Covid surge in Aussies ‘having a go’ as traders

More than one million businesses have been created in the two years since the height of the pandemic in mid-2020, driven by a jump in sole traders.

The gig economy has likely helped boost the number of new businesses starting in the past two years. Picture: NCA NewsWire / Jeremy Piper

More than one million businesses have been created in the two years since the height of the pandemic in mid-2020, driven by a jump in sole traders as Australians looked for new ways of working in an age of Covid.

Figures from the Australian Bureau of Statistics showed the number of actively trading businesses jumped by a record 7 per cent, or 168,000, in 2021-22 to almost 2.6 million.

Since July 2020, there were 1.1 million business “entries”, the ABS data showed, offset by 800,000 “exits” – still a strong 300,000 net increase in the number of operating businesses over the two most recent financial years.

KPMG chief economist Brendan Rynne said the figures “reaffirm the economic resilience of the Australian business landscape, and the ‘have-a-go’ nature of our population”.

The construction sector recorded the largest increase in businesses over the two years, up 50,000 as massive government stimulus – via measures such as the HomeBuilder grant – and record low interest rates drove a construction boom.

“The risk is that these new businesses may not know how to manage the financial squeeze brought about by taking fixed-price building contracts,” Dr Rynne said, at a time when soaring labour and material costs are squeezing profit margins and sending big building firms broke.

Of the 1.1 million new businesses, just over 800,000 did not initially employ other people – in essence individuals “having a crack” at developing a new product or service, working in the gig economy, or innovating, Dr Rynne said.

He said these entrepreneurs were still in the labour force, but were no longer available as employees – a development that had likely added to employers’ hiring woes. “It’s not surprising the stock of labour to be hired has declined, or feels like it’s in decline,” he said.

Dr Rynne said the strong lift in new business formation was a hopeful sign of a much-needed lift in entrepreneurialism in Australia, but it remains unclear whether the lift in new businesses will translate into longer-lasting innovation – a key driver of productivity growth.

The ABS data shows a much higher failure rate among sole traders, with four in 10 exiting in a typical year, versus a 15 per cent failure rate among employing businesses.

The latest financial year showed Victoria, which had the most Covid-related disruptions, dominated new business creations in 2021-22, with the net increase in actively trading busi­nesses jumping by more than 10 per cent.

By industry, cleaning services, hairdressers and delivery services dominated new business growth in the year to June, with the last of those likely reflecting an increased take-up of gig economy work. Professional, scientific and technical services were also highly represented – likely reflecting educated white collar workers, such as consultants, deciding to start working for themselves.