- High interest rates a major problem; costs and margin pressure, and talent are top concerns
- Tax reform called for in Budget; GST rise favoured as revenue-raiser
- Mid-tier sector will toughen remote working approach
- Modest business and wage growth predicted over next two years
The majority of Australia’s mid-market businesses are still feeling cautiously optimistic, the annual KPMG Enterprise pre-Budget survey finds. But nearly a quarter say business growth is being significantly impacted by the cost of living, while cost and margin pressures are the top concern of mid-market business leaders.
One-third of respondents also said they would be looking to toughen their current stance on remote working over the next two years by requiring a set number of days in the office. A further 8% plan to drop home-working altogether during that time. However, hardly any respondents were copying the example of some larger companies and using incentives to entice staff back into the office.
The KPMG Enterprise Mid-Market Pre-Budget Pulse Check 2024, a survey of 100 mid-market business leaders, found that over half (55%) forecast slow growth of 2-3% this year, rising to 5% over the next 2-3 years. A sizeable 30% of respondents were more optimistic, predicting up to 10% growth in the near-medium term. A minority (17%) was pessimistic, forecasting growth of 2% or lower.
Wages predictions were also cautious, with most (63%) forecasting growth of 2-4% over the next 12 months, but over a fifth (21%) believed their companies would see growth of 4-8%. Only 13% said wage growth would be less than 2%.
More than half (54%) said the cost of living was having a ‘moderate’ impact on their companies by suppressing demand and damaging growth, while 23% said the damage was ‘significant’. Only a quarter said it was having little effect.
When asked what would help them, by far the most common answer was lower interest rates (61%) to address the drag on demand and growth. Just over a quarter nominated the revised stage 3 tax cuts or lower energy costs.
In terms of Budget measures to boost mid-market growth, business leaders’ top answer was major tax reform (47%), followed by greater investment in training and skills to combat the talent shortage. Re-establishing critical manufacturing in Australia came in next (38%), although this was a slip from the top place a year ago.
The recent increase in taxation of super balances over $3m did not prove popular, with 46% rejecting it. A further 48% said they disapproved of the contentious proposal to tax unrealised gains. If extra revenue was needed by government to finance the stage 3 tax cuts, then an increase in the GST and more targeted anti-avoidance were the most popular revenue-raisers.
Clive Bird, KPMG Enterprise Tax Partner, said: “It is encouraging that the majority of mid-tier businesses, the heartbeat of the national economy, are still predicting steady growth, with a sizeable minority confident this will be up to 10% over the next 3 years. But costs are clearly still a major challenge, and the scarcity of talent has not gone away as a major issue. Persistently high interest rates are clearly a problem for many businesses, but overall the results show a resilience which characterises the sector.”
He added: “Our annual survey consistently finds that raising the GST is the preferred method to raise revenue among business leaders. There is no little appetite for raising direct taxes given our tax system’s over-reliance on income taxes, and respondents still look to the Budget as an opportunity for significant tax reform."
The survey also addressed the use of AI in the mid-market.
While no respondents currently used AI widely, 41% used it for specific areas and a further 40% planned to introduce it over the next 2 years. A minority (18%) had no plans for its use at all. Higher efficiency and productivity by automating routine operations and faster data analysis were the main attractions, while lack of technical capability and security concerns were seen as the biggest drawbacks.
For further information
Ian Welch
iwelch@kpmg.com.au
0400 818 891
