Each year KPMG Enterprise carries out a pre-Budget survey of our client base, which ranges from listed companies just outside the ASX200, to private companies, family businesses, and some public sector organisations.
This year of course is like no other with the economy significantly impacted by the COVID-19 pandemic. Yet despite the challenges, it is encouraging to see a generally upbeat mood among the CEOs, CFOs and directors surveyed in terms of prospects for the next few years.
More than half reported being optimistic for the future, with just 11 percent pessimistic – actually down from 17 percent in last year’s survey. Perhaps surprisingly only 42 percent said the crisis had had a wholly negative impact on their business, with half that number believing the experience to be positive. Pressure on costs, margins, revenues and falling demand were the main concerns.
A sizeable proportion (38 percent) believed they could be fully up and running just three months after the crisis ends, and only a minority thought it would take them over a year to recover, or not at all. This is a good sign for the near-future.
It is notable that respondents were more optimistic about their own business than the wider economy – almost two-thirds were concerned about the prospects for the economy more generally when the government spending taps inevitably get turned down and finally off. A certain degree of innate belief in your own company is necessary for business leaders.
Interestingly, the survey showed that raising GST was far and away the favoured option for repaying the country’s debts, along with productivity measures to ‘grow the pie’. No-one was in favour of direct taxes, which weigh down businesses. It is a ticklish issue for policymakers but one which may ultimately have to be reconsidered in these unique circumstances.
Confidence in respondents’ own businesses was also reflected in the belief of a large majority that their tax governance procedures were up to the task of dealing with the widely-anticipated increase in ATO audit and compliance activity, which has eased off considerably in recent months. But with the tax authority’s ‘next 5000’ program of reviews about to commence, the amount of work needed to be ready in terms of documentation and compliance processes should not be underestimated.
Australia’s mid-tier business sector is crucial to our national prosperity. This survey shows that even in difficult times they are up for the challenge.
KPMG Customer Intelligence conducted a pulse check on behalf of the KPMG Enterprise team targeted at clients running private, mid market and family businesses in order to gauge sentiment regarding salient issues before the Federal Budget is announced in October 2020. Australia’s mid market is often referred to as the “engine room of the nation’s economy”, employing nearly a quarter of all Australians and responsible for almost 40 percent of Australia’s business revenue.
The survey was completed by 81 CEO’s/CFO’s/Company Directors and is a valuable indicator of Enterprise clients’ opinions concerning the current business and budget environment.
Overview of key findings
All survey respondents were asked to describe their outlook regarding the future of their business over the next few years (Figure 1). Despite the current pandemic situation, business outlook in the mid market remains strong. Around half (53 percent) of survey respondents are optimistic about the future of their business over the next five years – the same level seen in 2019 (52 percent).
Q: Thinking about the future of your business over the next five years, would you say you are:
Impact of COVID-19 on the mid market
COVID-19 is having a mixed impact on private, mid market and family businesses (Fig 2). Naturally, many (42 percent) feel that COVID-19 is having a negative impact on their business. However, there is a sizeable segment of the market (21 percent) which is seeing COVID-19 have a positive impact on their business.
The perceived impact it will have on the Australian and Global economies is much clearer however – with the vast majority (85 percent) feeling it will have a negative impact.
Q. Thinking about the impact of COVID-19 on your business in particular, would you say that it is likely to have an impact that is:
Q. What impact do you think COVID-19 will have on the medium term outlook for the Australian and Global Economies?
Business challenges arising from COVID-19
COVID-19 is presenting many challenges to these businesses – but key is the impact it is having and cost/margin pressures, reduced revenue/demand and change in consumer habits and spending (Fig 3). Over half put these in the top 3 challenges resulting from COVID-19. Over a third (35 percent) place reduced revenue and demand as the number one challenge result from COVID-19.
Q. What are the biggest business challenges arising from COVID-19?
Perceived anticipated recovery time from COVID-19 crisis
The anticipated business recovery time after the COVID-19 crises ends is varied. While four in ten (38 percent) feel their business would recover within 3 months, many feel it will take more than a year (14 percent) to recover, or that their business will permanently change (15 percent). This is strongly correlated with the overall positive or negative impact COVID-19 is having on their business.
Q. If COVID-19 ended today, how long would you estimate it to take your organisation to return to business as usual?
Access to Government stimulus
Just over half (53 percent) of private, mid market and family businesses surveyed have benefited from Government stimulus measures – with JobKeeper (by 42 percent) the most frequently accessed (Fig 5).
Q. Has your business benefited from Government stimulus measures including Job Keeper, Cash Flow Boost and the Instant Asset Write Off?
Impact of Government stimulus unwind
The unwinding of Government stimulus measures is of great concern to these private, mid market and family businesses, with most (65 percent) expecting a significant decline in economic activity and higher unemployment when they are unwound.
Q. Are you concerned about the financial and economic impact as these Government stimulus measures unwind?
Measures to reduce Government debt
Increasing the GST and raised productivity to drive revenue growth are clearly considered the two measures that would be most effective to help reduce government debt (Fig 7).
Q. These stimulus measures have increased Government debt significantly. Which of the following, if any, do you think would be the most effective measure that this debt can be best repaid over time through:
Concern for increased audit activity
Most businesses surveyed (64 percent) feel their tax compliance and governance is in good order and are not concerned about increased audit activity as a result of anticipated new review programs (Fig 8).
Q. The ATO has held off compliance activity during COVID-19 but expects to roll out new review programs including the “Next 5000”. Are you concerned about the prospect of increased audit activity?
Other issues impacting business
Restricted private company loans
Around two thirds of businesses (65 percent) feel the government’s proposal to tighten rules regarding loans from private companies would have no impact on their business (Fig 9). Indicatively, this has increased from just over half (55 percent) last year.
Q. The Government has repeatedly proposed to tighten the rules regarding loans from private companies. If introduced, what impact would this have on your business?
Around a third (33 percent) feel it is somewhat (17 percent) or a lot more difficult (16 percent) to get loans post the banking Royal Commission (Fig 10). The remainder feel it either has had no impact (54 percent) or are unsure of the impact (12 percent).
Q. Last year, post-Royal Commission but pre-COVID-19, bank loans were an important issue for SMEs. What has your experience been?