Small businesses employ over 5.1 million people in Australia; they are the backbone of the Australian economy in response to contributing immensely to economic growth. Bakhtiari (2019) suggests that small, young firms contribute strongly to job creation, typically in their first two years of operation, and that four out of every five jobs added to the Australian economy have historically been created by these firms. In October, the Council of Small Business Organisations Australia (COSBOA) and CommBank launched the ‘2024 Small Business Perspectives Report‘. This comprehensive report addresses the critical challenges facing Australia’s small business sector, including the cost of doing business, workforce and training, energy transition, AI, industrial relations, and government procurement contracts. Luke Achterstraat, CEO of COSBOA, said the report shows that small businesses are under colossal pressure:
“Australian small businesses are the heart of every community, employing more than 5 million people. Yet, they are struggling to manage spiralling business costs. Small business needs a future of stability, growth, and success for the benefit of every Australian. Small businesses have been hard hit over the past year, with nearly half not breaking even. Owners are doing their best to keep their heads above water, but this is not an easy task in a sea of economic and regulatory uncertainty.”
Likewise, Rebecca Warren, Executive General Manager of Small Business Banking at CommBank, highlighted the critical role of Australian small businesses in economic terms, as well as in society:
“Small businesses play a critical role not only in Australia’s economy, but in what makes our country so special. It’s the family-owned cafes and sandwich shops, the bakeries and dry cleaners that make up the social fabric of our country and serve as the glue of our everyday experience.
- Some 57% of business owners report high or very high stress due to financial strains, nearly one in three are unable to pay themselves, and 25% are using personal savings to keep their businesses afloat. Operating costs have surged, with 46% of businesses experiencing increased expenses.
- Australian small businesses continue to face significant workforce challenges, including a critical shortage of both skilled and unskilled workers. A recent analysis showed more than one-third of occupations nationwide are experiencing shortages, with 50% of technician and trade worker groups particularly affected.
With 2,589,595 in total, small businesses in Australia make up 97.2% of all businesses in Australia, making these businesses key stakeholders in upholding Australian employment and economic prosperity.1
Small businesses add close to $600 Billion of GDP value in Australia (33%) out of some $1.8 trillion, while employing just over 5 million people (42%) out of a total labor market of over 13 million in private industry.2
Despite accounting for almost all businesses in Australia,3 and one-third of the country’s Gross Domestic Product,4 small businesses miss out on most Commonwealth government contracts.
It is important to remember that small business owners and employees are very often consumers and clients of larger businesses. Any impact on the former would have an impact on the latter.
Since 2019/20, more than half of new sole traders did not survive beyond three years. Over this period, survival rates for established businesses were slightly better than for new businesses: around 60 per cent of sole traders that were already established in June 2019 (and around 75 per cent of established small businesses with employees) were still operating four years later. On the flip side, this means at least one in four small businesses existing in 2019 failed over this period, potentially with significant economic consequences such as bankruptcy or even poverty. Higher small business failures would impact employment across all business through lower consumption overall, as well as increase cost of living pressures for many families.
The Cost of Living Is Falling Fast… Relative to Gold [C2]
If more people understood the yardstick that we use for prices – the dollar – was being debased, it would change the way they invest and save. The best way to illustrate what is happening with prices is to use a different yardstick. Take a look at what has happened to prices measured against gold. Housing is a good place to start. According to the US Census, the average home price in 2000 was $119,600. The average gold price for that year was $279/oz. That means it took roughly 429 ounces of gold to buy a home. In 1970, it took 665 ounces of gold to buy the average house. Today, the median home price is $410,000, while gold is currently priced at roughly $3,660/oz. It now takes just 112 ounces of gold to buy a home. Home prices have fallen dramatically over the past 55 years, if you measure with a more reliable yardstick.
$1 in 1970 is equivalent in purchasing power to about $14.19 today, an increase of $13.19 over 55 years. The dollar had an average inflation rate of 4.94% per year between 1970 and today, producing a cumulative price increase of 1,319.39%.5 This means that today’s prices are 14.19 times as high as average prices since 1970, according to the Bureau of Statistics consumer price index. [This assumes their data is accurate and not ‘doctored’ – refer shadowstats.com] Houses, however, have gone up from $23,000 to $410,000, or 17.83 times. The value of gold has gone from $38.90 to $3,660, or 94 times. This is the dreaded “inflation tax”, a policy driven hidden tax that destroys your wealth. If you had bought a house in 1970, you would have done a bit better than official inflation. If you had bought gold, a non-performing asset (it pays no dividends), you would be a lot better off. (GDP itself went up 29 times, meaning a lower share of for each dollar)
To reflect on what inflation has done as above, but also what it is capable of, consider the staggering ascent of precious metals during the period of catastrophic hyperinflation which brought Weimar Germany to its knees in the early 1920’s. Per ounce, silver prices rose from 12 Deutsche Marks in January 1919, only months following the conclusion of the First World War, to the astronomical sum of 543,750,000,000 Deutsche marks by the end of 1923, in just five years, while gold rose from 170 Deutsche Marks to 87,000,000,000,000 by the end of the same period. You could buy a house in Berlin for a handful of silver ounces.
So what does this mean? People that rely on wages or business income are going backwards unless they have other investment assets. This includes small business owners and their employees. Further increases in taxation and other costs, including in the cost of living, may see many small businesses forced to close. As above, nearly one in three owners are already unable to pay themselves. Small businesses are a barometer of the economy, and the base of the middle class. A significant deterioration in the economy leading to a large number of small business closures would start a negative cycle, with even larger businesses taking a hit on revenue and perhaps also laying off staff. While in itself perhaps not enough to cause a crisis, the economy would become extremely vulnerable to any global set back, such as an ‘oil shock’. This type of event led to ongoing stagflation in the 1970s, given dollars were no longer backed by gold, like now.
- ABS Counts of Australian Business, Table 13a, August 2024 and ASBFEO calculations (excludes businesses that are not registered for GST). It’s important to note that small businesses in Australia also encompass sole traders who, under business organisation legislation, are considered ‘self employed’. ↩︎
- ABS Australian Industry, Table 5, May 2024 and ASBFEO calculations, private sector industry. The ABS publish this data for selected industries, which excludes financial and insurance services. Data are in $millions. Totals may not sum due to rounding. ↩︎
- ASBFEO Number of Small Businesses in Australia Report, August 2023 ↩︎
- ASBFEO Contribution to Australia Gross Domestic Product Report, June 2023 ↩︎
- https://www.in2013dollars.com/australia/inflation/1970?amount=1 ↩︎