Local businesses and consumers alike are struggling with escalating costs this year, which became a key political issue during the recent federal election and featured heavily in the narrative surrounding the recent NSW State Budget as well.
Households are being hit from every direction by rising expenses including dramatic fuel price hikes, higher grocery bills and increases to the greatest expense for most households, being rent or mortgage repayments.
The latter is a result of increasing interest rates, which after years languishing at all-time lows have started their inevitable climb and are already causing a lot of strain on household and small business budgets. Set by the Reserve Bank of Australia, interest rates are a key mechanism to manage demand in the economy and are now being increased in an attempt to tackle rising inflation.
The most recent statistics from the Australian Bureau of Statistics show inflation (as measured by the Consumer Price Index) has surged to over 5 percent and the Reserve Bank has revised its forward projections upwards to now predict that it will reach 7 percent before the end of the year, before receding in 2023.
The NSW Budget for this financial year, released on 21 June, was designed with household pressures (and an upcoming March 2023 March state election) in mind, and included a headline $7.2 billion in ‘cost-of-living measures’, including a subsidy to help parents pay for school supplies and vouchers for solar systems and energy efficient appliances.
Businesses however are also facing rising costs, and from 1 July are doing so without a number of pandemic economic recovery initiatives like reduced payroll tax and ‘Dine and Discover’ vouchers.
The things that drive up prices for consumers do the same for businesses, more so in most instances, especially regarding fuel, energy, materials and purchasing goods and services for on selling in shops and other outlets.
Business loans are also usually taken out at higher rates than household loans and increase by higher amounts as well.
Building materials, as another example, have been reported recently to have increased by between 50 to 100 percent, steel by 30 to 60 percent and concrete by 20 to 40 percent. Construction is one of the Illawarra’s largest economic contributors and predominately comprised of small business operators and such high input costs will be unsustainable.
Many businesses, especially small businesses, will struggle to make ends meet in coming months and into 2023.
A further problem for business in an inflationary environment as we are in now, is that employees start requesting higher wages or even change jobs to get a pay rise which adds even greater pressure to bottom lines.
Currently our regional labour market is the tightest it has ever been with the unemployment rate down under 4 percent and advertised job vacancies at never before seen numbers, 3,250 in the month of May.
These conditions add immense pressure to a prices and wages spiral that has the potential to be catastrophic for some local businesses and ultimately households as well if it gets out of control and brings on a recession.
Calls for pay rises by employees and their unions for some workers to protect real wages have been commonplace over the last couple of months as the inflation genie surprisingly broke out of its bottle. At the start of the year the economy was still suffering the impacts of COVID restrictions with spending and economic activity relatively subdued.
Business Illawarra’s parent organisation Business NSW argued in the lead up to the recent Fair Work Commission Annual Wage Review that the minimum wage should increase by between 2 and 3 percent which aligned with what the NSW Government offered to its employees – 3 percent this year and 3.5 percent next year.
The outcome of the Fair Work Commission Review was a significantly higher increase of 5.2 percent being granted to national minimum wage earners and a 4.6 percent increase going to modern award minimum wage earners.
These increases equate to a $2.5 billion increase in annual costs to NSW businesses, 98 percent of which are small businesses.
The quantum of these increases alone will be difficult to manage but also set a dangerously high precedent for the raft of wage reviews and negotiations that will soon follow for workers outside of these frameworks.
The business community again calls for workers and their representatives being tempered in upcoming wage claims. Across the board wage increases of the magnitude awarded in this year’s Fair Work Commission Annual Review for minimum wage earners would be detrimental to business without doubt, but also for workers themselves most likely over the long run.