Business confidence falls again – dipping to two-year lows

The Business SA – William Buck June quarter Survey of Business Expectations is showing confidence has fallen for the second quarter in a row, this time hitting lows not seen for two years.

Confidence has dropped to 84.4 points – down from a high of 116.4 in December, and a significant 32-point fall on the index over just six months. The last time confidence dipped to these levels was September 2017, when it hit 85.1 in response to the threatened bank tax.

Despite confidence falling significantly, business conditions have only dipped slightly and are steadying.

Business SA Executive Director Industry and Government Engagement, Anthony Penney, said the fall in confidence can be attributed to land tax aggregation, introduced by the State Government in the June State Budget.

“Land tax aggregation costs can’t be underestimated. Responses to our questions show businesses are expecting a big hit, which will flow to the entire state’s economy,” Mr Penney said.

“Many small and medium-sized businesses are concerned landlords will pass land tax aggregation increases on, putting pressure on their already tight margins. Property owners are considering selling and moving their money interstate or downsizing their landholdings.

They’re cooling on new acquisitions and putting off further investment which means less materials bought and fewer tradies on site. Some businesses are anticipating an increase in tens of thousands of dollars.”

Mr Penney said the good news was seeing general business conditions dip only slightly – down 1.8 points to 87.7, and sales and revenue falling just 1.1 points – to 90.4.

“Businesses are also telling us that cost of materials are stabilising and it’s slowly getting easier to source labour – both are positive signs,” he said.

“But we need to be cautious when considering those positive signs, because a fall in confidence has significant flow-on effects. We know confidence translates into transactions, which means investing more in a business or property, job creation or grass roots spending, and if confidence falls the reverse can happen.”

In the survey, 41.5 per cent also expected the state’s economy to perform weaker or slightly weaker over the next year, compared to 36.6 per cent in March and 33.1 per cent in December.  

William Buck Managing Director Jamie McKeough had partly attributed the March quarter fall in confidence to the federal election, but said its continuation reflected wider issues including concerns with the national economy, harder access to bank finance, the drought, and two recent interest rate cuts.

“The Reserve Bank cuts were aimed to move the national economy and encourage people to spend but we think the cuts may be having the opposite effect, and people are asking what’s wrong,” Mr McKeough said. “The cuts are not translating into increased sales revenue, spending on plant and equipment or training. As wages stagnate, people are choosing not to adjust their mortgage repayments and they’re using the extra cash to pay down debt, and this obviously has a flow on effect to business.”

To view the survey click here

Please call Verity Edwards on 0412 678 942 to arrange an interview.

6 August 2019

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