John Allan

Support for the Federal Government among small and medium businesses (SMBs) has fallen into negative territory and to the lowest level since Malcolm Turnbull took over as Prime Minister, according to the latest Sensis Business Index (SBI) survey.

The net balance fell four points this quarter (+2 to -2). This score is calculated by comparing the number of SMBs that feel supported by the Federal Government’s policies (14%) to the number that do not feel supported (16%).

Sensis Chief Executive Officer, John Allan said: “After Malcolm Turnbull took over as Prime Minister in 2015 we saw confidence in the Government rise, with businesses telling us they were optimistic about the change.”

“Since then the Government’s approval rating has fallen nine points and is 20 points lower than the highest score we saw under Tony Abbott, following the pro-business Federal budget of 2015. To find a lower score we need to go back to the March 2015 survey, which was taken after Tony Abbott had survived a leadership spill.

“While perceptions of the economy remain strong, less than one in seven businesses have faith in the Government’s policies, with the biggest concerns being excessive bureaucracy and red tape, as well as there being too much of a focus on the interests of big business,” he said.

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also revealed that despite a tough quarter for the Government the long term projections for the economy have improved to their best level in 2 ½ years.

“Perceptions of the current state of the economy fell slightly, but when we look further ahead businesses are feeling the most optimistic they have been since the carbon tax was repealed in 2014,” said Mr Allan.

The net balance score for current perceptions of the economy now sits at +2, while the expectation for the economy in a year’s time have risen to +10.

“When we look at the key indicators, sales, employment, wages and prices are all positive, while profitability has also improved, despite still recording a negative score. When you mix these results with the fact that business confidence remains at one of the best levels we’ve seen in the past seven years, it’s not surprising to see the long term economic sentiment improve,” said Mr Allan.

“Businesses are expecting a solid increase in prices this quarter, which may give inflation a push, helping the Reserve Bank to justify a rate hike at a time when everyone is keenly watching their every move.”

In terms of business confidence there was a two point fall nationally, with the score now sitting on +44, which is the second best result since March 2010.

Across the states and territories only ACT, Tasmanian, Queensland and NT businesses became more confident, while WA businesses maintained their score, and the other state and territories went backwards.

“The results were fairly flat this quarter, although the ACT saw an 18 point spike and now sits in top spot – driven by strong sales results – in the first full survey taken since the ACT election,” said Mr Allan.

“In a sign of what was to come, the WA Government’s score fell as it headed towards the election loss, with SMBs reporting concerns the Government was too focussed on the interests of big business.”

At an industry level there were mixed results in terms of business confidence, with seven out of 10 industries going backwards this quarter. The three sectors that improved were Health and Community Services; Building and Construction; and Retail Trade.

“We saw big declines in confidence in the manufacturing and hospitality sectors this quarter driven by poor sales results, with manufacturing really struggling compared to the other industries. Fortunately, expectations are for an improvement in sales this quarter,” said Mr Allan.

Comparing metro and regional results, there was little change this quarter, with metropolitan businesses again more confident, now by a slightly reduced margin of seven points (+47 vs +40).

“Overall more businesses in the capital cities are feeling confident and it comes down to their perceptions of the economy. They believe the economy is travelling well, whereas more regional business owners feel pessimistic,” said Mr Allan.

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Sensis Chief Executive Officer, John Allan said: “Businesses closed out 2016 on a high, with confidence up seven points for the year and expectations that 2017 will be even stronger. While business owners again felt optimistic about their own specific business strengths, it was the improvement in the perceptions of the economy which really drove confidence higher this quarter.”

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, revealed that more than four times as many SMBs (61%) are now feeling confident, as those who are worried (15%).

There were confidence gains everywhere except for Tasmania – down 14 points to +38. NSW is again the most confident location on +54, while the Northern Territory is again on the bottom, despite a seven point rise to +16.

“The national improvement in confidence was primarily driven by businesses in the east coast states. The story in Western Australia and the Northern Territory was very different with businesses there still adjusting to the conditions in the resource sector, although the situation has improved somewhat this quarter,” said Mr Allan.

Perceptions of the current state of the economy have moved into positive territory, jumping 11 points to +3, which is the best result since December 2013.

“Just as the stock markets shrugged off global uncertainty to finish 2016 on a high, it was also the case for Australia’s small and medium businesses. Perceptions of the economy are now in positive territory for both the short and long term projections and this points to a strong year ahead,” said Mr Allan.

The Federal Government’s approval rating did not move this quarter, remaining on +2, although it finished the year down five points compared to the same period in 2015.

“The number of businesses worried about excessive bureaucracy and red tape was up this survey and these are the key issues the Government needs to address if it is to win over more business owners this year,” said Mr Allan. Confidence in the policies of state and territory governments was the same or better everywhere except for the ACT. Despite this only the Tasmanian, NT and NSW Governments have a positive rating, with the Queensland and South Australian Governments still lagging well behind.

At an industry level the biggest improvement was in Finance and Insurance, up 31 points and now leading the other sectors thanks to strong sales results. The biggest concern was in Retail Trade, down 23 points due to poor sales, and cost and competitive pressures.

In the last survey of each year the Index also looks at expectations for the year ahead. Businesses expect all of the key indicators – sales, employment, wages, prices and profitability – to remain positive, with strong results anticipated for sales and profitability in particular.

“The capital expenditure result was up nine points this year and now sits in positive territory, with businesses also reporting easier access to finance this quarter. These conditions should help foster growth in jobs and the economy in 2017,” said Mr Allan.

“The lower Australian dollar also appears to have had a positive impact on exports in 2016, with the number of businesses exporting goods or services rising four points to 15 percent.”

Confidence among SMBs in the capital cities rose 14 points to +49, while regional confidence fell two points to +41. The 16 point reversal means metropolitan SMBs are now more confident.

“Businesses in Sydney, Melbourne and Perth overtook their regional counterparts this quarter and are now more confident. Nationally, business owners in metropolitan areas are more optimistic about the economy, which is the key factor making them more confident than their regional counterparts,” said Mr Allan.

Small and medium businesses comprise 99 percent of all businesses operating in Australia.

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The Index, which reflects the views of 1,000 small and medium businesses from across Australia, revealed three times as many SMBs (57%) were confident as those who were worried (19%). Despite the dip, the net balance score of +38 is 11 points higher than this time last year.

While business confidence went down, current perceptions of the economy stayed the same and the 12 month outlook jumped, registering a positive score of +5, eight points higher than last quarter and only the second positive reading since December 2014.

There were confidence gains in Tasmania, Queensland and South Australia, while there were falls in NSW, the ACT, Victoria, the NT and WA. NSW is again the most confident location, despite a five point fall to +53.

Sensis Chief Executive Officer, John Allan said: “The national figures tell a positive story overall, but belie the turmoil some locations are experiencing with Western Australia (+10) and the Northern Territory (+9) languishing well below the national average.”

“Tasmania recorded the most improved score with a 22 point jump thanks to improved business conditions, while Victoria suffered a drop of 15 points to sit below the national average with declining sales and increased cost pressures impacting business confidence,” he said.

“Overall, the businesses feeling positive had strong beliefs in their own business strengths and identified with being an established, solid business while those who are worried cited decreasing sales and an unfavourable business, economic or industrial environment.

“It is pleasing to see sales and profitability performances improve this quarter; the sales result (+5) is particularly encouraging as it is the first time since March 2008 that we have seen consecutive positive quarters.”

With the survey beginning two weeks after the Federal election, it found SMBs were indifferent to the return of Malcolm Turnbull’s Coalition Government, with its approval among SMBs the same as last quarter on +2.

“We normally see a jump in positive sentiment towards the incumbent after an election, signifying relief at a return to ‘business as usual’. This time we’ve seen significant variability across the states with Tasmania and the Northern Territory the most supportive, and the other states either dropping back or not changing at all,” said Mr Allan.

Businesses were asked if they thought Malcolm Turnbull would survive a full term as Prime Minister. While nearly half (48%) of all businesses said he would, a third (33%) did not.

Confidence in the policies of state and territory governments displayed similar results to last survey, with the ACT, Tasmania and the Northern Territory2 registering positive net balances. NSW had the biggest decline while views of the Victorian Government also deteriorated and the South Australian Government retains bottom position.

In other results, business confidence across metropolitan and regional locations was varied. Confidence of SMBs in capital cities fell 15 points to +35, while regional confidence rose by eight points to +43 and is now in front.

Regional NSW, Victoria, WA and the Northern Territory are more positive than their city counterparts, with Hobart and Brisbane the most positive capital cities overall.

“Better sales and profitability performances in regional NSW and the NT and a better view of the Federal election result in regional Victoria and the NT, relative to the cities, are the major influences driving these results,” said Mr Allan.

At an industry level, Retail Trade has been improving steadily in recent times. It saw the biggest improvement this quarter and is now close to the national average. Hospitality has taken top spot, recording the best result for prices.

“Not surprisingly, as the Australian dollar continues to defy the Reserve Bank’s attempts at depreciation, the Manufacturing sector is struggling and is the least confident sector,” said Mr Allan.

“As we head into the crucial Christmas retail period, expectations are very strong for all of the indicators, with sales and profitability particularly positive.”

Small and medium businesses comprise 99 percent of all businesses operating in Australia.

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Sensis Chief Executive Officer, John Allan said: “While sales and employment improved and prices remain positive, wages and profitability went backwards this quarter. These are not the results you would expect to see when confidence has lifted to a five year high.

“Rather than being driven by these indicators, confidence is instead being driven by perceptions that the overall economic environment is improving. On top of this, the non-cyclical influences remain strong, with businesses continuing to feel particularly positive about their own specific business strengths.”

The net balance score of +44 – the difference between the number of confident SMBs (60%) versus the number of worried SMBs (16%) – is the highest business confidence score recorded since March 2011.

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also found that perceptions of the economy improved by 14 points this quarter, although they remain negative overall on -8.

“Perceptions of the economy have been negative for some time, and while they remain negative, they have improved to the best level we’ve seen in two years,” said Mr Allan.

“Concern about the economic environment has halved, with only one in twenty businesses now worried, while the number of businesses reporting a lack of work or sales as a barrier to taking on new staff fell from 51% to 38%; the lowest level we’ve seen since September 2014.”

At the state level there were confidence gains everywhere except for Tasmania and the Northern Territory. New South Wales extended its lead, while Western Australia is now the least confident state. South Australia is finally off the bottom, following a 24 point rise in confidence.

“The eastern seaboard states are now the shining lights for business confidence nationally. As you head across the continent, however, confidence deteriorates, with businesses in the Northern Territory and Western Australia the least confident in the nation, followed by South Australia” said Mr Allan.

“Tasmania has been on a roller coaster ride in recent times and saw the biggest fall this quarter, down 17 points, to now sit below average, having been the clear leader only two surveys ago.”

At a local level, confidence rose by 13 points in metropolitan areas (+50) but only rose by four points in regional areas (+35), with the gap between the two widening from six to 15 points this quarter.

“Metropolitan businesses are feeling more confident on all of the key performance indicators and, with the exception of New South Wales, now also lead their regional counterparts in terms of business confidence in every state and territory,” said Mr Allan.

There was a reversal in confidence in South Australia and Western Australia, with businesses in Adelaide (up 33 points) and Perth (up 23 points) now more confident than those in regional areas in those states. The opposite was true in NSW, with regional businesses there the most confident of any regional area in the nation (+58) and also slightly ahead of SMBs in Sydney (+56).

The sector results were mostly positive, with Health and Community Services; Hospitality; and Finance and Insurance now sharing top spot, each on +58.

“While most sectors are feeling confident, manufacturers saw weak sales and demand, while retailers continue to worry about business conditions. These two industries are the least confident and are reporting more challenges than the other sectors,” said Mr Allan.

Taken before the Federal Election, the survey found that businesses’ perceptions of the Federal Government in the lead up to the election were mixed, with 21% supporting the policies of the Coalition Government and 19% opposed, while the majority remained indifferent.

In terms of the perceptions of state and territory governments, only the New South Wales Government now has a positive rating, with all except for the NSW and NT Governments going backwards this quarter.

The Sensis Business Index uses a net balance score which is the difference between the percentage of businesses with a positive outlook versus the percentage of businesses with a negative outlook.

Small and medium businesses comprise 99 percent of all businesses operating in Australia.

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The net balance score of -22 is down five points this quarter and is the lowest score in 12 months. At the state and territory level, net balance scores ranged from -2 in the ACT to -46 in Western Australia, where there was a 12 point decline this quarter.

Sensis Chief Executive Officer, John Allan said: “More than three times as many businesses think the economy is slowing as those who think it is growing. The projections for the economy in a year’s time have also deteriorated by 13 points, moving from positive to negative territory.”

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also showed that support for the Federal Government remains relatively strong at +6, after falling one point on a net basis.

“The Government’s rating is currently 14 points better off than it was at this time last year, placing it in a good
position with small and medium businesses as we possibly head to an early election.

“The halo effect of the new Prime Minister seen last survey appears to have now evaporated however. In the December survey eight percent of SMBs spontaneously mentioned the new Prime Minister as having a positive
impact on their perceptions, but that figure is now less than one percent.

“Tax incentives are a growing influence on those with a positive assessment, while excessive red tape is the key
concern of those who are worried,” said Mr Allan.

Business confidence fell slightly this quarter (+39 to +35), but remains in a healthy position, with 55 percent of
businesses feeling confident as opposed to 20 percent who are worried. At this time last year the score was eight
points lower (+27).

“Positive wages and prices results helped influence confidence, while on the other hand there were negative ratings
for sales, employment and profitability. A lack of work or sales again dominated as the key concerns for SMBs, while half reported barriers to taking on new staff,” said Mr Allan.

At the state level, New South Wales has overtaken Tasmania to be the most confident region in Australia, while
South Australia went further backwards and remains in last place.

“The results were mixed this quarter with New South Wales, the ACT, Victoria and the Northern Territory showing
slight improvements, while the other states saw declines. The biggest fall occurred in Western Australia where the
deteriorating business environment was behind a 20 point fall in confidence.

“The Tasmanian Government is now the most popular in Australia, with SMBs there happy with the Government’s
efforts to reduce bureaucracy and red tape. The South Australian Government saw the biggest improvement this
quarter but despite this it remains the least popular in the nation,” said Mr Allan.

At a local level, confidence fell seven points in the metropolitan areas (+44 to +37) but rose two points in regional
areas (+29 to +31), with the gap between the two falling to six points.

“Despite the gap narrowing between the two the key performance indicators remain stronger in metropolitan areas, particularly for sales and profitability which posted results almost twice as high as those for regional areas,” said Mr Allan.

There was a reversal in confidence in the Northern Territory, with businesses in Darwin (+32) now more confident
than those in regional areas (+23). Meanwhile, businesses in regional Victoria closed a 13 point gap to now be as
confident as those in Melbourne, both on +39.

The sector results were varied, ranging from a 12 point rise in confidence in wholesale trade, to a 20 point fall in the building and construction industry. The health and community services sector lost some ground but remains
comfortably in top spot.

The transport and storage sector experienced the worst conditions for both sales and wages. This saw the sector fall eight points in terms of confidence to now sit in last place. The Sensis Business Index uses a net balance score which is the difference between the percentage of businesses with a positive outlook versus the percentage with a negative outlook.

Small and medium businesses comprise 99 percent of all businesses operating in Australia.

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