain in negative territory and are also expected to decline further.
Ms Kate Carnell, Chief Executive Officer, Australian Chamber of Commerce and Industry, commented:
“Small businesses conditions in the June quarter remained poor and, broadly speaking, expectations for the quarter ahead deteriorated. Profits, employment and investment indicators for small business all remain well below the neutral 50 reading separating expansion from contraction. Small business clearly has significant spare capacity and the government needs to be proactive in improving incentives for small business to invest and employ. A mature debate needs to be started on deregulation of the labour market and reform of the tax system – these are long‑term issues but that’s why it is crucial that the reform process gets underway now. The Australian Chamber of Commerce and Industry calls on all Members of Parliament to work constructively to find a solution to the budget impasse to improve business confidence about the future.
The revised growth and inflation forecasts contained in the latest RBA Statement on Monetary Policy provide the RBA Board room to cut rates in the coming months. The growth outlook remains clouded by uncertainties surrounding the lumpiness and timing of the winding down of mining sector investment and the predicted transition to more broadly-based growth in the non-resources sector of the economy. The continued softness in the labour market and subsequent moderation in wage growth should see domestic inflationary pressures remain contained even if the currency were to depreciate. To the extent that any cuts to the RBA cash rate flow through to interest rates for small business lending, the sector would be buoyed by such a move.”
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