Business profits plunge as costs rise

Western Australian business may have breathed a sigh of relief that COVID-19 restrictions have been eased but profitability is on the slide, down to the lowest level since the start of the pandemic.

The CCIWA Business Confidence Survey for the June Quarter lays out how a combination of labour costs and supply chain issues are crimping profits across a range of sectors. Despite the sustained burden businesses are on average passing on just under half of their costs to customers.

Even with ongoing exposure to these tough conditions, there has been a slight uptick in confidence with 45% of businesses expecting conditions will improve in the next three months. Optimism has also improved for the next 12 months but only for three out of ten businesses.

The biggest drains on confidence continue to be skill shortages, rising operating costs and supply chain hurdles. More than 4 out of 5 businesses are struggling to hire workers as they face ongoing pressure to boost the wages of existing employees.

The supply chain situation remains difficult and is being fuelled by ongoing geo-political tensions. Three quarters (76%) of businesses surveyed are suffering higher material costs — up 8 percentage points — and 66% are experiencing delayed delivery of materials.

Add the uncertainty over interest rates and WA business continues to face significant challenges. For example, if the cash rate were to rise to 3 per cent, then half of businesses indicate they would look to cut back spending, abandon proposed projects and limit hiring new staff.

These results highlight the important role that governments have in helping to ease the cost of doing business. The most direct way to ease costs for business in Western Australia is to lower the significant burden of payroll tax.

To read the CCIWA Business Confidence Survey: June Quarter 2022 click here

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