KPMG Enterprise business survey finds companies concerned about costs and margin pressures

A survey by KPMG has found that mid-sized businesses expect lower wages growth this year as costs and margin pressures rise.

Mid-sized businesses are fearful about rising costs and margin pressures as Treasurer Jim Chalmers prepares to hand down next month’s federal budget.

A survey ahead of next month’s budget by KPMG Enterprise showed that mid-market companies were cautiously optimistic, but were less confidence about the growth and wage rise forecasts than a year ago.

Business leaders also wanted the government to begin to repay debt after aggressive spending during the pandemic and to re-establish critical manufacturing in Australia to boost the economy.

The survey of 160 mid-tier business leaders, found that over half forecast growth of up to 5 per cent over the next three years. But a larger minority of 45 per cent versus 34 per cent in 2022 said they were either neutral or pessimistic on growth projections.

Nearly one third of business leaders surveyed expected wages to increase by 4-8 per cent over the next three years to compared to 44 per cent last year. Fifty-four per cent felt wage growth would be below 4 per cent and 16 per cent said it would be flat.

This is in contrast to the Reserve Bank which forecasts wages growth to hit 4.2 per cent in 2023 before stabilising to 3.8 per cent by mid-2025. It comes after the Australian Bureau of Statistics said wages rose 3.3 per cent in the year to December 2022.

KPMG Enterprise tax leader Clive Bird said a pullback in wage growth expectations might the result of that battle for talent had dropped from being the number one concern in 2022 to number two. It was knocked off by fears over costs and margin pressures at 58 per cent, while inflation (39 per cent) and interest rates (34 per cent) were ranked third and fourth.

“Inflation and interest rates were not a major issue a year ago but now are both top four issues,” Mr Bird said.

“Having said that, 75 per cent of respondents felt their debt levels were manageable and less than a quarter felt interest rates were having a significant impact at this stage, indicating a resilience about the mid-tier sector, even in challenging times.”

Mid-sized business leaders where overwhelmingly of the view that the Federal government should re-establish critical manufacturing in Australia in a bid to boost economic growth. Australia’s economy grew 0.5 per cent in the final three months of 2022, well below most forecasts by economists.

Tax reform came second (44 per cent) with greater investment in training programs to address skills and labour shortfalls the third top choice (40 per cent). A commitment to retaining the stage three tax cuts was in fourth.

Last September, the government’s Jobs Summit agreed to increase the number of permanent migration visas available in 2022-23 by 35,000 to 195,000 to address labour shortages. Data since has showed that the country’s population is set to add 600,000 immigrants this year and next, causing fear at the RBA that it could result in higher inflation as a result of increases demand.

Following an unprecedented stimulus program by the previous government throughout the pandemic to keep the country float, business leaders said it was time to start repaying debts.

“Over half nominating economic growth and increased productivity as their preferred way to achieve this,” Mr Bird.

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.”

Originally published as KPMG Enterprise business survey finds companies concerned about costs and margin pressures