The Council of Small Business Organisations (COSBOA) has warned of a critical cost crisis gripping Australia’s small business sector.
Citing rising inflation, operational costs, and labor burdens, COSBOA is urging for a measured approach to upcoming wage increases.”Small businesses are facing a perfect storm,” said a spokesperson for COSBOA. “Inflation is squeezing profit margins, rents and utilities are on the rise, and labor costs remain a significant challenge, particularly in sectors like hospitality.”
This confluence of factors has led to a significant decline in business confidence and a concerning rise in insolvencies. To address these issues, COSBOA is advocating for a legislative wage rise of between 2-3% for this year. “We recognize the need for fair wages,” the spokesperson continued, “but significant increases would threaten the financial sustainability of many small businesses. Our goal is to find a balance that ensures a livable wage for employees while protecting the long-term viability of this crucial sector, which is essential for job creation and economic growth.”
COSBOA has put forth additional measures to bolster support for small businesses, including appointing a small business representative to the Fair Work Wage Determination Panel. This move aims to ensure that small business voices are represented in crucial wage decisions. Moreover, COSBOA advocates for reducing compliance burdens to free up resources for small businesses, enabling them to concentrate on core operations. Additionally, they stress the importance of prioritizing productivity-boosting initiatives, potentially allowing businesses to absorb wage increases without sacrificing profitability.
Recent data from the Australian Small and Family Business Ombudsman paints a troubling picture of the small business landscape. The report reveals that 43% of small businesses are operating at a loss, with the majority of owners underpaying themselves. Furthermore, most small business owners are working significantly longer hours than the average employee, highlighting the strain faced by entrepreneurs in maintaining their businesses.
Regional Dynamics
The regional landscape reveals a diverse economic tapestry, with South Australia, Victoria, and Tasmania experiencing increased median hourly rates. This localised positive economic activity stands out against the backdrop of the broader decline, offering hope for regional SMEs. Certain industries, such as Healthcare and Community Services, Science, Information and Communication Technology, and Manufacturing, Transport, and Logistics, witnessed more pronounced month-on-month drops in wages. This emphasises the sector-specific challenges SMEs are contending with, demanding tailored strategies for adaptation and growth.
The nuanced impact extends to age-specific variations, with differences in median rates for 18-24-year-olds and 25-64-year-olds. This highlights the multifaceted nature of economic challenges faced by SMEs, requiring tailored approaches to address varying workforce demographics.
Strategic Adaptation for SMEs
As the SME Index provides critical insights into the economic landscape, SMEs are urged to adapt strategically. With wages aligning with inflation and marginal increases in average employee growth, businesses must consider effective measures to sustain operations and navigate potential uncertainties. Ben Thompson, Co-founder and CEO of Employment Hero, emphasises the need for a strategic pause in interest rate increases, marking a potential turning point in the nation’s economic trajectory. The challenges extend to the retail sector, where the cost of living exerts additional pressure. Despite a slight 1.3% increase in median hours worked year-on-year across Australian SMEs, the Retail, Hospitality, and Tourism sectors experienced a notable decline of -1.4% year-on-year and -3.2% quarterly. This suggests a potential response to weakened in-store foot traffic, reinforcing the need for adaptive strategies within these industries.
Ben Thompson, Co-founder and CEO of Employment Hero, said: “After months of slowing, wages in Australia’s SME sector have decreased for the first time in six months. As the data shows wage growth is flattening to align with inflation, the RBA must consider halting interest rate increases for at least the near term.
“This critical alignment of wage growth with inflation and an ongoing decline or slowing of average employee growth in SMEs marks a potential turning point in the nation’s economic trajectory. Our data indicates that the economy will continue to cool off as we head into 2024 and it is likely mid-next year, we’ll see SMEs cutting back on hiring and growth plans as the economy potentially enters a small recession.”
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