Business failures a sign of hard times, bad policies

There is an eerie and unflattering coincidence in the statistics that for every additional public servant added by the Albanese government, a private sector business has slipped into insolvency. The two figures – which both sit at around 26,000 – may not be directly linked but neither are they totally unrelated.

Higher government spending and a shift in focus to a bigger public sector have added to the strain being felt by employers across the economy. These pressures include rising costs for energy, insurance and other business necessities. Top of the list is higher interest rates as the Reserve Bank of Australia acts to quell inflation that still is being stoked by higher spending by the federal government and the states.

Albanese government priorities in the care economy and in boosting the wages of workers employed directly and indirectly by government have sapped overall productivity and made the outlook worse for business. Things are likely to get only worse still, with the higher government spending effectively baked into recurrent expenditure.

This week’s budget update is expected to include $25.1bn in extra spending that the government claims is “unavoidable and automatic”. The mid-year economic and fiscal outlook includes $16.3bn to cover the cost of increased welfare payments and pensions, cost-of-living supports and childcare subsidies. For government, this is seen as “automatic spending” based on more people accessing government payments. The result is more borrowings and a structural budget deficit that goes off into the sunset.

For business owners faced with a similar set of circumstances of unconstrained spending commitments, it is more likely to lead to insolvency, the destruction of capital and the loss of valuable private sector jobs. Figures released by the Australian Securities & Investments Commission on Tuesday confirm a record 1442 firms hit the wall last month. The nation logged a record number of insolvencies in a calendar year with 12,405 businesses collapsing between January and November. As chief political correspondent Geoff Chambers reports on Wednesday, 6925 construction firms, 4012 hospitality businesses, 1706 retailers and 1329 manufacturers have become insolvent since May 2022.

Despite the tight labour market, there has been a surge in the number of welfare recipients with 930,024 relying on welfare payments at the end of November, which is almost 83,000 more than the previous year. The welfare cohort is back to the same levels as January 2023 and would be pushing closer to one million if the government had not moved about 65,000 people to the parenting payment single category.

The danger is that government will misdiagnose its role in the depressed conditions and compound its mistakes. There is evidence of this in the framing of the mid-year economic review and characterisation of high spending as being unavoidable. There is further danger in calculations that the government is somehow missing out on revenue because of the longstanding tax treatment of superannuation and property in particular. The suggestion is that superannuation tax concessions will cost the federal budget $55.2bn this financial year. The cost of concessions for investment property expenses is estimated at $26.5bn, with a host of exemptions for capital gains tax concessions worth more than $72bn this financial year. Jim Chalmers has played down the prospect of tightening tax concessions but the real danger is in the language. There is a fundamental misunderstanding by some in bureaucracy that all money belongs to government and taxpayers are fortunate for what they are allowed to keep. Big borrowing by government and grievance taxes to balance the budget have a compounding effect that can lead only to misery.