Construction industry is worst for tax defaults, says CreditorWatch
The number of companies being placed under external administration has broken its record.
The construction industry is dominating tax payment defaults, CreditorWatch says, as the number of Australian companies going into external administration hits a record high, with more than 1200 companies collapsing in March.
That figure, 1208 for the month, is 22.6 per cent higher than the same month last year.
CreditorWatch says with the chances of an interest-rate cut in the near future looking increasingly remote, the pressure on struggling businesses is expected to remain high.
The credit analysis firm, which releases its Business Risk Index on Wednesday, said hospitality businesses were at the greatest risk of failure, with a 7.44 per cent probability of collapsing in the next 12 months. “The food and beverage sector continues to be the riskiest sector in the country, and by some margin,’’ CreditorWatch says.
“The stubbornly high inflation figure in the US means that the likelihood of cash rate cuts in Australia 2024 is now looking remote.
“This will have serious implications for the business community, considering that as recently as last month, there was strong expectation of at least one cut to the cash rate in 2024.
“While this outlook can (and likely will) change with each labour force and consumer price index release, both here and in the US, businesses should prepare for weak consumer demand for the remainder of 2024 and continued high debt financing costs.’’
The more than 15,000 tax debt default records CreditorWatch holds from the ATO (for outstanding debts of more than $100,000) indicate that 23.8 per cent of the businesses are in the construction industry, 12.5 per cent in professional, scientific and technical services and 10.7 per cent in food and beverage services.
CreditorWatch chief economist Anneke Thompson said smaller businesses in the construction services sector which were operating as sole traders or partnerships struggled to pay off large tax debts. “These businesses often have debt secured against personal assets, and debts of $100,000 or more would be a severe imposition on their ability to meet their ongoing financial obligations,” she says. CreditorWatch chief executive Patrick Coghlan said the surge in external administrations reflected the increased cost pressure on businesses and consumers.
“Most businesses, particularly those that are consumer-facing, and therefore exposed to the vagaries of discretionary spending, are currently being hit by a range of heavy impacts,” he said.
“We don’t expect business conditions to improve markedly until consumer spending increases, and that is dependent on interest rate relief, which is not even on the horizon at this point given the high rates of inflation in the US.”
Business to business payment defaults dipped slightly from February to March.
“Court actions are up 45.5 per cent year on year and are gradually returning to pre-Covid levels,’’ CreditorWatch said.
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