Business concerns intensify amid strong recovery

Intro:
Welcome to CPA Australia's COVIDChat, a weekly podcast to answer your questions about the latest news and developments impacting business.

Dr Jane Rennie:
Hello, I'm Dr. Jane Rennie, General Manager, External Affairs, at CPA Australia.

Gavan Ord:
And I'm Gavan Ord, Senior Manager, Business Policy, also at CPA Australia.

Dr Jane Rennie:
It's Monday the 13th of December, and you're listening to COVIDChat, bringing you this week's need to know information for business and accounting professionals. Today, we're going to talk about the results of our recent member survey on business and economic sentiment in Australia, and I have to say I was quite surprised when I saw the results. I thought, at this stage of the recovery, with restrictions easing across much of the nation and borders reopening, it'd be all sunshine, lollipops, and rainbows, but it turns out the nation's accountants aren't feeling quite so optimistic.

Dr Jane Rennie:
First to start with, here's a bit of background about this survey. In early December, we surveyed members as part of our Australian first longitudinal survey of business and economic sentiment. Previous surveys were conducted in August and October, and you can see the results of those surveys on our website.

Dr Jane Rennie:
The survey opened on Monday the 29th of November and closed on Tuesday, the 7th of December, and 117 responses were received, including accountants embedded in business and those working at accounting practises. As part of the survey, we asked members to nominate the top issues causing damage for businesses now.

Dr Jane Rennie:
Gavan, can you run us through some of the headline stats?

Gavan Ord:
Yeah, thanks Jane. And it's definitely not all sunshine, lollipops and rainbows, and I'll just run through some of the key headline stats, that sort of paints the picture.

Gavan Ord:
So from October to December, uncertainly about when lockdowns will be imposed increased from 39 to 49 percent. Between October and December, the number of members worried about skills shortages doubled from 15 to 30 percent, and problems attracting and retaining talent also jumped from 38 to 46 percent.

Gavan Ord:
The percentage of accountants worried about increasing costs almost doubled from 19 to 36% between October and December, and supply issues jumped over the same period from 17 to 25 percent, and the number of accountants who expect their employer to have difficulty repaying their debts actually rose from 14 to 20 percent between surveys. However, most responders are not concerned about their employers solvency.

Dr Jane Rennie:
So Gavan, I'd like to dig a little deeper into these response, because I think they are quite curious. Starting with uncertainty about lockdowns, and we've got roadmaps in the states and territories, so what does that mean and why has that uncertainty gone up?

Gavan Ord:
Well, I have to say this result surprised us. We would've thought that with the end of lockdowns in New south Wales, Victoria, ACT, and even Northern Territory between the October survey and the December surveys, that business would be less worried about the future lockdowns, but clearly they are. It's obvious that the scars left by snap lockdowns and extended lockdowns, mean that many are sceptical the governments will stick to their roadmaps out of lockdown. This reflects a lack of confidence in government, and also that the Omicron variant was first reported only about a day before the survey was run.

Gavan Ord:
The important thing for governments is that they must stick to their roadmaps and avoid lockdowns to try and rebuild that business confidence.

Dr Jane Rennie:
So tell me a little bit about skills shortages now. In a previous episode, we've discussed the issue of the great resignation, and it appears it is well and truly on Australia's shores. Are the results of this survey consistent with what you are hearing directly when you speak directly with members?

Gavan Ord:
If I reflect on last week's podcast with Peter Burke of Accountancy Options, he told us that many people are going through what he terms a great reevaluation, and that he expects to get a truer sense of whether these great resignation is also an Australia after the summer break.

Gavan Ord:
But I have to say workforce shortages is the number one issue members and industry are telling me about at the moment. It's leading members turn down new work, and some are even starting to cull their client lists, particularly their less profitable clients.

Gavan Ord:
For other businesses, they're turning away clients, as they're running at reduced capacity, or we're hearing stories of small business owners working additional hours to cover employee shortages. For example, we've heard example of a pub in the Gippland Lakes in Victoria, and they've got a sign up in the window saying, "We're running 60% capacity." That's led them to close on Tuesdays and Thursdays, and also they're telling their patrons not to expect the same level of service, because they just don't have the staff.

Gavan Ord:
So in short, impact to businesses are not experiencing the full benefits of the reopening. Some expect the reopening and international borders, which I think is happening on the 15th, to international students and backpackers will help alleviate the problem. Maybe so, but less so for skilled positions, but I have to say on skill shortages, it'll be a long term challenge for business. There is no silver bullet to skill shortages. It will primarily involve increases in supply of labour, both domestic and international sources, and it will also involve increased automation and moving more white collar work outside Australia.

Dr Jane Rennie:
And now onto inflation and increasing costs, and concerns about both those issues have risen. I find the fact that businesses are feeling the pinch on these areas quite problematic, given how many of them I would've thought still trying to recover and improve their cashflow. Does that sound right?

Gavan Ord:
Definitely. Definitely. Increasing costs are a growing concern amongst our members, and we're hearing that, and also we're hearing, it's increasing concern across many businesses. But while they're experiencing those increased costs are some, about a third, according to the survey, are more willing to pass on those increased costs, but also a third are less willing to pass on those costs. So for businesses not passing on those increased costs, I don't need to remind this audience, this will eat into their profitability and potentially their cashflow, and after a long period of disruption, the last thing business needs now is headaches over profit margins.

Dr Jane Rennie:
And what's the deal with solvency concerns going up then why hasn't reopening, and customers coming back, reduce these concerns?

Gavan Ord:
And that's really good observation Jane. But before I answer that question, I think it's important to note that these increasing challenges, labour shortages, skill shortages, supply chain disruptions, increasing costs are at least partially attributable to the economic recovery. For example, businesses wouldn't be experiencing workforce shortages if the economy was performing badly. But going back to your question, there is a small increase in the percentage of members that expect their employer to experience difficult difficulties, repaying their debts. Over the next three months, we expect that a combination of factors is causing this, that many businesses will need to re or sorry, commence repaying, deferred rent loans and taxes from February. And if listeners recall as part of the COVID stimulus or support measures, state governments introduced deferred rent, particularly in new south Wales, Victoria, our businesses will no longer, obviously second point is businesses are obviously no longer receiving financial support from government. And the third point is increasing costs are eating into profitability and cash. Some businesses.

Dr Jane Rennie:
What I found a little disconcerting about these results is that at the same time we've got members saying they're more, not less concerned about business. I issues economic confidence has jumped over the short term. So what's driving that.

Gavan Ord:
Yeah. Look, this is a very interesting result. As I said before. Part of the reason for members being more, not less concerned about business issues is the rapid improvement in the economy, which is reflected in the improvements in member economic confidence in the survey should have it should. However, be noted that the jump in December's economic confidence over the next three months, doesn't continue. When we look out over six months and 12 months, that is the number of members in December. They expect the economy to grow over six months and 12 months is actually unchanged from up October over this most likely reflects that members believe that the expected strong growth in short term and issues such as workforce shortages, we've discussed supply chain challenges, increasing cross costs, et cetera, or dampen growth rates in the second half of 2022, which happens to be after the

Dr Jane Rennie:
Now tell me these results, they're leading indicators. So what does that mean in terms of what we can and should read into them?

Gavan Ord:
I think it's very important to note that accounts are at the heart of business and therefore they see business trends before they shop in economic indicators. So one of the recent economic indicators are strong and they are, there are real business challenges emerging at this point. And these challenges may slow. The pace of the recovery businesses are clearly not ignoring these challenges and government should not be ignoring these

Dr Jane Rennie:
Challenges either, but that doesn't translate to the return of direct financial support for businesses. Does it, or I'm assuming you are not advocating for that?

Gavan Ord:
No, no. CPS Joe is not advocating for the return of direct financial support, barring governments, reimposing, further lockdown restrictions. We don't think it's necessary for the return of large scale financial support of business at this stage, but there may, you know, maybe exceptions industry specific support such as international tourism may still need support. And if the problems in the heavy transport industry around some of their fuel additives continues, they may require some support, but I see it more as the exception rather than the rule.

Dr Jane Rennie:
So what should governments be doing to support this right now? Can you give us some concrete examples?

Gavan Ord:
Well, one, I think it's important. They stick to their COVID reopening roadmaps as a survey results show member, confidence members are concerned about governments, reimposing lockdowns. So it's very important to in rebuilding business confidence that governments stick to their COVID reopening roadmaps and avoid lockdowns in all the most exceptional circumstances. Two, we talked about just a general workforce shortage. I think it's very important that Australia Australian government promote Australia as a place to undertake work and study. Now what we we've spoken to member medicine stakeholders outside Australia. And I have to say that Australia's reputation is a welcoming country for international students and, and workers has diminished over the last 18 months. Now Australia's been very successful, largely keeping COVID out or at least restricting its impact on Australia. But as a consequence of that, we've kept their border shut. We've sent very strong messages to people outside Australia about coming to Australia. So I think there are consequences of those behaviours and there is a need to reflect on that and actually go back and start to promote Australia as that destination for study. And

Dr Jane Rennie:
Gavin, just on that one, it's not just, that's not just a role for government too, because business is also going to have to play its own part in offering really attractive career options. Isn't it given that there is a, it's a global shortage and there's fierce global competition for talent?

Gavan Ord:
Well, there is definitely fierce global and we, we have heard places like Canada and the UK are very active in trying to seek students and, and workers. And as you said, it's a combination of employers and government. So I think employers themselves definitely have a role to play, but I, I think overall the, the scene setting has to come from government that they, we are, we are open, we are open for business to, to quote former a prime minister. We are seeking people to come and study and work here. And I think that's a strong message that must first and foremost, come from government and business will back them because business desperately, you need those

Dr Jane Rennie:
Employees. And lastly, Gavin, I know the government and regulators put a whole package of, of changes on hold over the past 18 months. What, what advice or what recommendation would you make in terms of getting back to those stored projects?

Gavan Ord:
Yeah, this is, this is really interesting because the other thing we, what didn't come through in the survey, but comes through in our engagement with members and other businesses is there's a high level of fatigue and the resilience or the ability of our members AB the ability of many members and business to adopt further regulatory reform is really quite limited at stage. So I think the advice that we will give to government, actually, the advice we give to government is don't try and play catch up with their stalled regulatory projects. Now we know that as you said, Jane, the government put a lot of regulatory changes on hold over the COVID period, but now is not the time to just recommend the engines and Ram through those regulatory changes, business need breathing room deal with the current proper challenges we've just spoken about today. I don't yet have the levels of resilience necessary to handle new regulatory requirements.

Dr Jane Rennie:
If you'd like to know more about our survey results, a media release will be available on the CPA Australia website from Tuesday, the 14th of December. And if you've got a question about any of the topics we've discussed today, or in our COVIDChat series, please email us at policy.advocacyCPAaustralia.com.au. That's our last episode for 2021, but we'll be back as a weekly podcast from January, 2022. Please tune in again next year and tell your friends from all of us here at CPA Australia. Thanks for listening.

Outro:
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