Thinking | 1 September 2022

What we see coming for Australian businesses

Indicators across multiple industries are signalling that, for many Australian businesses, difficult times are ahead.

These indicators include:

Pressure on worker availability and wages
High wage growth	Based on the March quarter 2022, the rate of annual wage growth was 2.4% (2.3% last quarter). This was the highest annual growth rate recorded since December 2018. The annual rate has increased for each of the last five quarters.^[1]
Winter absenteeism	750,000 people worked less hours in July/July this year because of illness, more than double the usual amount recorded by the ABS.^[2]
The Great Resignation	1.3 million people changed jobs in Australia during the year ended February 2022 (9.5% of all employed people). This was the highest rate of job mobility since 2012, and 2% higher than the year ending February 2021.^[3]
Concerns about Brain Drain as our borders reopen, combined with a reduced numbers of international workers	The Commonwealth government is targeting shortages with a focus on permanent migration, a new agriculture worker visa, and granting international students unlimited work rights.
Supply and operational chain pressures
Higher transport costs	Including shipping, fuel restrictions, and container shortages. Shipping costs have increased 400% since the beginning of COVID.^[4] The cost of a container has increased more than tenfold in two years.^[5]
Materials price rises	National residential construction costs grew 10% in the year to June 22, the largest annual growth rate on record other than implementation of GST.^[6] Structural steel increased 9.5% per tonne; plasterboard increased $35.3/sqm; furniture rose 7%.^[7] New homes receiving building approvals is down 32.4% from April 2021.^[8]
High inflation	Currently at 6.1%, with the Federal government and Reserve Bank forecasting inflation to peak at 7.75% in the December quarter of 2022.^[9] Goods accounted for 79% of the CPI rise this quarter, ‘reflecting high freight costs, supply constraints and prolonged strong demand’.^[10]
Declining consumer confidence	In June 2020, consumer confidence marked its lowest point since 2020.^[11]
Increased creditor activity
ATO activating debt recovery programs	The ATO is now activating its debt recovery activity. It has recently written to approximately 70,000 businesses under its programs of Director Penalty Notices and Disclosure of business tax debts to credit reporting agencies.^[12] In June, the ATO is reported to have been issuing approximately 30 Director Penalty Notices each day.^[13]
Institutional creditors beginning to initiate enforcement action	Large creditors, such as banks, have ceased their debt moratorium and are also ramping up debt activity, initially by contacting companies to discuss their bank debt and re-igniting independent business reviews.
Trade creditors beginning to agitate debts	As cashflow becomes tight, trade creditors are beginning to agitate for debt payments. Creditor-initiated winding up applications have been steadily rising, with 137 applications issued so far for August 2022.

The nature of these pressures is such that no industry or business size is immune. The issues impact organisations across the spectrum. That said, we anticipate that some industries will face (and are facing) particular difficulties, including:

construction (residential and commercial);
manufacturing;
transport;
wholesale trade and retail;
hospitality and food services;
agriculture;
financial services such as investment fund management.

In our experience, in such difficult times:

Businesses can face challenges fulfilling contracts and meeting their obligations.
Shareholder disputes can rise, as profits decrease and tensions peak under tough market conditions following 2½ years of uncertainty.
Escalating ATO and lender activity puts pressure on businesses and directors personally, which can cause a questioning of company viability and/or personal exposure.
Trade creditors are often operating in the same, or similar, market challenges, which can escalate pressure as they increase supply prices and/or press for debt repayments or changes to trading terms in order to assist their own cashflow.
Creditors question whether their risk position is properly protected in the event of a debtor default. (There are many instances of securities being invalid once tested.)

For businesses, simply hoping for things to improve is rarely the answer. It may be, that with strategies and guidance, we can work with you to help your client.

This may include, for example, working through strategies to manage creditors, pressure testing business structures, helping to recover monies owing, advising directors on personal liability, or assisting with formal insolvency strategies including safe harbour mechanisms (which can protect directors from personal liability). Assistance may also include assisting with tax debt reviews, employment disputes, or contractual issues.

We are happy to talk with you about issues your clients may be facing. Please contact one of our team members directly, or via our Accountants’ Hotline.

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Footnotes

[1] Australian Bureau of Statistics (ABS), 18 May 2022
[2] Australian Financial Review ‘From Qantas to Kununurra, businesses are sick of not having the workers they need’, 25 August 2022
[3] ABS, 24 May 2022
[4] Forbes Advisor, 9 August 2022
[5] ABC News, 29 October 2021
[6] Property Council of Australia, 12 July 2022
[7] ABS, 27 July 2022
[8] KPMG ‘Economic distress indicators’ June 2022
[9] Forbes Advisor, 9 August 2022
[10] ABS, 27 July 2022
[11] KPMG ‘Economic distress indicators’ June 2022
[12] CPA Australia, May 2022
[13] KPMG ‘Economic distress indicators’ June 2022