Cost-of-business crisis driving WA businesses to close or downsize

The rising cost of doing business in Western Australia has emerged as the biggest risk factor for businesses closing or downsizing in 2024, according to WA’s largest and most detailed business survey.

CCIWA’s Business Confidence survey for the March quarter found almost one in five businesses (18%) said they were at risk of closing or significantly scaling back their operations this year.

Of those, 84% said the rising cost of doing business was a key driving factor, followed by declining customer demand (40%) and red and green tape (25%).
Businesses most at risk of closure were in the food and accommodation, agriculture and arts and recreation sectors, while those most at risk of downsizing were in the agriculture, real estate and transport industries.

CCIWA Chief Economist, Aaron Morey, said the cost-of-business crisis was taking its toll.

“Just as households have been doing it tough with rising costs, so too have businesses. That pressure has been building over the past 12-18 months and we’re seeing it really take a toll on small and family businesses,” he said.

“There’s not much the State Government can do to bring down soaring costs but one way they could ease the pressure is by reforming WA’s unfair payroll tax system.

“More than a quarter of WA businesses that employ people are hit with payroll tax and in most cases, they’re paying significantly more than an identical business in another state.

“It’s a tax on jobs and success and a handbrake on WA’s economic growth.”

Cost pressures remain a key challenge for all businesses, with 71% of those surveyed reporting it as a barrier to growth, down four percentage points since the previous survey in December 2023.

68% said the availability of skilled labour was a barrier – also down four percentage points since December.

Despite the challenges, WA businesses remained optimistic about the short-term and longer-term economic outlook compared with the previous survey in December.

Just over a quarter of businesses surveyed (26%) said they expected conditions to improve in the next 12 months, up five percentage points.

Mr Morey said the overall strength of WA’s economy was giving businesses the confidence to invest in digital expansion, with almost half of those surveyed (45%) indicating they plan to increase their digital presence in the upcoming year.

“This likely reflects the need for most businesses to remain competitive in an online environment,” he said.

“36% of businesses said they were looking to adopt new technologies, including Artificial Intelligence, in the next 12 months.”

Labour market conditions have softened over the past six months, with a slight uptick in the unemployment rate in January to 4.2%, but skills shortages continue to be a challenge for WA
businesses.

Almost two thirds (65%) reported they had struggled to hire for a particular skillset over the quarter.

“We’re still seeing skills emerge as a significant challenge for WA businesses, but it’s important to point out that this is the lowest it’s been since we started asking this question in 2021,” Mr Morey said.

Skills shortages were most impacting businesses in the transport (79%), healthcare and social assistance (76%) and manufacturing (74%) sectors.

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