With inflation and interest rates rising, cost of living pressures are front of mind for most Australians right now. Last week it was announced that the Consumer Price Index rate rose by 5.1% - the highest rise in more than a decade – and this week the RBA announced that interest rates would rise from 0.1% to 0.35%.
The issue is (rightly) taking centre stage in the election campaigns of the major parties. In the Budget, the Coalition promised cost of living tax offsets and one-off payments for low-income earners. Labor is focussing on increasing wages and lowering the cost of basic expenses like childcare, power bills, and housing.
But what we’re not hearing enough of is what our politicians will do to manage the impact of inflation and interest rates on small business owners.
Small business owners are our mums, dads, sisters, brothers, friends, and neighbours - just like for everyone else, it is getting harder for them to afford to buy groceries, fill the family car with petrol, and pay their rent or mortgage.
The double whammy for them is that business expenses are also on the rise, hitting their bottom line and even threatening their viability. Most small business owners will tell you that their input costs have increased by far more than the 5.1% of CPI. And this at a time when many are facing the prospect of repaying debt deferred during COVID-19.
Small businesses are faced with the unpalatable choice of absorbing these costs, increasing prices, or seeing their business dream come to an untimely end.
Right now, most are choosing to absorb the costs as best they can in order to stay competitive – after all, no one wants to pay $7 for a coffee – but this can’t last forever.
As a result of increased interest rates, small business owners are facing rent hikes for their commercial leases and rate rises for their business loans. They’re facing increased wholesale prices and rises of up to 15% for international freight. They’re also facing the highest wages growth in three years and a mounting discourse that wages need to increase even more.
Small business owners don’t want to see their staff - people they work alongside every day - struggling to pay for the basics, but their ability to pay higher wages is being constrained by the aforementioned rise in other business expenses. It’s almost impossible for them to keep pace with the wages and incentives offered by large corporations, who have greater bargaining power with suppliers and are more able to absorb higher costs while keeping prices relatively low for consumers.
If we want to keep our small businesses open, if we want them to pay higher wages, if we want them to innovate, grow, and contribute to Australian communities and culture, then our politicians must also address the impact that inflation is having on the cost of doing business.
There are actions we can take to reduce its impact on small businesses in Australia, such as:
Work with lenders to plan for viable small businesses to repay debts accrued from COVID-19 in a realistic time frame
Mandate least cost routing to lower the cost of accepting debit card payments
Have a serious debate about issues that have for too long been placed in the “too hard” basket to give small businesses back the time that COVID stole from them (e.g. tax reform, industrial relations reform)
Address commercial property affordability along with housing affordability
Keep our competition law in line with international best practice so that small businesses can compete fairly and don’t take on more of the burden of inflation than larger businesses.
The world is not the same as it was in 2019. We need to be proactive and we need to be innovative. Above all, we need leadership from our politicians. Small business owners need to know what the major parties plan to do to manage the impact of inflation on their business before they vote, not after the election.