Final Quarter Business Prognosis
A Dun & Bradstreet Expectations Survey concludes a rise in current low business optimism will depend to a large extent on policies of the newly elected Coalition Government.
The survey shows only 5% of Australian businesses were optimistic about growth in this year’s final quarter. Least optimistic were those in the service and wholesale sectors where growth expectation was down to 2%.
This was in a situation where businesses generally were “sitting tight” at the end of the third quarter, waiting to see what the Government would or wouldn’t do and where expectations for sales, employment and investments had reached their lowest levels in three years.
Surprisingly for many observers, 10% of the manufacturing sector was upbeat about prospects for the final quarter. Sales expectations were lowest in the construction sector with the index falling from 13.3 points in the third quarter to –1.1 currently. Only 3% of construction firms anticipated higher sales for the final quarter, down from 26% in the third quarter, while corresponding figures for service businesses were 7% down from 21%.
Employment Flat
The survey shows employment prospects have remained flat, with only 3% of companies intending to hire new staff. Unsurprisingly 45% of businesses see operating costs as their biggest barrier to growth next year, and 64% believe cash flow will be an issue.
If there’s a drop in the dollar, most businesses don’t expect it to affect them – 57% predicting no effect and 12% a small positive effect.
Dun & Bradstreet’s chief executive Gareth Jones says 2014 could bring a rise in business confidence as the new Government settles into its stride and increasing numbers of businesses “get their houses in order with continued focus on paying off debt”. He believes a lower dollar and lower interest rates combined with political certainty would aid an upswing.
Insolvency Statistics
Meanwhile some apparently encouraging insolvency statistics mask real issues. Personal insolvency activity fell 8.7% nationally in the third quarter compared with the same period last year, all states and territories recording decreases except for WA.
Of the current quarter’s bankruptcies 24.1% were business related while 9.1% involved debt agreement debtors. Of personal insolvency agreements during the quarter, 31.1% were business related.
However, the drop in insolvency activity should not be regarded as an indication of economic improvement.
A change in fee structure for people or companies filing bankruptcy against an individual rose 30% last year. This cost, plus lawyers’ fees, is deterring creditors from pursuing debtors to bankruptcy.
Furthermore, relatively low interest rates and low unemployment figures are encouraging many people to hold out for as long as possible to avoid bankruptcy in the hope their circumstances will change positively.
The Sleeper Factor
Recently implemented Directors’ Penalty Notices (see our Archives 2012 “New Tax Law”) could however be a sleeper factor that will reverse the downward trend in insolvency activity.
Tax law amendments effective from 30 June 2012 will mean a significant increase in numbers of directors being made personally liable for certain company tax obligations.
After an education program alerting businesses to its newly instigated procedures, the Australian Tax Office has begun enforcing the amended law and will likely receive additional funding to pursue directors for recovery of unpaid company taxes.
Expect personal bankruptcies to rise.
