Poor trading conditions impacting on investment and jobs, ACCI survey

Posted by AFN Staff Writers on 21st May 2014
Poor trading conditions are causing difficulties for Australian small businesses

While most indicators improved somewhat in the quarter, small business continued to face difficult trading conditions in March, according to findings from the Australian Chamber of Commerce and Industry (ACCI).

The latest edition of the ACCI Small Business Survey revealed that key indicators such as sales, profits, employment and investment all remained deep in negative territory in the opening months of 2014. The survey found that the small business sector was mildly optimistic that general business conditions would improve in the quarter ahead but, given the persistence of poor trading conditions, the ACCI said it will remain difficult for business to back this confidence about the future with new capital expenditure and hiring.

The Survey assessed business conditions and business confidence amongst 1,234 small businesses around the country over the January, February and March 2014 period. A full copy of the Survey is available on the ACCI website.

Constraints on small business

Business taxes and government charges were again ranked as the number one constraint on small business investment in the March quarter, a position it has held unbroken for more than three years. Other constraints on small business investment revealed that access to both equity and debt finance, current levels of debt and financing costs became more important in the March quarter. The ACCI said this was particularly concerning as it signalled small businesses were becoming more constrained by factors related to cash flow and suggested a diminished capacity to expand activity even if conditions improve.

Persistently negative readings on profitability and sales revenue combined with elevated levels of wage and non-wage labour costs led to reductions in employee numbers and slumping investment. The small business employment index along with the current investment indices all deteriorated from already low levels. The current downturn in plant and equipment investment is by far the longest on record since the survey began 18 years ago in the December quarter of 1996, according to ACCI.

“Small businesses conditions in the March quarter remained poor and showed only a modest improvement from the previous survey, with some indicators sinking deeper into negative territory,” said Burcell Wilson, Acting Chief Economist, Australian Chamber of Commerce and Industry.

“Profits, employment and investment indicators for small business all fell in March, and while the sales revenue index rose it remains well below the neutral 50 reading separating expansion from contraction,” Mr Wilson said. “Elevated wages growth and surging non wage labour costs are squeezing profits and the small business sector is clearly struggling as a result. For an increasing number of small businesses, growing their operations is simply not on the radar,” he said.

Mr Wilson said the Federal Budget, which was announced earlier in May 2014 contained “few measures of significance for the small business community”, but that this was not unexpected in an ‘austerity budget’.

“A reduction in the company tax rate to 28.5 per cent was welcome and important for the efficiency of the tax system but the direct benefits will bypass the majority of small businesses as they are unincorporated,” Mr Wilson said. “Nevertheless, the mild fiscal tightening outlined in the budget begins the important task of returning to surplus and will delay a rise in interest rates at the margin,” he said.