Australian builders battling to pay bills on time as number of insolvencies spike

The construction industry crunch continues to cause issues, as a shortage of tradies puts pressure on margins and buyers are being warned to be wary before signing on.

Porter Davis victim Jesse Wilkie has been left in the lurch with the VMIA insurance scheme, suffering long waits for claims or being forced to go with builders they don't want to go with. Picture: Jason Edwards

Building companies are taking 40 per cent longer to pay suppliers as insolvencies climbed to a five-year high across the country.

The construction industry crunch continues to cause problems, as a shortage of skilled trades puts pressure on builders’ margins.

Home buyers are now being warned to check their builders’ finances before signing on to construct a new house or buy an apartment off the plan.

Families who had paid deposits with collapsed builder Porter Davis were bailed out by a government guarantee.

But customers with other builders are losing tens of thousands of dollars when uninsured builders collapse.

The Truganina town house is leaking water and has been left with some building code violations. Picture: Jason Edwards

New data from Equifax revealed that construction companies were struggling to pay on time.

Days beyond payment terms jumped from 7.4 days in 2022 to 10.3 days in the last quarter of 2023.

It comes as the Australian Taxation Office debt demands have “skyrocketed” as it attempts to claw back $50 billion in unpaid tax.

Scott Mason, general manager commercial and property services at Equifax, said construction businesses were still finding it tough.

“The availability of labour remains a problem but the supply chain issues, the availability of stock is starting to ease,” he said.

Builders were also shopping around for credit at more than one bank in another worrying sign about their risk of insolvency.

Porter Davis victim Jesse Wilkie has been left in the lurch with the VMIA insurance scheme, suffering long waits for claims or being forced to go with builders they don't want to go with. The Truganina town house is leaking water and has been left with some building code violations. Picture: Jason Edwards

A wave of businesses were expected to go bust this year as the ATO ends its generous policies of delaying or forgiving tax debts.

The ATO announced in September last year it was redeploying 5000 staff who had worked on Covid-19 handouts to debt collection.

John Goddard of Subbies United said the ATO should warn builders earlier when they were in trouble.

“There needs to be some way of alerting people. The ATO is the first to know when a builder is in trouble because they don’t pay their tax,” he said.

“Builders keep stringing subbies out, again and again, saying they will pay when we get paid. Non-payment is illegal.”

Mr Mason said “the number of ATO defaults in the last few months has skyrocketed.”

The Porter Davis collapse led to protests on Brisbane’s streets. Picture: Richard Walker

The ATO said it had issued 31,212 notices of intent to disclose business tax debts, with 20,163 business tax debts being disclosed to credit reporting bureaus between July 1 and December 31 last year.

“This was a significant increase from the 2022-23 financial year, where the ATO issued 18,917 notices of intent to disclose business tax debts, with 867 business tax debts disclosed to credit reporting bureaus. 944 notices of intent issued, and 52 disclosures occurred in the preceding 2021-22 financial year,” the ATO statement read.

Applications for loans, an indicator of the health of the economy, were down in Victoria.