Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Tom Elliott.
Subject: Insolvency figures, small business conditions
Things are tough on business, and that's important because if businesses are going bankrupt, that must mean that obviously people start losing jobs. Unemployment might increase. The Reserve Bank is not being very helpful about this. Neither, I believe, is the State Government or indeed local councils, which keep pushing up rates and so forth. Anyway, joining us on the line now Australian Small Business and Family Enterprise Ombudsman. Bruce Billson, good morning.
Tom, I hope your family and your listeners are well, sir.
Thank you. That's very kind and same to you. I read these figures, business bankruptcies across Australia are up 17% in the 12 months to June 30 just gone. In Victoria the figures are even worse. Business bankruptcies up 39%. Do you think things are going to get worse or better for businesses in the next 12 months?
The immediate outlook is a bit grim. There are many headwinds, increasing pressures on businesses. It’s a fairly challenging time anyway. You touched on interest rates, input costs are up around energy, you've seen changes in the rates of pay. And let's not forget that half of all small business loans, Tom, are secured by a mortgage over someone's home.
So you get this double whammy effect every time interest rates go up. The costs go up, the debt servicing for the business goes up. But also there's a change in consumer behaviour. So, plenty of headwinds are there. It's worth recalling that a lot of the rates of insolvency are coming off quite a low base. But they're back about or slightly over where they were pre-COVID.
But there's something else going on in the background as well. We're seeing a 50% uptick in court actions where people enforce their rights to take to be paid and things of that kind.
Even credit inquiries Tom, where businesses are, you know, exercising a bit of due diligence on who they're doing business with. So they're checking out what the financial robustness is of the businesses they're dealing with. That's up 85%. There's real nervousness out there.
The other thing if I could just throw it in there, we did just pass a pretty significant milestone. Half a trillion dollars a year of economic growth is contributed to the Australian economy by small businesses. Two in five private sector jobs, there you go that's small business. Two and a half million businesses around the country are providing so many livelihoods for so many. But they're not big incomes Tom.
Do you think the Reserve Bank thinks about small or medium sized businesses when they talk about rising rates each month?
Look, I'd like to think it's front of mind. I guess my job every day is to try and make sure that small and family businesses are front of mind of decision makers. And when there was that discussion about what should the future shape of the Reserve Bank look like, we said, look, don't forget small business.
I mean, these are really vital contributors to our economy. They provide so much opportunity, but they're not cashed up, Tom. I mean 74% of Victorian small business owners, according to the last data set we could get, earn less than male total average weekly earnings. So that's three-quarters earn less than total male full time average weekly earnings.
A third are owned by women and that's fantastic. But only 8% of those Victorian small business owners are under the age of 30. So we really need to think about how do we energise enterprise and get more people contributing to the economy in this way as well.
Finally, if too many businesses go bankrupt that's going to put pressure on unemployment. And right now the job rate is near historic lows. But if businesses keep going bust at the rate that we've recently seen, do you think soon unemployment will start to creep up?
Yeah, I think that is the risk. If we get more challenges in the economy, small businesses will have to look very, very carefully at what the size of the team is that they can carry. And let's remember, Tom, the small business owner is the last one to be paid. So there's an awful lot of pain being absorbed by the owner before the difficult decision of letting one of the team members go. But this is likely to be the consequence of this higher than familiar rates of interest and the inflationary pressures will start to eat into levels of employment. And that's got to be a concern for all of us.
Thank you. Bruce Billson, the Australian Small Business and Family Enterprise Ombudsman.