Business Confidence Rebounds

The PVW Partners’ Townsville Business Confidence Index indicates that business confidence has rebounded in the June 2018 quarter to near recent record levels. After the March 2017 quarter result, the June 2018 quarter result is the second highest level of confidence in the last 11 years.

In a marked contrast to the March 2018 survey results, which showed the largest single quarterly decrease in business confidence, the June 2018 quarter result shows a 12.5 point jump in business confidence which is the largest single quarterly increase in business confidence in the survey’s 27 year history.

While its encouraging to see business confidence building, the relatively extreme volatility in the index over the past 12 months serves to demonstrate how fragile that confidence can be. Recent press indicates a general increase in the level of economic activity in the Townsville economy, but the volatility in the index suggests business owners and managers are working very much on a quarter to quarter basis. It remains to be seen if a longer-term trend of sustained business confidence will emerge.

Smaller businesses, those with a turnover of less than $10 million, are expected to be the champions of employment in the June quarter with all smaller business respondents indicating they would maintain or increase their employee numbers (i.e., none of the smaller business respondents indicated they expected to reduce employee numbers in the June quarter). Sustainable employment opportunities are of critical importance in supporting growth across all sectors of our economy.

The larger business respondents expressed a slightly higher overall level of confidence than smaller business respondents. Both groups expressed similarly high expectations on sales levels and growth in consumer demand during the quarter with over half the respondents expecting their sales and demand for the products to grow in the quarter with very few respondents expecting those components of the index to decrease.

This quarter participants were also asked whether lowering the company rate for all companies would be beneficial for the Australian economy. In considering the responses given it should be kept in mind that over 70% of the respondents to this survey identified as being smaller businesses (meaning they are already most likely benefiting from a reduced corporate tax rate of 27.5% where they operate through a company).

70% of respondents agreed with the proposition that lowering the company tax rate would be beneficial for the Australian economy. Only 11% of respondents did not think a corporate tax rate reduction would be beneficial for the Australian economy with the balance of respondents being undecided.

While there are several factors to consider in terms of the proposed reduced corporate tax rate, from a national economic benefit perspective the majority of Townsville business respondents to our survey, the bulk of whom are smaller businesses, are supportive of the Government’s proposal to gradual reduce the corporate tax rate for all companies to 25%. Such a reduction would be a great step forward for our economy, however it is but one part of a much needed holistic reform of the taxation system in Australia.