A lot has changed in the Australian economy in the past few months, delivering a series of challenges for both consumers and businesses which require adjustment to household and business budgets to take into account increasing costs.
Rapidly rising interest rates and other cost of living pressures, combined with labour force shortages and supply chain problems mean that cash flow is likely to become tighter for many business and family budgets in the coming months.
Below is a brief summary of key areas to keep an eye on in the new financial year.
- Rising Interest Rates: Welcome to the new era of high inflation and rising interest rate. Many new borrowers in our economy have never known anything other than record low interest rates and appreciating asset values, so the adjustment back to a more normal interest rate environment (whilst good news for savers) will put additional pressure on household budgets. During this period of adjustment, many households will find it necessary to review non-essential spending, and making cuts where they can.
- Cost of Living Pressures: Around the world, the cost of living is steadily rising and is forecast to continue rising for some time. The cost of oil, petrol, groceries and other essential items (most of which is outside the Government’s control) will continue to place pressure on businesses and households. As prices rise, many of these increases are passed on to consumers, which contributes to further inflation and increased cost of living pressure.
- Labour Force Shortages: Despite record low unemployment numbers, staff shortages and wage pressures are at the top of the list of issues most influencing business confidence in the new financial year. Industry sectors and job roles impacted most severely by staff shortages include construction, manufacturing, accommodation, health, food, administration and support services. At the beginning of the pandemic, nearly 600,000 temporary visa holders left Australia and with the border closures that followed, there was no inward supply of workers to off-set those leaving.
It will take many years to replace the workers who left Australia in early 2020, and continue to hinder economic growth for some years to come.
- Supply Chain Issues: Shortages in stock in many critical industry sectors have the combined effect of slowing productivity and increasing prices, which further contributes to inflationary pressure. Delays in supply are expected to continue on throughout 2022 and well into 2023, with many predicting that supply will not return to normal until 2025.
- Tax Office Debt Recovery Activity: Throughout March and April 2022 the Australian Taxation Office (ATO) issued warning letters to thousands of company directors who had failed to engage with the ATO in the lead-up to, and throughout the pandemic. The purpose of this correspondence was to encouraging company directors to start communicating or face the likelihood of the ATO commencing debt recovery against them and their organisations. These actions may include disclosing debts to credit bureaus, as well as issuing the directors with a Director Penalty Notice (DPN). Under the director penalty regime, company directors may become personally liable for a penalty equal to the value of their company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid when due.
The ATO’s increased activity may be the beginning of rising insolvency numbers in Australia in the coming months. This is supported by a considerable increase in the volume and urgency of inquiries received by insolvency professionals in recent months, and is a clear signal that the ATO’s communication is having the desired effect.
The message to both businesses and households is that whilst certain economic headline numbers may look good, there is no doubt the pandemic caused a significant disruption to the normal functioning of our economy, the full effects of which are yet to be felt.
At Shield Mercantile, our aim is to assist people who, for many different reasons, have found themselves in financial difficulty. In the months ahead we will speak to many people who require a tailored approach to resolving their financial situation, and we are here to help!
If we can assist in any way, please contact us directly on 1300 298 130 or email us at firstname.lastname@example.org or if you are experiencing financial hardship, consider calling the National Debt Helpline on 1800 007 007.