Prioritise growth over surplus, say business leaders

A majority of surveyed CEOs think the government should do more to help stimulate the economy.

TEC chief economic adviser Warren Hogan.

Owners of medium-sized businesses have grown markedly more pessimistic about the economy in recent months, with nearly three in five advocating further government stimulus over achieving a budget surplus.

A survey of 225 leaders of firms with revenue ranging between $10m and $1bn revealed a sharp drop in confidence in economic conditions, more than reversing a bounce in optimism following the government’s re-election in May, research by business coaching group The Executive Connection shows.

When CEOs were asked how the economy today compared with a year before, 38 per cent of respondents said it had worsened, 47 per cent said it was about the same, and only 14 per cent said it had improved. This yielded an index reading of 76 — the lowest since the survey began three years ago, where a reading above 100 indicates more positive than negative responses. Confidence in the economic outlook over the coming 12 months slumped 18 points to 89.

Correspondingly, the group’s CEO business confidence index — which includes questions on views on profitability, revenue and investment intentions in the next 12 months — sagged from 113 three months ago to 101.

“These businesses are big employers and big investors, and when we ask the CEOs they are always more optimistic about their own businesses than the economy: it’s the ‘animal spirits’,” TEC chief economic adviser Warren Hogan said.

“If the owner of the small and medium enterprise can’t be positive, then who can?” he said.

Mr Hogan blamed the fall in confidence on the lack of economic impact from this year’s tax rebate for low- and middle-income households, as well as concerns around the ability of rate cuts — of which there have been three since June — to stimulate growth.

The survey, conducted last month, asked whether bosses believed the government should stick to its determination to achieve a surplus or should instead prioritise stimulus, even at the expense of achieving a balanced budget.

The results showed 43 per cent of respondents approved of the government’s commitment to fiscal rectitude, while 57 per cent supported some extra form of support.

Mr Hogan said the findings were particularly significant given that the CEOs tended to be founders with an in-built fiscal conservatism.

“This is one segment of the economy that is quite hawkish on fiscal policy,” Mr Hogan said. “CEOs of these types of businesses have to run a tight ship, so the idea of a government running its finances well is very appealing to them.”

The research also showed a mere 15 per cent believed further rate cuts would have a beneficial impact on the economy.

When asked what they believed would be the most appropriate types of stimulus, seven in 10 nominated additional infrastructure spending, 44 per cent said targeted support for strategic industries, another 44 per cent said company tax cuts and 38 per cent said personal income tax relief. Only 12 per cent said increasing Newstart payments.

Encouragingly, expectations around profitability recorded a still-positive index reading of 144, albeit down 9 points from the previous quarter. CEOs’ hiring intentions have remained stable at 138, but 77 per cent said pay rises for employees in the next 12 months would be below 3 per cent.