The majority of Australia’s mid-market businesses are still feeling cautiously optimistic, the annual KPMG Enterprise pre-Budget survey finds.

But both in terms of growth and wage rise forecasts, the level of confidence is lower than a year ago.

The KPMG Enterprise Mid-Market Pre-Budget Pulse Check 2023, a survey of 160 mid-tier business leaders, found that over half (55 percent) forecast growth of up to 5 percent over the next 3 years, with 23 percent of respondents predicting up to 10 percent or above. But a larger minority (45 percent) than last year (34 percent) said they were either neutral or pessimistic on growth projections.  

In 2023, nearly a third of leaders (30 percent) felt wages would go up by 4-8 percent over the next 3 years compared to 44 percent last year. Over half (54 percent) felt wage growth would be below 4 percent and 16 percent said it would be essentially flat, below 2 percent, representing a fall in real wages.

This may be explained by the finding that the battle for talent, which a year ago was the stand-out concern, was this year pushed into second place (55 percent) by fears over costs and margin pressures (58 percent). These two were the top two issues by some margin ahead of concerns over inflation (39 percent) and interest rates (34 percent)

Clive Bird, KPMG Enterprise Tax Leader, said: “It is encouraging that the majority of mid-tier businesses, the heartbeat of the national economy, are still predicting growth over the next 3 years, but it is clear that confidence is down on last year. Inflation and interest rates were not a major issue a year ago but now are both top four issues. Having said that, 75 percent of respondents felt their debt levels were manageable and less than a quarter felt interest rates were having a significant impact at this stage. This indicates a resilience about the mid-tier sector, even in challenging times.”

When asked what would boost economic growth, the most popular answer (52 percent) was re-establishing critical manufacturing in Australia. Tax reform came second (44 percent) with greater investment in training programs to address skills and labour shortfalls the third top choice (40 percent). A commitment to retaining the stage 3 tax cuts came in fourth (34 percent).

Similar to last year, the great majority said it was time for the Federal Government to start repaying debts, with over half nominating economic growth and increased productivity as their preferred way to achieve this. More than a fifth (21 percent) opted for spending cuts and only 5 percent preferred higher taxes.

If forced to choose between higher tax options, the two most popular choices were more targeted anti-avoidance measures and higher GST. But over a third of respondents refused to countenance higher taxes at all.

Almost a half (48 percent) said they were concerned about the increased ATO compliance activity that had been seen since the emergence from lockdown via its renewed ‘Top 500’ and ‘Next 5000’ programs.

Top 5 concerns of the mid-tier sector

  1. Cost and margin pressures – 58 percent
  2. Recruiting and reataining skiled staff – 55 percent
  3. Inflation rate – 39 percent
  4. Interest rates – 34 percent
  5. Supply chain disruption – 27 percent

Clive Bird said: “Supply chain problems in the pandemic are clearly fresh in the memory – this was still listed as fifth top concern among our respondents this year. Given current geopolitical concerns, it seems that a drive towards re-establishing critical manufacturing domestically would be popular.

“While there is still no desire among the mid-tier sector for heavier taxes to fix the country’s debt problems, there is an eagerness for tax reform to generate economic activity. Retaining the stage 3 tax cuts was popular among respondents, which would make some contribution to the rising cost of living”. 

“In terms of tax compliance, around half were concerned at the additional ATO compliance activity while the other half felt well-prepared. In our experience people aren’t always aware of the ATO’s growing expectations around Tax Risk Management and the fully documented frameworks that are needed to meet these.. We also feel more market attention is needed on the ATO’s current areas of focus, such as tax planning and trusts”, he added. 

For further information

Ian Welch
KPMG Communications
0400 818 891